UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1993 or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from to
Commission File Number 0-11626
LOTUS DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2757702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
55 Cambridge Parkway, Cambridge, Massachusetts 02142
(Address of principal executive offices)
(Zip Code)
(617) 577-8500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Preferred Share Purchase Rights
(Titles of classes)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in the definitive proxy or
information statements incorporated by reference in Part III of the Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 26, 1994 was $3,027,666,709.
The number of shares outstanding of the registrant's common stock as of
February 26, 1994 was 45,468,282.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1993 Annual Report to Shareholders are incorporated by
reference in Parts I, II and IV.
Portions of the definitive Proxy Statement to be delivered to shareholders
in connection with the Annual Meeting of Shareholders to be held
May 25, 1994 are incorporated by reference into Part III.
LOTUS DEVELOPMENT CORPORATION
1993 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . 13
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholders Matters . . . . . . . . . . . . 14
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . 14
Item 8. Financial Statements and Supplementary Data . . . . . 14
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . 14
PART III
Item 10. Directors and Executive Officers of the Registrant . . 15
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 16
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . 16
Item 13. Certain Relationships and Related Transactions . . . . 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
<PAGE> 1
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PART I
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Item 1. Business
GENERAL
Lotus Development Corporation (the "Company" or "Lotus") was
incorporated in Delaware in April 1982. The Company and its
subsidiaries are engaged in the development, manufacturing, marketing
and support of applications software and services that meet the
evolving technology and business application requirements of
individuals, work groups, and entire organizations.
The Company's products and services consist primarily of desktop
applications, which include spreadsheets, word processing, graphics,
end-user database and personal information management software, and
communications products and services, which include Lotus Notes,
cc:Mail and consulting services. These products and services
comprise the Company's "Working Together strategy"; that strategy is
defined by products which have common user interfaces, which are
integrated with each other, which work across multiple platforms, and
which help people work together more productively. The centerpiece
of this strategy is communications products which facilitate
workgroup computing and make the Company's desktop applications more
productive through group-enabling and ease-of-use features. The
Company markets its products in more than 80 countries worldwide and
provides support services through its consulting services group and
its worldwide support centers.
Lotus' initial product, Lotus 1-2-3, was shipped in January
1983. 1-2-3 is a software product which combines spreadsheet,
database and graphing capabilities into a single program for use with
most personal computers. According to industry reports, soon after
its introduction, 1-2-3 became the personal computer software
industry's best selling business applications software product. Since
its release in 1983, 1-2-3 has been continually updated to
incorporate new technological advances, increased functionality,
ease-of-use, and compatibility with major operating system and
hardware platforms. By the end of 1993, the Company had shipped
approximately 15 million units of 1-2-3.
The Company has added to its established spreadsheet products in
an effort to build a strong presence in each of the predominant
desktop applications categories. Lotus has developed or acquired
presentation graphics (Freelance Graphics), word processing (Ami
Pro), end-user database (Lotus Approach) and personal information
management software (Lotus Organizer) products. In 1992, the Company
introduced SmartSuite, an integrated suite of the Company's desktop
applications.
The Company introduced Lotus Notes in 1990 and acquired cc:Mail,
Inc. in 1991 to position itself to capitalize on the trend toward
networked computing, information sharing and organizational
computing. Lotus Notes has been widely acclaimed for its ability to
enable workgroups to access, track, share, route and organize
information across diverse computing platforms and geographical
boundaries. Notes is the predominant client-server product for
developing and deploying groupware applications, including those
found in customer service, sales and account management and product
development. Since its introduction, the Company has shipped
approximately 600,000 seats of Notes. The combination of Notes and
cc:Mail, the leading LAN (Local Area Network)-based electronic mail
product, has established the Company as a leader in PC-based
communications software. The Company has also integrated Notes with
its desktop products to enable them to take advantage of workgroup
computing environments.
<PAGE> 2
The Company's aim is to develop and market the best desktop
applications in the industry and to play a leadership role in the
rapidly growing communications market. Improving organizational
productivity for its customers in today's networked computing
environment is a primary objective.
The Company has developed and adopted cross-product standards
for most Lotus products that enhance user value in areas such as user
interface design, database access methods, international character
sets, networking, mail enabling, customization and extensibility.
When appropriate, the Company has worked with other major software
and hardware companies to develop these standards. Furthermore, as
networked computing environments become more prevalent, the Company
has focused on providing customers with communications products
capable of being used across a broad range of hardware systems and
operating environments. This provides customers with the ability to
easily share information among users, to more readily move users
between computing platforms, and to exercise greater flexibility in
selecting computing environments. The Company believes this approach
is of significant value to customers because it preserves their
existing investment while allowing them to take advantage of new
technologies. The Company also believes this approach is necessary to
maintain its competitive position. See "Competition".
PRODUCTS AND SERVICES
Desktop Products
----------------
SmartSuite
SmartSuite is the Company's suite of desktop applications. Each
of the applications in SmartSuite is closely integrated and shares
common user interface elements, including consistent menu structure,
common Lotus SmartIcons, a live status bar, consistent right mouse
button access to product functions and one click access to Help.
SmartSuite was the first group-enabled suite, which includes features
that are mail-enabled and facilitate collaborative work.
In September 1993, the Company shipped SmartSuite for Windows
Release 2.1 which comprises Lotus' award-winning desktop
applications, including Lotus 1-2-3, Lotus Ami Pro, Freelance
Graphics, Lotus Approach and Lotus Organizer.
In November 1993, Lotus shipped SmartSuite for OS/2, the first
complete desktop suite of applications for IBM's OS/2 operating
system. This suite comprises 32-bit versions of 1-2-3, Ami Pro,
Freelance Graphics and cc:Mail, which exploit IBM's OS/2 Workplace
Shell graphical environment and 32-bit technology.
Products Under Development - The Company is currently developing
enhanced versions of SmartSuite for Windows and OS/2.
Spreadsheet Products
Lotus 1-2-3 is the Company's best selling product and the
world's most widely used spreadsheet. The Company's spreadsheets
are designed to deliver performance, usability, innovation,
integration with other Lotus applications, and workgroup enabling
features. 1-2-3 is currently available across all of the most
popular hardware and operating platforms, including Windows, OS/2,
DOS, UNIX and Macintosh operating systems. As of December 31, 1993,
versions of 1-2-3 were available in approximately 27 different
languages.
<PAGE> 3
In June 1993, the Company shipped 1-2-3 for Windows Release
4.0, an award-winning version that provides users with exceptional
usability, increased productivity and advanced workgroup
capabilities. Lotus has designed this product with intuitive access
to all its functions and features to make it easier to create,
present and maintain spreadsheets. Some of these features include
in-cell editing, intelligent chart composition, drag-and-drop
editing, worksheet tabs and fill by example functionality. 1-2-3 for
Windows Release 4.0 incorporates an array of powerful data analysis
and programming tools to maximize users' productivity. There are
more than 120 new formula functions to perform calendar, database,
engineering, financial, logical, information lookup, mathematical and
statistical calculations. The product also features a significantly
improved cell engine, the computational foundation of the
spreadsheet, resulting in improved recalculation performance, and
three-dimensional worksheet capabilities. The new spreadsheet also
includes a unique Version Manager which allows individuals and
workgroups to better manage what-if analysis, track modifications to
spreadsheets and effectively share spreadsheet data.
1-2-3 for Windows Release 4.0 is the first Notes-enabled
spreadsheet that permits users to collaborate while working within
the product. 1-2-3 for Windows Release 4.0 has a common appearance
and behavior with Lotus' other Windows applications by sharing
components such as SmartIcons, Smart Status bar and a common user
interface.
In February 1993, the Company shipped Improv for Windows, the
first spreadsheet for Windows that provides powerful ways to
dynamically view and analyze spreadsheet data, giving users the
ability to examine business information in many different ways not
practical with conventional spreadsheets. Improv for Windows
combines familiar spreadsheet components, such as cells and formulas,
what-if analysis, and business graphics with a multidimensional
structure and natural language formulas that are easy to understand.
In June 1993, the Company shipped Improv for Windows Release 2.1, an
upgrade which delivers network-ready installation, external data
access capabilities and compatibility with the 1-2-3 for Windows
Release 4.0 file format.
Lotus introduced 1-2-3 DOS Release 2.4 and Release 3.4 in 1992.
These upgrades of the leading DOS spreadsheet feature performance
enhancements and SmartIcons, while maintaining compatibility with
earlier versions of 1-2-3. The Company's DOS spreadsheets combine an
interactive WYSIWYG ("what you see is what you get") display and the
ability to turn analyses into presentation quality output with
powerful analytic capabilities. In addition, these products feature
file viewing, Solver technology and spreadsheet auditing
capabilities. 1-2-3 for DOS Release 2.4 is designed to run on most
IBM compatible PCs, while Release 3.4 is targeted for users with more
powerful PCs and more advanced spreadsheet requirements. Additional
features offered with Release 3.4 include three-dimensional
spreadsheets, advanced relational database with access to external
data via the Company's DataLens product, and expanded memory support
for building larger spreadsheets.
In February 1993, Lotus shipped 1-2-3 for OS/2 Release 2.0.
This version of the spreadsheet allows users to exploit OS/2's
Workplace Shell graphical environment and 32-bit technology,
providing users with significant usability and productivity gains
through features such as drag-and-drop editing, faster navigation,
quicker screen refresh and multi-threading. 1-2-3 for OS/2 delivers
three-dimensional capabilities, Solver and BackSolver advanced
goal-seeking tools, and external data access capabilities through
DataLens.
Products Under Development - Several enhanced spreadsheet products
for the Windows, DOS and OS/2 operating platforms are currently under
development and are expected to ship in 1994.
<PAGE> 4
Presentation Graphics Products
The Company's presentation graphics product, Freelance Graphics,
is designed to facilitate the creation and display of graphical
information, including display of data generated or manipulated by
Lotus 1-2-3. Freelance Graphics provides a comprehensive set of
graphics capabilities including bullet charts, flexible drawing and
editing tools, powerful charting capability, and the ability to
quickly and easily create presentations. Lotus currently markets
Windows, OS/2 and DOS versions of Freelance Graphics.
In February 1993, the Company began shipping Freelance Graphics
for Windows Release 2.0. This major release enhances the product's
overall usability and builds on the success of the earlier version,
which delivered such easy to use and innovative features as an
on-line tutorial, dozens of pre-designed SmartMaster presentation
templates and page layouts, and an unique fill-in-the blank approach
to creating presentations. Freelance Graphics for Windows Release
2.0 also delivers tight integration with other Lotus applications and
innovative new multimedia screenshow capabilities.
In February 1993, the Company also began shipping Freelance
Graphics for OS/2 Release 2.0. This version brings the features of
Freelance Graphics for Windows to the OS/2 operating platform. In
addition to SmartMasters and other presentation management features,
Freelance Graphics for OS/2 provides complete charting capabilities,
extensive drawing and editing tools and seamless integration with
1-2-3.
The Company also sells Freelance Graphics for DOS Release 4.0.
Key features include a graphical WYSIWYG working environment, a
customized outliner, enhanced presentation management tools, charting
capabilities and master presentation backgrounds.
In March 1992, the Company began shipping SmartPics for Windows,
an extensive clip-art library with browser for Windows applications.
With more than 2,000 pieces of quality artwork, SmartPics is designed
to provide users with the easiest and fastest means for adding
memorable visuals to Windows Documents and presentation materials.
The Company offers versions of Freelance Graphics in 10
different languages.
Products Under Development - The Company is currently developing
enhanced versions of its Windows and OS/2 based presentation graphics
products.
Word Processing Products
The Company's principal product offering in the word processing
market, Lotus Ami Pro, provides desktop publishing functionality and
graphics incorporation for personal computers and local area
networks.
Ami Pro for Windows Release 3.01, the Company's award-winning
word processing product, combines traditional features, such as a
thesaurus and interactive drawing and charting capability, with
advanced functionality and ease-of-use. Ami Pro pioneered the use of
SmartIcons for single-click access to menu commands and includes fast
format, drag-and-drop text editing, automated envelope printing,
document and style sheet viewers, and a clean screen option. Working
from Ami Pro for Windows, users can fully realize the power of the
Lotus suite of Windows products, sharing and manipulating
functionality and data across applications.
<PAGE> 5
In November 1993, Lotus introduced Ami Pro 3.0 for OS/2 which
takes advantage of OS/2's multi-threading power and delivers seamless
integration with the OS/2 Workplace Shell. Ami Pro 3.0 for OS/2
supports IBM's OS/2 programming language and features integration
between system and application macros.
The Company offers 24 different language versions of its word
processing products.
Products Under Development - The Company is currently developing
enhanced versions of Ami Pro for the Windows and OS/2 operating
environments.
Database Management Products
In June 1993, Lotus acquired Approach Software Corporation, a
developer of end-user relational database applications for the
Windows environment. Lotus Approach for Windows makes it easy to
create stand-alone applications and manage and report on
information. The product, based on client/server technology,
comprises three components: a graphical user interface, a
relational layer, and a series of data-access engines called
PowerKeys. PowerKeys enable users to connect directly to Oracle SQL,
Microsoft and Sybase SQL Server, DB2, FoxPro, Paradox, dBase and ODBC
compliant databases. This feature provides users with quick access
to data anywhere on a network without any conversion or
intermediary file, and the ability to mix data from multiple file
formats into single form or report.
Products Under Development - The Company is currently developing an
enhanced version of Approach for Windows which is expected to ship
during 1994.
Personal Information Management Products
Lotus Organizer is a Windows-based personal information
management product which employs Lotus' core Windows product
features, such as SmartIcons and mail-enabling. Lotus Organizer
makes integrated calendaring, daily planning and organization, time
management, referencing and updating contact lists, and random note
taking easy. The Company offers 16 different language versions of
Lotus Organizer.
Organizer's intuitive personal calendaring is also the
foundation of Lotus' group calendaring and scheduling strategy. In
August 1993, Lotus introduced Organizer-based group scheduling for
cc:Mail users. Group scheduling is designed to allow workers in
different groups, departments or locations to automate and expedite
the process of collaborative scheduling and communications, thereby
improving organizational productivity. Future versions will support
Notes and other mail systems.
Products Under Development - Enhanced versions of Lotus Organizer are
currently under development and are expected to ship in 1994.
<PAGE> 6
Communications Products and Services
------------------------------------
Lotus' communications products include Notes, the premier
workgroup computing product, and cc:Mail, the leading LAN-based
electronic mail system. Both Notes and cc:Mail products take
advantage of network computing to boost organizational effectiveness
and improve communications across multiple network operating systems,
hardware platforms and operating systems. They also provide the
underlying messaging and shared document database layers for the
deployment of enterprise-wide, shared information applications. The
Company's consulting services group develops solutions and offers
educational services to meet the information management needs of its
clients. These services are primarily targeted at
communications-based applications.
Lotus Notes
Notes enables users to create, store, route and access shared
information across networked personal computers. The product
addresses the needs of workgroups, such as those in corporate and
government environments, to share information simultaneously at
different locations and across different technologies. It is used for
three basic categories of applications: disseminating information,
such as news or reference materials; routing information, such as
mail messages or forms; and interactive applications, such as
discussions, project control or tracking systems. Customer
installations range from multinational companies, installing several
thousand copies of Notes, to very small workgroups focused on
solving a particular business problem.
In May 1993, the Company shipped Notes Release 3.0, a
significantly updated version of the industry standard workgroup
computing platform. Notes Release 3.0, which is available on the
Windows, OS/2 and Macintosh platforms, features cross-platform
support and new ease-of-use features, including full-text search,
Automatic Document Versioning, Lotus SmartIcons, and a graphical
install program. Notes Release 3.0 also provides improved
integration with desktop applications from Lotus and other software
developers.
Notes Field Exchange (Notes/FX), an integrating technology
developed by Lotus, allows users to exchange data between Notes and
desktop applications, providing the ability to bidirectionally share
field level information. This integration offers the ability for
Notes and desktop tools to function as if they were designed to be
part of the same application. Notes/FX allows desktop applications
to function as "alternative editors" within the Notes environment.
It improves organizational productivity through group collaboration
and givers users the ability to share information from applications
with other users.
The Company has developed companion products with partner
companies to extend the capabilities of Notes. In April 1993, Lotus
introduced Lotus Notes: Document Imaging (LN:DI) Release 2.0, a
product which allows users to scan textual and graphical documents
into Notes so that they may be searched and edited. This release
provides support for color and grayscale document images and enables
users to scan, view and print color images. Additional companion
products, including Lotus Notes Optical Character Recognition (OCR)
server and Lotus Notes In-bound Fax Gateway, shipped in 1992. These
imaging, OCR and FAX products allow users to integrate into Notes the
vast amount of business information previously only accessible in
paper form.
The Company has made a significant investment to develop
international versions of Notes. As of December 31, 1993, Notes was
available in 12 different languages.
Products under development: Notes products currently under
development include enhanced versions, companion products and
versions extending their use to additional operating environments.
<PAGE> 7
cc:Mail
cc:Mail is a comprehensive LAN-based electronic mail and
messaging system. cc:Mail is available on more platforms today than
any other mail system, including local and remote DOS, Windows, OS/2,
Macintosh and UNIX, as well as all major LANs. The product provides
transparent connectivity to all major public and private electronic
mail systems and facsimile machines worldwide. It will also support
wireless computing and other mobile platforms. By the end of 1993,
cc:Mail products were being used by more than 4.3 million users
worldwide, and versions were available in 19 different languages.
The Company believes electronic mail represents a substantial
opportunity in the software industry over the next several years.
cc:Mail products, which are tightly integrated with the Lotus suite
of products, put Lotus in a position to capitalize on the anticipated
growth of electronic mail in networked computing environments. The
Company also believes that because electronic mail has the potential
for greater desktop penetration than any other application, cc:Mail
products provide Lotus with an added opportunity to introduce
customers to its entire suite of integrated products.
Products under development - cc:Mail products currently under
development include enhanced versions, companion products and
versions extending their use to additional operating environments.
Consulting Services
The Company offers worldwide consulting services to its
customers to assist them in utilizing their computing resources
effectively in creating computing architectures that allow
information to move freely and rapidly across organizational
boundaries. The Company provides complete business solutions that
enable customers to leverage their existing computing investment
while taking advantage of emerging technologies. The ability to
provide a total solution for customers enables them to realize
greater organizational productivity.
The Company offers a variety of services to its customers,
including complete business needs analysis, comprehensive resource
evaluation, project management for large-scale Notes deployment,
system requirements analysis, and network design assistance. In
addition, the Company offers extensive customized Notes consulting,
including rapid prototyping of Notes applications, the design and
development of tailored Notes applications, and training and
education.
Mobile Computing
Lotus views communications as the driving force of mobile
computing. The Company believes mobile users will be able to exploit
the strengths of Notes and cc:Mail to break communications barriers
while traveling. In June 1993, Lotus introduced cc:Mail Mobile for
the HP 100LX palmtop computer, the first release of cc:Mail designed
specifically for mobile computing environments. This product offers
wireless functionality and unparalleled portability for cc:Mail
users.
Products Under Development - Lotus intends to extend Notes and
cc:Mail to a variety of mobile computing technologies such as paging,
two-way wireless and cellular telephony, and to provide links to
value-added services.
No assurance can be given that any of the development projects
referred to will be successful or that announced shipping dates for
new products will be met.
<PAGE> 8
PRODUCT DEVELOPMENT
The Company's product development activities are focused around
delivering organizational productivity to its customers with a suite
of desktop applications -- spreadsheets, graphics, word processing,
end-user database and personal information management software
products-- and communications products -- Notes and cc:Mail -- that
capitalize on the advantages of a networked workgroup computing
environment. Key development objectives of the Company include
tightening integration across applications, furthering the networking
and communications capability of all of its products, making
applications more customizable, and introducing more of its products
to the growing portable computing market. Furthermore, the Company
continues to invest substantial resources to improve its quality
assurance processes and documentation.
Significant research and development is applied to both
enhancement of existing products and the development of new
technologies. Strategic acquisitions and relationships have focused
on product line extensions and new market opportunities in the areas
of end-user database, personal information management, word
processing and communications products.
Lotus' U.S. development organizations are located in Cambridge,
Massachusetts; Atlanta, Georgia; Mountain View, California; and
Redwood City, California. The Company supplements its U.S. based
development activities with product development organizations in
Ireland, England, Singapore and Japan which primarily produce
localized versions of Lotus products and provide third-party support
for existing products. Foreign development efforts are aimed at
modifying products to permit operation in different natural
languages, adding features which are tailored to local markets, and
supporting hardware platforms and operating systems that are
prevalent outside the U.S.
During the years ended December 31, 1993, 1992 and 1991,
research and development costs charged to operations were $126.9
million, $118.3 million and $116.6 million. The Company also charged
$19.9 million to 1993 operations for purchased research and
development in connection with the acquisition of Approach Software
Corporation. Additionally, the Company capitalized internal software
development costs and acquired technology intangibles of $32.8
million, $43.6 million and $60.2 million in 1993, 1992 and 1991.
MARKETING AND SALES
Lotus sells its products through four principal channels of
distribution: the reseller channel, directly to end users, through
original equipment manufacturers (OEMs), and through Lotus business
partners, including value added resellers (VARs).
The reseller channel is Lotus' principal means of distribution
and consists of distributors and resellers who together represent
approximately 8,000 sales locations in North America. To facilitate
sales through this channel and provide a high level of sales support
and product coverage to resellers and large corporate accounts, the
Company has built a field sales organization comprising dedicated
account teams to manage these business relationships.
The Company sells some of its products and services through its
own direct sales representatives. Specialized Lotus sales forces have
been created to generate large volume sales to strategic accounts
while consulting services are sold through a separate consultant
sales force. The Company also engages in direct marketing programs
focused on end-users, primarily for upgrade product versions.
<PAGE> 9
Lotus has an OEM sales channel to sell its products to PC
manufacturers. Lotus' aim is to seed new products and technology to
first time users and to PC buyers who may not have otherwise
purchased these products on a standalone basis.
The Company has also established a network of business partners
who provide networked computing solutions and services to their
customer bases. As of December 31, 1993, the Company had
arrangements with more than 1,200 business partners worldwide, of
which approximately 1,000 were located in North America.
At December 31, 1993, Lotus maintained 91 sales offices
throughout the world. In North America, there were 39 sales offices
with a sales and sales support staff of approximately 600. The
Company also has a direct presence in countries throughout Europe,
South America, Central America, Asia, Africa, and the Pacific Rim.
Lotus maintained 52 foreign sales offices in 36 countries with a
sales and sales support staff of approximately 525. In a manner
similar to the U.S. market, the Company sells its products
internationally primarily through resellers and distributors. In
countries where the Company has not established a presence of its
own, it sells its products through authorized distributors. In
addition, the consulting services business employed approximately 200
consultants worldwide at December 31, 1993.
Lotus does not believe that the loss of any distributor would
have a materially adverse effect on its operations. Lotus offers
various credit terms to its resellers and distributors that it
believes are typical for the personal computer software industry. The
Company's practice is to ship its products promptly upon receipt of
purchase orders from its customers and, as a result, backlog is not
meaningful. Two of the Company's distributors, Ingram Micro and
Merisel, accounted for 12% and 11% of worldwide sales in 1993. No
one customer was responsible for more than 10% of worldwide sales in
1992 or 1991.
The Company continues to invest in its worldwide customer
support organization, which now numbers more than 850 people. The
Company's aim is to manage globally its support organization to
provide consistently high quality support around the world. Support
and maintenance is an important part of Lotus' product offerings and
will continue to play a key role in delivering organizational
productivity to the Company's customers.
Additional information with respect to foreign and domestic
operations and export sales may be found in Note M on page 18 of the
Financial Section of the Annual Report to Shareholders (Exhibit 13 to
this Form 10-K), which Note is incorporated herein by reference.
MANUFACTURING AND DISTRIBUTION
The Company has principal manufacturing and distribution
facilities in North Reading, Massachusetts; Dublin, Ireland; and
Singapore. The Massachusetts facility manufactures products sold in
North America. During 1993, the Company closed its Puerto Rican
manufacturing facility and transferred those operations to North
Reading. The Ireland facility principally manufactures products that
are sold by the Company's European, South American, Central American,
African and Middle Eastern subsidiaries and branches. In 1994, the
Company will transfer the manufacturing of products for the South
American and Central American markets to North Reading. The
Singapore facility manufactures products that are sold by the
Company's Japanese, Pacific Rim, and other Asian subsidiaries and
branches.
The Company's manufacturing operations involve the duplication
of diskettes, assembly of purchased parts and packaging. The chief
raw materials and components used include diskettes and printed text.
Raw materials for the Company's products are in adequate supply and
available from a number of alternative suppliers. At present, the
Company does not anticipate difficulty in securing the raw materials
it will require in connection with its operations. The Company
believes that its inventories are adequate to meet the expected
demand.
<PAGE> 10
COMPETITION
The personal computer industry, in both the hardware and
software segments, has been subject to rapid change, which can be
expected to continue. The applications software business is highly
competitive. The Company's products compete with software products
offered by major independent software companies, such as Microsoft,
WordPerfect, Borland, and Software Publishing. In addition, certain
products offered by the Company are directed at operating
environments or business applications in which these companies were
early entrants and enjoy significant product acceptance and market
share.
As consolidation in the software industry continues, the Company
believes that it must offer an integrated suite of desktop
applications in order to be competitive. Furthermore, the Company
expects that in the future a greater proportion of desktop revenues
will be derived from suite revenues.
The principal considerations for purchasers of personal computer
applications software include product reliability and performance,
compatibility with presently owned hardware and software,
ease-of-use, functionality, price, availability across multiple
operating environments, network capability, workgroup enabling,
degree of integration across applications, vendor reputation, and
quality of support and training services.
Competition in the Company's industry has intensified with
greater marketing program activities, increased discounts, low-priced
upgrades and special prices on introductory product offers and
multi-product purchases. Competitors' marketing efforts also include
price offers targeted at Lotus customers through direct mail
telemarketing and in-channel promotions.
The Company also competes with other companies in the personal
computer applications software market for resellers and other product
distribution channels. In addition to the factors listed above, the
principal considerations for resellers and distributors in
determining which products to offer include profit margins, marketing
programs, product support and service, and credit terms.
PRODUCT PROTECTION
The Company regards its applications as proprietary and attempts
to protect it by relying upon copyrights, patents and common law
safeguards, including trade secret protection, as well as
restrictions on disclosure and transferability that are incorporated
into its agreements with other parties. In cases where, despite
these protections, others have unlawfully attempted to copy aspects
of the Company's products or otherwise obtain information which the
Company regards as proprietary, the Company has taken action to
enforce its legal rights. Moreover, the Company actively seeks to
enforce its intellectual property rights in countries around the
world against the unauthorized duplication of its products by
end-users and resellers. See "Legal Proceedings".
<PAGE> 11
EMPLOYEES
At December 31, 1993, the Company employed 4,738 people, of
which 1,678 were outside the United States. Of the total, 1,151 were
in product research and development, 2,560 in sales, marketing, and
support, 492 in manufacturing, and 535 in finance, information
systems and administration. As necessary, the Company supplements
its regular employees with temporary and contract personnel. The
Company believes that its ability to attract and retain qualified
employees is an important factor in its growth and development and
its future success. To date, the Company has been successful in
recruiting and retaining sufficient numbers of qualified personnel
to conduct its business successfully. None of the Company's
employees is subject to a collective bargaining agreement, and the
Company believes that its employee relations are favorable.
<PAGE> 12
Item 2. Properties
The Company has two principal office facilities located in
Cambridge, Massachusetts. The Lotus Development Building (260,000
sq.ft.) houses the Company's corporate domestic sales and marketing
organizations in addition to its corporate headquarters' staff. The
building is occupied under lease agreements which commenced in 1985
and run for a period of ten years with options to renew for two
five-year periods.
The Company's Rogers Street facility (265,000 sq.ft.) is located
adjacent to the Lotus Development Building in Cambridge. The building
is owned by the Company and is occupied by the research and
development organization. During 1993, the Company commenced a
construction project to expand the building by approximately 115,000
square feet. This project is expected to be completed by mid-1995.
In 1992, the Company relocated its manufacturing, distribution
and warehousing operations, as well as its customer support and
service organization from Cambridge to two leased buildings (350,000
sq.ft.) in North Reading, Massachusetts. The leases, which commenced
in 1992, run for a period of ten years with options to renew for two
five-year periods. The majority of the vacated Cambridge space was
leased, and the leases expired concurrently with the relocation. The
one owned manufacturing facility that was vacated in the move was
sold in January 1994.
In 1993, the Company also vacated 87,000 square feet of office
space located in two separate buildings in Cambridge. One building,
where the Company leased approximately 41,000 square feet, was
vacated as a result of the sale of its One Source business. The
lease expired approximately one month subsequent to the sale of the
One Source business. The remaining 46,000 square feet in the other
building was sublet through the expiration date of the lease in 1995.
The Company also leases approximately 30,000 square feet of
warehouse and distribution space in one building in Cambridge. In
1993, the Company began leasing approximately 35,000 square feet of
office space in Austin, Texas which has been used to expand its
customer support and service organization.
The Company also leases manufacturing and/or office facilities
in Dublin, Ireland; Staines, England; Tokyo, Japan; and Singapore.
The two European facilities have lease terms through 1994 and 1999,
respectively, with options to renew through 2017 and 2014,
respectively. The Japan and Singapore facilities have lease terms
which expire in 1997 and 1994, respectively. The Company also
maintains 91 sales offices worldwide, including those in North
America, Europe, Central and South America, Asia and the Pacific Rim.
<PAGE> 13
Item 3. Legal Proceedings
The Company commenced an action on July 2, 1990 in the U.S.
District Court in Boston against Borland International, Inc.
("Borland") (Civ. Action No. 90-11662-K), alleging infringement of
its copyrights in the Lotus 1-2-3 software program by Borland's
"Quattro" and "Quattro Pro" software products. The action against
Borland alleges that the "1-2-3 compatible modes" of Quattro and
Quattro Pro identically recreate substantial and significant elements
of 1-2-3's user interface, including its menu structure and command
choices. The action sought an injunction preventing further sale of
the infringing products and seeks an award of damages, attorney's
fees and costs. On July 31, 1992, the Court found that Borland has
infringed the Company's copyrights by copying the menu commands, menu
command structure, macro language and keystroke sequences of Lotus
1-2-3. On June 30, 1993, the Court ruled in the Company's favor on
all of the remaining copyright issues in the case except the
Company's claim that the macro key reader for Quattro Pro for DOS
and Quattro Pro for Windows infringes the Company's copyrights in
1-2-3. On August 19, 1993, the Court found that the macro key reader
for the Quattro Pro products has infringed the Company's copyrights.
On August 19, 1993, the Court enjoined permanently Borland from
developing, manufacturing or selling versions of Quattro Pro, Quattro
Pro SE and Quattro Pro for Windows that include Borland's "1-2-3
emulation" interface and/or its "Key Reader" facility and set a date
in October of 1994 for a trial by jury to determine the amount of
damages Borland owes the Company because of its infringements. On
September 10, 1993, Borland appealed the Court's decisions that it
has infringed the Company's copyrights and the permanent injunction
pertaining to such products to the United States Court of Appeals for
the First Circuit.
A suit was filed against the Company on July 27, 1989, in the
U.S. District Court in New York City by REFAC International, Ltd.
("REFAC"). The suit alleges that the Company has committed patent
infringement with respect to a U.S. patent issued in 1983 entitled "A
Process and Apparatus for Converting A Source Program Into An Object
Program". The Court has determined to resolve issues concerning
validity of the patent before addressing the alleged infringement.
In July 1993, a trial was held on one of those issues, the Company's
claim that the patent is unenforceable by reason of inequitable
conduct in front of the Patent Office. That issue is pending the
judge's decision. If the Company prevails on this issue, judgment
will be entered on its behalf. If it does not prevail, the Company
intends to file one or more motions for summary judgment on other
grounds claiming that the subject patent is invalid or unenforceable.
The Company believes that the claim of infringement is without
merit.
Item 4. Submission of Matters to a Vote of Security Holder
No matters were submitted to a vote of security holders during
the fourth quarter of 1993.
<PAGE> 14
- ------------------------------------------------------------------------------
PART II
- ------------------------------------------------------------------------------
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Information with respect to this item may be found in the
section captioned "Quarterly Results of Operations" appearing on page
20 of the Financial section of the Annual Report to Shareholders for
the year ended December 31, 1993. Such information is incorporated
herein by reference.
Item 6. Selected Financial Data
Information with respect to this item may be found in the
section captioned "Five-Year Summary of Selected Financial Data"
appearing on page 20 of the Financial section of the Annual Report to
Shareholders for the year ended December 31, 1993. Such information
is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Information with respect to this item may be found in the
sections captioned "Management's Discussion and Analysis" and
"Results of Operations" appearing on pages 2, 3, 4, 5 and 6 of the
Financial section of the Annual Report to Shareholders for the year
ended December 31, 1993. Such information is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
Information with respect to this item may be found in the
Financial section of the 1993 Annual Report to Shareholders on pages
7 through 20. Such information is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
<PAGE> 15
- ------------------------------------------------------------------------------
PART III
- ------------------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
Information with respect to Directors and compliance with
Section 16(a) of the Exchange Act may be found in the sections
captioned "Proposal No. 1 - Election of Directors" and "Executive
Compensation and Other Information Concerning Directors and Executive
Officers" appearing in the definitive Proxy Statement to be delivered
to shareholders in connection with the Annual Meeting of Shareholders
to be held on Wednesday, May 25, 1994. Such information is
incorporated herein by reference.
Executive Officers of the Registrant
The executive officers of the Company as of February 28, 1994 are:
Name Age Position
---- --- ---------
Jim P. Manzi 42 Chairman of the Board, President
and Chief Executive Officer
Kc Branscomb 38 Senior Vice President,
Business Development
Edwin J. Gillis 45 Senior Vice President,
Finance and Operations and
Chief Financial Officer
John B. Landry 46 Senior Vice President,
Development and Chief
Technology Officer
June L. Rokoff 44 Senior Vice President,
Development
Robert P. Schechter 45 Senior Vice President,
International Business Group
Robert K. Weiler 43 Senior Vice President,
North American Business Group
Mr. Manzi has served as President since October 1984 and was
named Chief Executive Officer in April 1986. In July 1986 he was
appointed Chairman of the Board upon the resignation of the former
Chairman and founder of the Company, Mitchell Kapor. Mr. Manzi
joined Lotus in May 1983 as Director of Corporate Marketing and was
named Vice President of Marketing and Sales in September 1983.
Ms. Branscomb joined Lotus in October 1992 as Senior Vice
President of Business Development. From November 1991 until joining
Lotus, Ms. Branscomb was the Chief Executive Officer of IntelliCorp,
Inc. She had previously held the position of Chief Operating Officer
since late 1988. Prior to joining ItelliCorp, Ms. Branscomb was
Senior Vice President of Sales and Marketing at Aion Corporation,
founding Principal and Vice President of Metaphor Computer Systems
and a consultant with the Boston Consulting Group Inc.
Mr. Gillis joined Lotus in July 1991 as Senior Vice President of
Finance and Administration and Chief Financial Officer and in
February 1994 Mr. Gillis was named Senior Vice President of Finance
and Operations and Chief Financial Officer. Mr. Gillis came to Lotus
after 15 years at Coopers and Lybrand, an international accounting
and consulting firm, where he was a partner and served as chairman of
the software industry group.
Mr. Landry joined Lotus in December 1991 as Senior Vice
President of Software Development and Chief Technology Officer. From
December 1990 until joining Lotus, Mr. Landry was Executive Vice
President and Chief Technology Officer of Dun & Bradstreet Software.
Prior to joining Dun & Bradstreet, Mr. Landry was Chairman and Chief
Executive Officer of Agility Systems, Inc., which he formed in
September 1989. Previously, he served as executive vice president and
a member of the Board of Directors of Cullinet Software. Mr. Landry
joined Cullinet Software in 1987 when it acquired Distribution
Management Systems where he was Chairman.
<PAGE> 16
Ms. Rokoff was named Senior Vice President of Development in May
1992. She had previously held the positions of Senior Vice President
of the Consulting and Information Services Group since November 1991,
and Vice President of the Communications and Information Services
Group since June 1990. Ms. Rokoff came to Lotus in 1986 as Director
of Development for the Information Services Division. She has held
several executive positions since joining Lotus including Vice
President of the Graphics and Information Management Group and
general manager of both the Workstation Products Group and 1-2-3
Release 3.0.
Mr. Schechter was named Senior Vice President of the
International Business Group in May 1991. Mr. Schechter joined Lotus
in August 1987 as Vice President of Finance and Operations and Chief
Financial Officer and became Senior Vice President of Finance and
Operations in October 1987. Mr. Schechter came to Lotus after 14
years at Coopers & Lybrand, where he was a partner and served as
Northeast regional chairman of the High Technology Industry Group.
Mr. Weiler joined Lotus in 1991 as Senior Vice President of
Sales and Marketing, and was named Senior Vice President of the North
American Business Group in November 1991. From 1989 until joining
Lotus, Mr. Weiler was President and Chief Operating Officer of
Interleaf, Inc. Prior to joining Interleaf, Mr. Weiler served as
Executive Vice President of North American Sales and Client Service
of Cullinet Software before being appointed President and Chief
Operating Officer. Mr. Weiler joined Cullinet in 1987 when it
acquired Distribution Management Systems where he was President and
Chief Operating Officer.
Item 11. Executive Compensation
Information with respect to this item may be found in the
sections captioned "Executive Compensation and Other Information
Concerning Directors and Executive Officers" appearing in the
definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held on
Wednesday, May 25, 1994. Such information is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information with respect to this item may be found in the
section captioned "Principal Holders of Voting Securities" appearing
in the definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held on
Wednesday, May 25, 1994. Such information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Information with respect to this item may be found in the
sections captioned "Proposal No. 1 - Election of Directors, Certain
Transactions" appearing in the definitive Proxy Statement to be
delivered to shareholders in connection with the Annual Meeting of
Shareholders to be held on Wednesday, May 25, 1994. Such information
is incorporated herein by reference.
<PAGE> 17
- ------------------------------------------------------------------------------
PART IV
- ------------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed as Part of Form 10-K
1. Financial Statements
The following information is contained in the Financial section of
the Annual Report to Shareholders for the fiscal year ended December
31, 1993, filed as Exhibit 13 hereto, and such information is
incorporated herein by reference:
* Report of Independent Accountants
* Consolidated Balance Sheets as of December 31, 1993 and 1992
* Consolidated Statements of Operations for each of the three
years ended December 31, 1993
* Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1993
* Consolidated Statements of Stockholders' Equity for each of
the three years ended December 31, 1993
* Notes to Consolidated Financial Statements
* Supplemental Financial Information
2. Financial Statement Schedules
* Report of Independent Accountants
* Schedule VIII - Valuation and Qualifying Accounts
* Schedule X - Supplementary Income Statement Information
* Schedules other than those listed above have been omitted since
they are either not required or not applicable or the information
is otherwise included.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
---------- ------------------------------------------------------------------------
<S> <C>
3(a) Restated Certificate of Incorporation of the Company, as amended
(filed as Exhibit 3(a) to Registration Statement 2-85675 on Form S-1 and
incorporated herein by reference).
3(a)(1) Amendments to Exhibit 3(a) adopted April 27, 1987, concerning limitation
of directors' liability, indemnification and by-law amendments (filed as Exhibit
3(a)(i) to the Annual Report on Form 10-K for the year ended December 31,
1987 and incorporated herein by reference).
3(b) By-Laws of the Company as amended October 19, 1992 filed as Exhibit 3(b) to
the Annual Report on Form 10-K for the year ended December 31, 1992
and incorporated herein by reference.
4(a) Form of Note Agreements dated as of May 25, 1989, between the Company
and the respective purchasers listed in the Purchasers Schedule thereto (filed
as Exhibit 4(a) to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 1, 1989 and incorporated herein by reference).
4(b) Lotus Development Corporation Defined Contribution Restoration Plan dated
as of January 1, 1990 (filed as Exhibit 4(b) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference).
<PAGE> 18
4(c) Rights Agreement dated as of November 7, 1988, between the Company and
The First National Bank of Boston as Rights Agent in respect of Preferred
Share Purchase Rights (filed as Exhibit 1 to the Company's Registration
Statement on Form 8-A filed November 10, 1988, and incorporated herein by
reference).
4(d)(1) Amendment dated as of April 5, 1990 between the Company and The First
National Bank of Boston to the Rights Agreement dated as of November 7,
1988 (filed as Exhibit 28(a) to the Company's Current Report on Form 8-K
dated April 5, 1990 and incorporated herein by reference).
4(d)(2) Amendment dated as of September 16, 1991 between the Company and the
First National Bank of Boston as Rights Agent in respect of Preferred Share
Purchase Rights (Filed as Exhibit 28(a) to the Company's Current Report on
Form 8-K dated September 16, 1991 and incorporated herein by reference).
4(e) Authorizing resolutions adopted by the Board of Directors of the Company on
November 7, 1988, in respect of Preferred Share Purchase Rights (filed as
Exhibit 4(c)(2) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 and incorporated herein by reference).
10(a) 1986 Stock Option Plan for Non-Employee Directors and form of Stock
Option Agreement thereunder (filed as Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1987
and incorporated herein by reference).
10(b) Lease for Riverside Place, Cambridge, Massachusetts, between the Company
and Cabot, Cabot and Forbes dated October 20, 1983 (filed
as Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 and incorporated herein by reference).
10(b)(1) Amendment of Lease dated as of July 12, 1984, between the Company
and the Trustees of CC&F Cambridge Parkway Trust (filed as Exhibit 10(a)
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
April 2, 1988 and incorporated herein by reference).
10(b)(2) Schedule setting forth the material details of the leases for Riverside Place
(Lotus Development Building) between the Company, and Cabot, Cabot and
Forbes which have been omitted per Sec.229.601 (a) (filed as Exhibit 10(o)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1985 and incorporated herein by reference).
10(b)(3) Amendment to Lease dated as of July 1, 1990 between the Company and
CC&F Cambridge Parkway Trust (filed as Exhibit 10 (f)(3) to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1990
and incorporated herein by reference).
10(c) Net Lease dated as of July 25, 1990 between Lotus Rogers Street
Corporation, as Landlord, and the Company, as Tenant (filed as Exhibit 4(n)
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 29, 1990 and incorporated herein by reference).
10(d) Form of Indemnification Agreement between the Company and each of its
officers and directors pursuant to Article VII of the Company's By-Laws
(filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1987 and incorporated herein by reference).
<PAGE> 19
10(e)* Resolution adopted by the Board of Directors of the Company on November
30 and December 1, 1993 concerning compensation of Directors.
10(f) Lease Agreement dated October 25, 1990 by and between the Trustees of
River Park 93 Realty Trust, as Landlord, and the Company, as Tenant,
pertaining to Lot 3A, Riverside Park Drive, North Reading, Massachusetts
(filed as Exhibit (10)(l) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990 and incorporated herein by reference).
10(g) Lease Agreement dated October 25, 1990 by and between the Trustees of
River Park 93 Realty Trust, as Landlord, and the Company,
as Tenant, pertaining to Lot 4A, Riverside Park Drive, North Reading, Massachusetts
(filed as Exhibit (10)(m) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990 and incorporated herein by reference).
11* Computation of Earnings Per Share.
13* Annual Report to Shareholders for the year ended December 31, 1993. With
the exception of the information incorporated by reference
in Items 1,5,6,7,8 and 14 of this Form 10-K, the Annual Report to Shareholders for the year
ended December 31, 1993 is not deemed filed as part of this report.
22* Subsidiaries of the Registrant.
24* Consent of Independent Accountants.
(NOTE: The Company agrees to furnish to the Securities and Exchange
Commission upon request a copy of any instrument with respect to long-term
debt of the Company or any of its subsidiaries which is not filed herewith or
listed herein since it relates to outstanding debt in an amount not greater than
10% of the total assets of the Company and its subsidiaries on a consolidated
basis.)
_______________
*filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter
ended December 31, 1993.
<PAGE> 20
14(a) 2 Financial Statement Schedules
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Lotus
Development Corporation has been incorporated by reference in this
Form 10-K and is included in the Financial section of the 1993 Annual
Report to Shareholders of Lotus Development Corporation. In
connection with our audits of such financial statements, we have also
audited the related financial statement schedules listed in Item
14(a) 2 of this Form 10-K.
In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken
as a whole, present fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND
Boston, Massachusetts
January 26, 1994
<PAGE> 21
SCHEDULE VIII
</TABLE>
<TABLE>
LOTUS DEVELOPMENT CORPORATION
Valuation and Qualifying Accounts
Years Ended December 31, 1993, 1992 and 1991
(in thousands)
<CAPTION>
Col. A Col. B Col. C (1) Col. C (2) Col. D Col. E
Additions
-------------------------
Balance at Charged to Charged Deductions Balance
Beginning Cost and to Other Charged to At End of
Description of Period Expenses Accounts Reserves Period
- ----------------------------------------------------------------------------------------------------
Accounts Receivable allowances:
<S> <C> <C> <C> <C> <C>
1993 ............ $25,326 $14,124 - $ 9,448 $30,002
1992 ............ $24,899 $16,291 - $15,864 $25,326
1991 ............ $11,696 $18,720 - $ 5,517 $24,899
</TABLE>
<PAGE> 22
SCHEDULE X
LOTUS DEVELOPMENT CORPORATION
Supplementary Income Statement Information
Years Ended December 31, 1993, 1992 and 1991
Column A Column B
Charged to Costs
Item and Expenses
- -------------------------------------------------------------------------
1993 1992 1991
------- ------- -------
Advertising....................... $48,093 $40,834 $32,207
Amortization of intangibles....... $48,751 $42,894 $30,503
Royalties......................... $24,413 $17,313 $14,006
<PAGE> 23
SIGNATURES
Pursuant of the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
LOTUS DEVELOPMENT CORPORATION
(Registrant)
By /s/ Jim P. Manzi
Jim P. Manzi, President
Date: March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 25th day of
March 1994.
Signature Title
/s/ Jim P. Manzi Chairman of the Board,
Jim P. Manzi President, CEO and Director
(Principal Executive Officer)
/s/ Edwin J. Gillis Senior Vice President, Finance and
Edwin J. Gillis Operations and Chief Financial Officer
(Principal Financial Officer)
/s/ Lyn L. Benton Vice President, Finance and Corporate
Lyn L. Benton Services and Corporate Controller
(Principal Accounting Officer)
/s/ Lawrence G. Graev Director
Lawrence G. Graev
/s/ Aldo Papone Director
Aldo Papone
/s/ Chester A. Siuda Director
Chester A. Siuda
/s/ Richard Braddock Director
Richard Braddock
/s/ William H. Gray, III Director
William H. Gray, III
/s/ Michael E. Porter Director
Michael E. Porter
/s/ Henri A. Termeer Director
Henri A. Termeer
- ------------------------------------------------------------------
EXHIBIT 10(e)
Mr. Manzi next proposed that the compensation for
non-employee directors for 1994 be $24,000. After discussion,
and upon motion duly made and seconded, it was unanimously:
RESOLVED: That the compensation for the Corporation's
non-employee directors for 1994 shall be the
sum of $24,000.
- ------------------------------------------------------------------------------
EXHIBIT 11
LOTUS DEVELOPMENT CORPORATION
<TABLE>
Computation of Primary and Fully Diluted
Earnings Per Share
(in thousands, except per share data)
<CAPTION>
Years Ended December 31,
1993 1992 1991
-------------------------------
<S> <C> <C> <C>
Net income $55,535 $80,403 $33,116
Weighted average shares outstanding
during the year 43,089 42,306 42,960
Common equivalent shares 1,632 688 992
------ ------ ------
Common and common equivalent shares
outstanding for purpose of calculating
primary net income per share 44,721 42,994 43,952
Incremental shares to reflect full dilution 924 -- --
------ ------ ------
Total shares for purpose of calculating
fully diluted net income per share 45,645 42,994 43,952
====== ====== ======
Primary net income per share $1.24 $1.87 $0.75
====== ====== ======
Fully diluted net income per share $1.22 $1.87 $0.75
====== ====== ======
</TABLE>
- ------------------------------------------------------------------------------
EXHIBIT 13 to 1993 10K
LOTUS DEVELOPMENT CORPORATION
1993 REPORT TO SHAREHOLDERS
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
(In thousands, except per share data)
1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . $981,168 $900,149 $828,895 $692,242 $556,033
Net income . . . . . . . 55,535(1) 80,403(2) 33,116(3) 23,254(4) 67,961
Net income per share . . 1.24(1) 1.87(2) 0.75(3) 0.54(4) 1.61
Total assets . . . . . . 905,345 763,444 725,537 656,807 604,277
Stockholders' equity . . 528,391 399,438 323,113 309,439 278,305
- --------------------------------------------------------------------------------------
<FN>
Notes: (1) 1993 amounts reflect a non-deductible charge to operations of $19.9 million,
or $0.45 per share, for purchased research and development related to the
Approach Software Corporation acquisition.
(2) 1992 amounts include pre-tax gains on the sale of the Company's investment
in Sybase, Inc., of $49.7 million on a pre-tax basis and $33.3 million,
or $0.77 per share, on an after-tax basis. 1992 amounts also include a
restructuring charge of $15 million on a pre-tax basis and $10.1 million,
or $0.23 per share, on an after-tax basis.
(3) 1991 amounts include a restructuring charge of $23 million on a pre-tax basis
and $18.6 million, or $0.42 per share, on an after tax basis.
(4) 1990 amounts reflect a non-deductible charge to operations of $53 million,
or $1.23 per share, for purchased research and development related to the
Samna acquisition.
</TABLE>
Figure 1 - photo of Jim Manzi, President and CEO Lotus Development Corporation.
Jim Manzi
President and CEO
PRESIDENT'S LETTER
Companies often use this space to speak of transitions. More
often than not, transitions have a beginning and maybe a middle,
but rarely an end. It is equally rare in corporate America that
any CEO has the opportunity to talk about a transition for two
years running - let alone four.
Last year I reported that our four-year transition was over.
This year it continues to be over. And to paraphrase T. S.
Eliot, "In our end is our beginning."
The new opportunities we have been discussing - and building -
for several years now form a tremendous foundation for our
company's future. So as we move forward, it is worth reflecting
for one last time on where we have been.
In the last several years, Lotus has actually gone through three
transitions, simultaneously. We've gone from a single-product
company to one with a broad product line. We've gone from a
company whose products required users to learn a keyboard command
structure to a company that pioneered SmartIcons and other
graphical features that make personal computers easier to use.
And we've gone from a leader in standalone applications to a
leader in network applications.
We cannot pretend that it's been easy. We have seen $350 million
in our DOS business - or more than a third of our revenue -
simply evaporate in the last two years. But we have been able to
more than make up for it with new products.
In the late 80s we noted the trend towards network computing,
which meant that PCs had the potential to become not just
isolated computational devices, but powerful new tools for
communications and information-sharing. We placed ourselves at
the forefront of this new style of computing.
Our strategy, which we began talking about four years ago, is
based on three precepts: differentiate our desktop applications
by bringing integrated communications capabilities and enriched
groupware services to these applications, dominate the high
growth areas of communications and workgroup computing with
cc:Mail and Notes, and demonstrate leadership in mobile
computing.
Figure 2 - Product box shot SmartSuite/Windows.
In 1993 it became clear that our strategy had taken hold in the
marketplace. By the fourth quarter, our communications products
were generating 25 percent of total revenue. Our SmartSuite of
integrated desktop applications accounted for 47 percent of our
Windows desktop revenue. As a result, our earnings in the fourth
quarter more than doubled from a year earlier.
A major event in solidifying our strategy this past year was the
shipment of 1-2-3 Release 4 for Windows. 1-2-3 Release 4 is not
only highly competitive as a standalone product, taking full
advantage of the Windows operating environment, but it also takes
desktop integration to a new level, working very well with its
companion SmartSuite applications and with the powerful
information-sharing underpinnings of Notes. We now have the most
robust desktop suite in the marketplace.
One of the major advantages of having a well-defined strategy -
one that does not change from day-to-day - is the financial
discipline it provides. Strategy is as much a process as a goal,
and it has helped us concentrate on the higher-growth,
higher-potential parts of our business, and it has brought
greater discipline to our spending and investment decisions.
In last year's Annual Report I expressed frustration that the
stock market was too narrowly focused on spreadsheets and did not
take into account the value of Notes and the way it has
revitalized all our applications. But in the past year I have to
say the market has become remarkably more efficient in the way it
values our company, our strategy and our results. This increased
"efficiency" brought an increase of $1.6 billion in market
valuation during 1993.
The way that Notes has taken off and the excitement that
surrounds it, not just among customers but within our industry,
certainly accounts for much of the rise in our stock price. Two
years ago there were 500 Notes customers, and today there are
3,000 worldwide. These are customers with anywhere from 4 or 5
to 30,000 Notes licenses. Three years ago there were 70 Notes
value-added resellers. Today there are over 3,000 value-added
resellers, developers and independent software vendors who are
building Notes applications and using Notes to provide business
process solutions for their customers.
Figure 3 - Photo of Lotusphere collateral.
In December we invited Notes customers, developers and business
partners to Lotusphere in Orlando, Florida. We planned on
several hundred, but more than 2,000 people wanted to attend.
Our Notes partners made 70 new product announcements at the
conference - new workflow applications, new agent technology, new
applications to gain access to external data, new tools to
integrate Notes with internal databases and new links between
Notes and extended communications networks.
Notes has created its own industry. It is more a platform than
an application. It provides a rich applications development
environment apart from the operating system. Notes is generating
a whole new class of applications based on communications and
collaboration that enable organizations to carry out basic
business processes in new, more productive ways. We believe the
Notes industry is destined for further rapid growth as more and
more users view Notes as their primary interface into the world
of connected computing.
The challenge is to continue to reinforce and build on the
dominant position that Notes has given us. We are hard at work
on something we call Lotus Communications Server (LCS), an
industrial-strength messaging backbone for both Notes and
cc:Mail. cc:Mail, with its 4 million users, 50 percent market
share of LAN-based electronic mail worldwide and its integration
with Notes, provides us with a significant market position in
enterprise computing. We will ensure that Notes and cc:Mail
continue to work well together.
Notes already enables many customers to share information with
customers and suppliers, but there are even further opportunities
for making Notes a public platform for the extended enterprise.
We have not yet been able to find out what the Information
Superhighway is, but we feel certain that Notes will have at
least a couple of lanes.
We can be confident about the future. But this means we now have
the added challenge of not falling prey to complacency or hubris.
It can be as difficult to deal with success as it is with
adversity. In fact, our initial burst of success ten years ago
may have contributed to tough times later on. This time we will
remember the old show business maxim: "It takes 20 years to
become an overnight success."
Our greatest strength will come from the continued commitment and
hard work of our employees. It is no exaggeration to say that
all of us at Lotus have been tempered by fire. Transitions -
even successful ones - are always far more painful internally
than they appear to be from the outside. But tough times also
bring strength, and the people of Lotus are now stronger, smarter
and more of a team than ever before in our history.
Our strategy is working, but we know we must continue to execute.
We have set a goal of 15 to 18 percent pre-tax profit margin. We
met that goal in the fourth quarter, and we must maintain this
momentum going forward. Execution also means focusing more
intently than ever before on our customers. The pages that
follow will focus on one particular customer that made the
decision to invest in Notes towards the end of 1993.
The customer is 3M, the company that invented scotch tape and
Post-it notes as well as 60,000 other products. 3M continues to
innovate and reinvent itself. It's a company that faces the same
competitive pressures as many of our customers. These customers
know there's an opportunity to use information technology to do
new things in new ways, but at the same time, they face some
difficult technology choices.
Figure 4 - Photo of 3M building.
Our relationship with 3M is similar to our relationships with
most of our customers today. They tend to be at a higher level
in the organization, and both Lotus and our customers are not so
much interested in a single sale or transaction, as in a
long-term relationship. And because the technology decisions are
often difficult and involve significant investments, there is a
premium on frank, open discussions, and on honesty.
Customers care as much about our experience and expertise as they
do about our products. They are often making the transition to a
new model of computing based on communications and
information-sharing.
And at Lotus we have a good deal of experience in transitions.
Jim Manzi
President and CEO
Figures 5-20 - 2 pages of photos of 3M and Lotus employees at work.
Why did 3M decide to use Lotus Notes?
While it would make a good story, the reason probably has little
to do with any resemblance between 3M's well-known communications
product, Post-it notes, and Lotus' software equivalent.
The real reason has to do with 3M's corporate goal of continuous
innovation and its belief that information technology has an
essential role in achieving that goal.
3M has a well-deserved reputation as an innovative company, going
back to the 1920s and its invention of the world's first
waterproof sandpaper. Today 3M has more than 60,000 products,
ranging from adhesives and fabric protectors, to reflective
sheeting for highway signs, to audio and video tapes and
diskettes for computers, to medical diagnostic tools and
heart-lung equipment.
In the 1993 Fortune magazine survey, 3M was once again named one
of America's most admired corporations, and was second highest
among all U.S. companies when it comes to innovation.
As part of its culture of innovation, 3M has always stayed at the
forefront of information technology. It was an early adopter of
enterprise-wide electronic mail. It was one of the first
corporations to adopt PC technology and one of the first to tie
PCs together in local area and wide area networks (where it now
deploys cc:Mail). It uses multimedia CD-ROM technology to
distribute regular updates on its product line. And, of course,
3M has now made a major commitment to the workgroup computing
technology of Notes.
David Drew, who is head of information technology at 3M,
discusses the relationship between information technology and
innovation.
Figure 21 - Photo of David Drew, head of information technology
at 3M.
"We used to have a goal at 3M that 25 percent of our revenues had
to come from products that were new in the past five years.
That's changed. The current goal is 30 percent of revenues from
new products every four years. The question is how do you do it?
"You have to keep the channels of innovation open, and that means
information flow - across laboratories, manufacturing sites and
markets in 58 different countries. And across functions -
innovation comes from cross-fertilization and sharing ideas.
"The problem is that there are too many demands from too many
sides - everyone wants their own application. And with the speed
of change in technology it can quickly become a mess - people
unable to communicate because they are locked in different
systems.
"So my job is to provide an infrastructure, to provide standards,
to provide common platforms for application development so that
information can be shared - no matter where in the world we
happen to be."
Bob Weiler is head of Lotus' North American Business Group.
Figure 22 - Photo of Bob Weiler, head of Lotus' North American
Business Group.
"For us, global competition comes down to giving customers the
tools they need to compete in many different markets, and across
markets, and making sure those tools are available today -
anywhere in the world. Companies like 3M are saying to us, it's
not enough to simply deploy our products in the U.S. and then
wait six months for the European versions, and then another three
months before the Japanese or Taiwanese version is ready.
"Everyone talks about 'globalization' but dealing with it and
capitalizing on it is much easier said than done. I think we do
a much better job than most. When 3M first began deploying its
Notes applications, for example, one of the very first pilots was
a Kanji version in Japan."
David Drew gives the background on the decision to make Lotus
Notes a global standard at 3M:
"If you want to know the truth, some of us actually began to look
for technology like Notes long before we had heard of Notes,
perhaps even before it existed.
"In the mid-80s we began talking about the need for what we later
called a 'common document system.' Like many people at 3M I had
spent a good part of my career at various remote locations around
the globe, and we had developed a pretty good telecommunications
infrastructure for keeping people in touch with each other.
"But there was a strong sense that we could do more. Much of the
data that passed back and forth was narrow and
transactions-oriented, and did not capture the richer, human
context. There was also the problem of interoperability. Much
of the information that needed to be shared had been created by
applications on systems that were foreign to other people in the
organization.
"So we developed a global document management strategy, which was
really more of a quest, and it eventually led us to Notes."
Figure 23 - Photo of Michael Makowski, manager of the Common
Document System project at 3M.
Michael Makowski managed the Common Document System project at
3M, which began in October, 1992. The project team conducted
surveys, did transnational market analyses, and conducted pilots
that evaluated Notes against a number of alternatives. Once the
team had made its recommendations, it became Makowski's job to
help sell them within 3M.
Figure 24 - Photo of Michael Makowski of 3M.
"I'm not sure it was really my job to sell Notes. I think the
better term is executive education. But whatever it was, it did
take some doing - not so much because of Notes, but because of
history.
"3M has always looked ahead in information technology. A number
of years ago we saw the potential in sales force automation,
which makes sense if you've got a lot of products, a lot of sales
reps, and you're a new product company. But none of the attempts
really worked very well. Partly it was the technology, which was
just not there, and partly it was costs - which began to go
through the roof once you tried to do something fancy.
"Suddenly that's changed - with the incredible price/performance
curve, 486 machines, 50,000 PCs at 3M and half of them networked,
and software like Notes that+s designed for networks.
"There was initially some resistance to Notes. What were the
real short-term payoffs? Did it require end-users to become
programmers? Was its imaging support reliable? We developed
four prototype applications - one managing lab books, which is
intellectual property, another in routing and approval, another
in managing the early stages of product development and another
in packaging and engineering change orders. The product
development application was particularly important because it
showed Notes' workflow capabilities. The people who used that
application told others, 'Hey, you don't need a lot of
programming in order to do this.'
"I also had a lot of meetings with people from the divisions - at
7:30 in the morning - to show them what they could start doing
with Notes immediately. I'd show them a travel authorization
form that was easy to create, and they'd say, 'Why can't I have
this?' The idea was to have Notes stare them in the face.
That's how you sell it."
Figure 25 - Photo of Erik Renaud, Lotus district sales manager.
Erik Renaud, Lotus district sales manager, is part of the Lotus
extended account team.
"On a large, complex sale like this, the trick is to be very
responsive to the customer without having a lot of people going
off in all directions. You've got to marshall your resources and
manage yourself.
"We were in close touch with 3M at many different levels in their
organization and ours. There was an early meeting between 3M's
Chairman, L. D. DeSimone, and Jim Manzi. I remember another
early meeting I had with Dave Drew, and as we talked about Notes,
his eyes lit up. We also had to work closely with the people in
the divisions at 3M because they were a key part of the decision.
"A lot of things came into focus for 3M in June of 1993 when we
invited them to Cambridge for a Notes briefing. John Landry made
a presentation and he pretty much proved that Notes was the only
technology in existence that enabled you to manage documents
globally.
"Notes was the key - in more ways than one. Not only were we
selling Notes, it was also the way our team was wedded together.
Everyone was using Notes."
Figure 26 - Photo of Lynne Capozzi, Lotus Stratigic Account team.
Lynne Capozzi is part of the Lotus Strategic Account Team.
"3M management was also using Notes as we negotiated the
contract. Ironically, that put more pressure on us. Any time
there was an article in the trade press raising any questions
about the future direction of Notes, 3M would send it to us via
Notes and we had to make sure we responded as quickly as
possible.
Figure 27 - Notes screen shot.
"It helped that everyone at Lotus was on Notes. At one point,
there were press reports on the Lotus-Eastman Kodak alliance and
the future of imaging as part of Notes. Because everyone was
sharing information on Notes, the concerns at 3M surfaced quickly
and we were able to respond quickly. Bob Weiler flew out to St.
Paul to meet Dave Drew and talk about Lotus' commitment to
imaging and our long-term commitment to 3M.
"At one point in the contract negotiations, a Lotus software
engineer, Gregg Steinman, was at one of the divisions trying to
get an application up and running on short order. It was
important to the contract because it was entirely valid for 3M to
want assurance that a product worked before they bought it. As
you can imagine, there was a lot of fast information flow over
Notes regarding the progress of that application.
"It was also vital that we stayed in close touch with Lotus'
financial, legal and tax people as we structured this deal. We
were able to use Notes to manage a lot of complex documents to
arrive at a contract that gave 3M the flexibility that their
divisions wanted in deploying Notes."
Figure 28 - Photo of John Winterhalter, 3M.
John Winterhalter is manager of information technology for 3M's
Commercial Office Supply Division, which up until the fall of
1993 favored an alternative to Notes.
"Last August I was asked if we could come up with an application
that involved the rapid electronic distribution of graphic art
from our ad agency to our dealers. We needed it in two months.
"In a panic I went to Mike Makowski because I knew he had been
working with some Notes prototypes involving imaging. With the
help of Lotus and the people from Connect [a Lotus Business
Partner] we got the application up and running much faster than
anyone thought possible, and I haven't looked back since. I wish
I'd started deploying Notes two years ago.
"3M is right in the middle of converting to client-server
computing worldwide. Almost everything will be client-server -
we're ahead of the curve in having the network infrastructure to
do it. And Notes is a natural - the best client-server software
I've seen. One of the first things I did was to test it to see
if it could replicate globally. It was solid as a rock.
"Right now we're also going through a reorganization to bring
together customer-focused teams - teams consisting of sales reps,
sales managers, technical service, customer service, information
systems people and product or manufacturing people. Notes is the
way we can coordinate these functions and create teams. They
need to deal with an enormous amount of information on products,
product changes and prices. Just as important, there's all sorts
of information on people's desks and in people's heads that needs
to be shared. You can coax it out with Notes.
"Eventually we'll be in direct touch with customers using Notes.
It's what we call electronic commerce. As even more people start
using Notes, its value expands. That's why the industry that's
building around Notes - companies like Connect here in Minnesota
- - is so important. When you're committing to a new technology,
it's good to know you're not alone."
Figure 29 - Photo Tom Kieffer CEO of Connect and Staff.
Tom Kieffer (left) is founder and CEO of Connect, a systems
integration company that became part of the Notes industry early
on.
"Connect is a technical services company and our business is
helping customers plan, deploy and support networks. We began 8
years ago by doing a lot of work with Novell NetWare - and we
still do. NetWare has since become an almost ubiquitous part of
the plumbing.
Figure 30 - Photo of Tom Kieffer of Connect.
"There are parallels between the way NetWare took hold and what's
happening with Notes today. Notes is becoming the essential
layer, or environment on top of the plumbing. If you want to
take full advantage of networks, if you want to collect and
disseminate information over the network, if you want to turn
information into knowledge, then Notes has become the 'go to'
tool.
"Three years ago we got on board as a Notes Business Partner
because it was an exciting new technology and we are new
technology heat-seekers. Lotus, however, didn't have its act
together with Notes. It was rough going for a while, but it has
paid off for us. Notes is the fastest growing segment of our
business - growing at 300 percent compared to overall growth of
about 50 percent.
"One of the things we do for our Notes customers is to help them
with their network infrastructure, getting the protocols and the
standardized connections in place so they can run networked
applications. And as Notes installations mature we can help
companies manage their Notes networks. But the biggest
opportunity is in adding value - through companion products, new
Notes applications, or simply helping customers do new things and
achieve business goals more effectively by using Notes.
"Once people start using Notes, it becomes what we call a
dashboard application, the first place people go to on their
computer, the place they live, the pivot point on their desktop.
Companies invariably use Notes in more and more business
processes almost every day.
"Why are companies adopting Notes? Well, it allows them to
really leverage their network investment. But it also comes down
to simple fear - fear that if you don't take advantage of Notes,
you'll lose your competitive advantage to someone else."
Figure 31 - Photo of computer with Post-it note.
MANAGEMENT'S DISCUSSION AND ANALYSIS
As an aid to understanding the Company's operating results, the
table below indicates the percentage relationships of income and
expense items included in the Consolidated Statements of Operations
for the three years ended December 31, 1993 and the percentage changes
in those items for the two years ended December 31, 1993.
<TABLE>
<CAPTION>
Percent changes year to year Items as a percentage of net sales
1993-92 1992-91 Income and expense items 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C>
9% 9% Net sales 100.0% 100.0% 100.0%
1% 15% Cost of sales 20.6% 22.2% 21.0%
- -----------------------------------------------------------------------------------------------
11% 7% Gross margin 79.4% 77.8% 79.0%
Expenses:
7% 1% Research and development 12.9% 13.1% 14.1%
9% 14% Sales and marketing 47.2% 47.1% 44.7%
1% (1%) General and administrative 7.1% 7.7% 8.4%
-- -- Other (income)/expense, net (A) 1.8% (3.4%) 3.6%
- -----------------------------------------------------------------------------------------------
17% (1%) Total expenses 69.0% 64.5% 70.8%
- -----------------------------------------------------------------------------------------------
Income before income taxes
and cumulative effect of
(15%) 77% change in accounting principle 10.4% 13.3% 8.2%
17% 61% Provision for income taxes 4.7% 4.4% 3.0%
- -----------------------------------------------------------------------------------------------
Income before cumulative effect
(31%) 86% of change in accounting principle 5.7% 8.9% 5.2%
Cumulative effect of change
-- (100%) in accounting principle -- -- 1.2%
- -----------------------------------------------------------------------------------------------
(31%) 143% Net income 5.7% 8.9% 4.0%
- -----------------------------------------------------------------------------------------------
Per share:
Income before cumulative effect
(34%) 91% of change in accounting principle $1.24 $1.87 $0.98
Cumulative effect of change
-- (100%) in accounting principle -- -- 0.23
- -----------------------------------------------------------------------------------------------
(34%) 149% Net income per share $1.24 $1.87 $0.75
===============================================================================================
<FN>
Note (A): 1993, 1992 and 1991 amounts include significant non-recurring
income and expense items which are set forth in Footnote J to the
financial statements.
</TABLE>
RESULTS OF OPERATIONS
1993 compared to 1992
......................
Revenues
In 1993, Lotus continued to execute its "Working Together"
strategy. That strategy is defined by products which have common
user interfaces, which are integrated with each other, which work
across multiple platforms and which help people work together
more productively. The centerpiece of this strategy is
communications products which facilitate workgroup computing and
make the Company's desktop applications more productive through
group-enabling and ease-of-use features.
Lotus' worldwide revenues increased 9% to $981 million in
1993. This revenue increase comprises distinctly different growth
rates for desktop applications as compared to communications
products and services. Desktop revenues were essentially
unchanged in 1993, while communications related revenues grew
approximately 55%. Consequently, revenue from communications
products and services continues to represent a growing proportion
of total revenue.
Desktop Applications Revenue
Lotus' desktop applications include spreadsheets, word
processing, graphics, end-user database and personal information
management software products. In 1993, users continued to migrate
from DOS-based applications to Windows-based applications. Lotus'
desktop revenue reflects this trend as Windows revenues more than
doubled from the prior year, while DOS-based revenues,
particularly spreadsheets, declined approximately $215 million.
The desktop applications market also experienced the
full-fledged emergence of desktop "suites" in 1993. A few major
software publishers have combined and integrated their standalone
applications into attractively-priced suites of Windows products.
Lotus' offering in the suite category, SmartSuite, represented
one-third of total Windows desktop applications revenue in 1993.
The Company believes that SmartSuite revenues were driven by
growing market demand for desktop suites, its highly-rated
individual applications, particularly 1-2-3 for Windows, and the
high degree of integration among the products in its suite.
While competition for market share remains intense for
Windows desktop applications and prices have declined year over
year, pricing remained relatively stable during the second half
of 1993. The Company anticipates that downward pressure on
pricing for Windows applications will continue in 1994.
Significant new Windows desktop products released in 1993
include 1-2-3 for Windows Release 4.0, Improv Release 2.0,
Freelance Graphics for Windows Release 2.0, Organizer Release 1.1
and SmartSuite for Windows Release 2.0. In addition, in June
1993, the Company acquired Approach Software Corporation,
developers of end-user relational database applications for the
Windows environment. The Company also released 1-2-3 for OS/2
Release 2.0, Freelance Graphics for OS/2 Release 1.0, Ami Pro for
OS/2 Release 3.0 and an OS/2 SmartSuite during 1993.
Communications Products and Services Revenue
Communications products and services include Notes, cc:Mail and
consulting services. Revenues from communications products and
services increased substantially, reflecting the growing momentum
behind workgroup computing, and represented 19% of total revenue
in 1993 as compared to 13% in 1992.
Revenue from Notes, the Company's innovative workgroup
computing product, more than doubled over the prior year.
Contributing to Notes growth were market related factors, such as
an expanding client-server market and a greater availability of
networked and portable computing applications. Revenue gains were
also driven by the shipment of Notes 3.0 in May 1993, the
Company's broadening of distribution through its network of
distributors and resellers and an expansion of the number of
business partners selling and developing applications for Notes.
New versions of Notes 3.0 were shipped for the Windows, Macintosh
and OS/2 platforms in May 1993.
cc:Mail revenues grew considerably, primarily on the
strength of new products for the Windows and OS/2 platforms and
the continued growth of the market for PC-based networked
electronic mail systems. Consulting services revenue also
increased significantly resulting from internal growth and from
the acquisition of several consulting businesses.
International Revenue
Revenues outside the United States, most of which are collectible
in foreign currencies, grew by 12% during 1993 and accounted for
51% of worldwide revenues in 1993 and 49% in 1992. International
sales growth was primarily propelled by sales gains in the United
Kingdom, Germany, Italy and the Asia Pacific region. The impact
of foreign currency fluctuations on international revenues was
insignificant in 1993 as the impact of the strengthening U.S.
dollar in Europe was neutralized by the weakening of the U.S.
dollar in Japan. Foreign currency fluctuations did not
significantly impact revenue in 1992.
Expenses and Profit Margins
Gross margin as a percentage of sales increased to 79% in 1993
compared with 78% in 1992. The rate was favorably affected by
the achievement of manufacturing efficiencies resulting from
higher production volumes, the closing of the Company's Puerto
Rican manufacturing plant and material cost reductions. The
margin improvement is also attributable to a greater proportion
of higher margin communication products in the sales mix and to
reduced manufacturing and delivery costs resulting from an
increase in license sales.
The Company continues to make investments in research and
development to maintain a strong competitive desktop position and
to continue to improve its communications products. Research and
development expenses increased 7% to $127 million in 1993,
reflecting a constant level of desktop development spending year
over year and significantly higher spending associated with
development and enhancement of the Company's communications
products and working together technology. Historically, the
primary activities of the development organizations outside the
U.S. were to translate and localize products for international
markets. In the current year, international development
organizations initiated efforts to develop products in parallel
with the development in U.S. with the goal of achieving
simultaneous release of various language versions of new
products. Going forward, the Company plans to continue this
effort in 1994 and expects to reach its goal within the next few
years.
Sales and marketing expenses increased 9% to $463 million in
1993 driven by the Company's substantial investment in its
communications business and in SmartSuite. Increased spending on
advertising and marketing programs for SmartSuite reflects the
market shift from standalone applications to integrated suites.
The increase is also attributable to the Company's continued
efforts to attract users transitioning from DOS to Windows, the
expansion of worldwide support organizations and the growth of
the consulting services business.
General and administrative expenses increased 1% to $70
million in 1993. The relatively minor change reflects the
Company's continued efforts to control infrastructure and fixed
costs.
Despite declining interest rates, interest income was higher
in 1993 because of higher average cash and short-term investment
balances. Interest expense declined primarily due to scheduled
repayments of long-term debt obligations.
In June 1993, the Company acquired Approach Database
Corporation. The purchase price included $15 million of initial
cash consideration, the assumption of certain liabilities and
future consideration. A significant portion of the purchase
price was allocated to purchased research and development,
resulting in a $19.9 million charge to the Company's 1993
operations. This charge, which is reflected in other income and
expense, is not deductible for tax purposes. Earnings for 1993,
excluding the charge, were $75.4 million or $1.69 per share.
Other income and expense in 1992 included a pre-tax gain of $49.7
million from the sale of the Company's investment in Sybase,
Inc., offset by a restructuring charge of $15 million. Earnings
for 1992, excluding the gain and the restructuring charge, were
$57.2 million or $1.33 per share.
The effective tax rate for 1993, excluding the effect of a
non-deductible charge for purchased research and development
related to the acquisition of Approach, was 38% compared with 33%
in 1992. In 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, Accounting for Income Taxes, ("FAS
109") retroactive to January 1, 1991. The increase in the tax
rate in 1993 reflects the effect of the loss of tax benefits
associated with the closing of the Company's Puerto Rican
manufacturing plant, a one percentage point increase in the U.S.
federal statutory tax rate and the impact of the statutory rate
change on deferred taxes in accordance with FAS 109.
Looking forward, the Company expects the dominant 1993
trends to continue in 1994. The communications business is
expected to grow significantly and will continue to represent a
greater proportion of total revenue. The Company also
anticipates that sales of suites will continue to displace sales
of standalone applications as the market demand for integrated
desktop applications continues to grow. As a result, Smartsuite
revenues are expected to account for a greater percentage of
Windows desktop revenue. While Windows desktop revenues are
expected to increase in 1994, these gains will be partially
offset by further declines of DOS-based revenues. The Company
believes that the magnitude of the decline in DOS-based revenues
in 1994 should not be as dramatic as that experienced in 1993 as
DOS-based revenues continue to represent a smaller share of
overall revenue.
1992 compared to 1991
The 9% increase in worldwide revenue in 1992 compared to 1991
reflected strong volume growth across all desktop applications
for the Windows platform and in communications products and
services, partially offset by the loss of $135 million of
DOS-based revenues. New releases in 1992 included 1-2-3 for
Windows Release 1.1, 1-2-3 Release 2.4 and 3.4 for DOS, and Ami
Pro Release 3.0. Revenues from communications products and
services doubled in 1992 and grew to 13% of total revenue.
International revenues grew by 6% during 1992 and accounted for
49% of worldwide revenue in 1992 compared with 51% in 1991.
Gross margins declined by 1% from 1991 to 1992, attributable
to higher amortization charges for software and other intangibles
and lower selling prices. This decline was partially offset by
more cost effective product packaging and the achievement of
favorable manufacturing efficiencies.
The growth in operating expenses in 1992 reflected higher
sales and marketing spending to gain market share during a
critical period of user migration from DOS to Windows. Spending
increases resulted from advertising and marketing campaigns to
promote the Company's Windows-based products, expansion of
customer support organizations and growth in the consulting
services business. Research and development expenses were
essentially unchanged from 1991 as steps were initiated in 1992
to increase the effectiveness of development spending through
improved focus of development activities, reduced headcount and
lower infrastructure costs.
In addition to cost reduction efforts initiated in late
1991, the Company recorded a $15 million restructuring charge to
other income and expense in 1992 principally to cover costs
associated with the closing of its Puerto Rican manufacturing
subsidiary and the restructuring of North American and European
operations.
During 1992, the Company sold its investment in Sybase, Inc.
for $77.7 million, resulting in a pre-tax gain of $49.7 million
which is included in other income and expense. After tax, the
gain was $33.3 million or $0.77 per share.
Interest income was lower in 1992 because of declining
interest rates. Interest expense declined primarily due to
scheduled repayments of long-term debt obligations.
The effective tax rate was 33% in 1992 compared to 36.3% in
1991. Most of the improvement resulted from the utilization of
research and development credit carryforwards.
Liquidity and Capital Reserves
Cash and short-term investments increased $124 million to $417
million at December 31, 1993. The two primary sources of cash
flow in 1993 were $162 million of cash generated by operations
and $82 million in proceeds from the issuance of common stock
under the Company's employee stock plans and tax benefits
thereon. The Company used a portion of the cash for investing and
financing activities, including $31 million for the purchase of
property and equipment, $37 million for payments for software and
other intangibles, $15 million for the acquisition of Approach
Software Corporation and $30 million for the scheduled repayment
of long-term debt.
A substantial portion of the Company's cash and short-term
investments are either deposited in financial institutions
located in Puerto Rico or held by subsidiaries outside the United
States. These investments can be readily transferred to the
United States as required, subject to income and/or withholding
taxes upon repatriation. Taxes have already been provided for
the tax liability which would result.
The Company's financial reserves are represented by
short-term investments and unused portions of credit facilities.
During 1993, the Company increased its revolving credit
facilities with domestic and international banks by $25 million
to $150 million. The Company believes its financial reserves and
funds provided by ongoing operations are adequate to meet future
liquidity requirements.
<TABLE>
LOTUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Years ended December 31,
(In thousands, except for per share data) 1993 1992 1991
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $981,168 $900,149 $828,895
Cost of sales 202,443 200,103 174,209
-------- -------- --------
Gross margin 778,725 700,046 654,686
Expenses:
Research and development (Note B) 126,884 118,308 116,586
Sales and marketing 462,658 423,813 370,635
General and administrative 70,057 69,103 69,955
Other (income) / expense, net (Note J) 17,357 (31,183) 29,824
-------- -------- --------
Total expenses 676,956 580,041 587,000
Income before income taxes and cumulative
effect of change in accounting principle 101,769 120,005 67,686
Provision for income taxes (Note H) 46,234 39,602 24,570
-------- -------- --------
Income before cumulative effect of change
in accounting principle 55,535 80,403 43,116
Cumulative effect of change in accounting
principle (Notes B and H) -- -- 10,000
-------- -------- --------
Net income $ 55,535 $ 80,403 $ 33,116
======== ======== ========
Per share:
Income before cumulative effect of change
in accounting principle $1.24 $1.87 $0.98
Cumulative effect of change in accounting
principle (Notes B and H) -- -- 0.23
------- ------- -------
Net income per share $1.24 $1.87 $0.75
======= ======= =======
Weighted average common and
common equivalent shares outstanding 44,721 42,994 43,952
======= ======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<TABLE>
LOTUS DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
(In thousands) 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments (Note B) $416,693 $293,094
Accounts receivable, net of allowances
of $30,002 and $25,326 217,336 178,340
Inventory (Note C) 21,220 23,560
Other current assets 20,817 19,040
-------- --------
Total current assets 676,066 514,034
Property and equipment, net of accumulated depreciation
and amortization of $153,768 and $165,973 (Note D) 127,437 135,667
Software and other intangibles, net of accumulated
amortization of $123,016 and $110,715 (Note B) 88,625 99,299
Investments and other assets (Note E) 13,217 14,444
-------- --------
Total assets $905,345 $763,444
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
December 31,
(In thousands) 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks (Note I) $ -- $1,130
Current portion of long-term debt (Note I) 28,480 --
Accounts payable 45,914 40,922
Accrued compensation and benefits 36,368 27,180
Accrued and deferred income taxes (Note H) 49,017 48,790
Other accrued expenses 77,648 75,363
Deferred revenue (Note B) 39,996 24,483
-------- --------
Total current liabilities 277,423 217,868
Deferred income taxes (Note H) 49,531 37,398
Long-term debt (Note I) 50,000 108,740
Commitments and contingencies (Note F)
Stockholders' equity (Note G):
Preferred stock, $1.00 par value,
5,000 shares authorized, none issued -- --
Common stock, $.01 par value,
100,000 shares authorized;
62,152 issued; and 44,928
and 41,881 outstanding 622 622
Additional paid-in capital 251,414 216,740
Retained earnings 526,554 471,019
Treasury stock, 17,224 and 20,271 shares
at an average cost of $14.44 and $14.19 per share (248,728) (287,655)
Translation adjustment (1,471) (1,288)
-------- --------
Total stockholders' equity 528,391 399,438
-------- --------
Total liabilities and stockholders' equity $905,345 $763,444
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<TABLE>
LOTUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31,
(In thousands) 1993 1992 1991
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 55,535 $ 80,403 $ 33,116
Gain on sale of investment in Sybase, Inc. -- (49,706) --
Charge for purchased research and development 19,900 -- --
Depreciation and amortization 86,973 84,319 70,625
Cumulative effect of change in accounting principle -- -- 10,000
Change in assets and liabilities, net of effects from
acquisitions:
(Increase) in accounts receivable (42,000) (11,031) (49,514)
(Increase) decrease in inventory 3,207 7,681 (9,077)
Increase (decrease) in accounts payable and
accrued expenses 10,832 (1,295) 37,651
Increase in accrued and deferred income taxes 11,892 20,620 634
Increase in deferred revenue 15,601 521 7,819
Net change in other working capital items 259 (3,170) (2,780)
-------- -------- --------
Net cash provided by operating activities 162,199 128,342 98,474
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (30,587) (34,042) (38,806)
Payments for software and other intangibles (36,771) (39,315) (32,618)
Proceeds from sale of investment in Sybase, Inc. -- 77,719 --
Purchases of short-term investments, net (79,883) (31,551) (55,118)
Acquisitions (15,455) (8,725) (31,592)
Other 2,002 1,364 4,114
-------- -------- --------
Net cash used for investing activities (160,694) (34,550) (154,020)
-------- -------- --------
Cash flows from financing activities:
Repayment of long-term debt (30,260) (30,260) (21,000)
Purchase of common stock for treasury (8,107) (35,876) (55,397)
Issuance of common stock, including tax
benefit thereon 81,708 32,244 37,364
Increase (decrease) in short-term borrowings (1,130) (23,167) 18,885
-------- -------- --------
Net cash provided by (used for) financing activities 42,211 (57,059) (20,148)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 43,716 36,733 (75,694)
-------- -------- --------
Cash and cash equivalents, beginning of year 121,133 84,400 160,094
-------- -------- --------
Cash and cash equivalents, end of year $164,849 $121,133 $ 84,400
======== ======== ========
</TABLE>
<TABLE>
Supplemental Cash Flow Information
<CAPTION>
(In thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest received $9,971 $10,952 $13,138
Interest paid ($8,702) ($13,970) ($17,185)
Income taxes paid ($24,698) ($18,982) ($23,973)
- ------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<TABLE>
LOTUS DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Years ended December 31, 1991, 1992,
and 1993 (Note G) Additional
Common Paid-In Retained Treasury Translation
(In thousands) Stock Capital Earnings Stock Adjustment Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990 $591 $157,368 $357,500 ($206,587) $ 567 $309,439
---- -------- -------- ---------- ------- --------
Net Income -- -- 33,116 -- -- 33,116
Acquisition of 2,104 shares of common stock -- -- -- (55,397) -- (55,397)
Issuance of 464 shares of common stock under
employee stock purchase plan 5 7,797 -- -- -- 7,802
Exercise of 43 incentive stock options 1 474 -- -- -- 475
Exercise of 1,605 non-qualified stock options 16 29,071 -- -- -- 29,087
Currency translation effect -- -- -- -- (1,409) (1,409)
---- -------- -------- ---------- -------- ---------
Balance, December 31, 1991 613 194,710 390,616 (261,984) (842) 323,113
---- -------- -------- ---------- -------- ---------
Net Income -- -- 80,403 -- -- 80,403
Acquisition of 1,968 shares of common stock -- -- -- (35,876) -- (35,876)
Issuance of 395 shares of common stock under
employee stock purchase plan -- 1,308 -- 5,518 -- 6,826
Exercise of 1,229 non-qualified stock options 9 20,722 -- 4,687 -- 25,418
Currency translation effect -- -- -- -- (446) (446)
---- -------- -------- ---------- -------- ---------
Balance, December 31, 1992 622 216,740 471,019 (287,655) (1,288) 399,438
---- -------- -------- ---------- -------- ---------
Net Income -- -- 55,535 -- -- 55,535
Acquisition of 250 shares of common stock -- -- -- (8,107) -- (8,107)
Issuance of 360 shares of common stock under
employee stock purchase plan -- 2,894 -- 5,139 -- 8,033
Exercise of 2,937 non-qualified stock options -- 22,604 -- 41,895 -- 64,499
Income tax benefit related to exercise
of stock options -- 9,176 -- -- -- 9,176
Currency translation effect -- -- -- -- (183) (183)
---- -------- -------- ---------- -------- ---------
Balance, December 31, 1993 $622 $251,414 $526,554 ($248,728) ($1,471) $528,391
==== ======== ======== ========== ======== =========
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
LOTUS DEVELOPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A BUSINESS
The Company and its subsidiaries are engaged in the development,
manufacturing, marketing and support of applications software.
The Company sells its products primarily through distributors and
resellers.
B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
.....................
The consolidated financial statements comprise those of the
Company and its wholly owned domestic and foreign subsidiaries.
All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition
...................
Revenue from the sale of software products to distributors,
resellers and original equipment manufacturers is recognized when
the products are shipped. Revenue from the sale of software
products under installation agreements with end-users is
recognized upon expected installation by the customer, provided
that payment is due currently. Maintenance, service and
subscription revenues are recognized ratably over the term of the
related sales contract or as services are performed. Allowances
for estimated future product returns under the Company's
agreements with its distributors and resellers for stock
balancing and upgrade swaps are provided in the same period as
the related revenue.
Cash and Short-term Investments
...............................
All highly liquid investments with a maturity of three months or
less at the date of purchase are considered to be cash
equivalents, and those with maturities greater than three months
are considered to be short-term investments. Short-term
investments are stated at cost, which approximates market.
Cash equivalents and short-term investments consist
primarily of certificates of deposit, repurchase agreements,
commercial paper and other money market instruments.
December 31,
(In thousands) 1993 1992
- ----------------------------------------------------------
Cash and cash equivalents $164,849 $121,133
Short-term investments 251,844 171,961
- ----------------------------------------------------------
Cash and short-term investments $416,693 $293,094
==========================================================
Inventory
.........
Inventory is stated at cost, using the first-in, first-out (FIFO)
method, but not in excess of net realizable value.
Property, Equipment and Depreciation
....................................
Property and equipment are stated at cost. Depreciation and
amortization of property and equipment are computed using the
straight-line method over the estimated useful life of the assets
as follows:
- ----------------------------------------------------------------------
Buildings 30 years
Computer Equipment 3 - 5 years
Manufacturing and other equipment 3 - 5 years
Furniture and fixtures 5 years
Leasehold improvements Shorter of lease term or life of asset
Building improvements Shorter of 10 years or life of asset
- -----------------------------------------------------------------------
Maintenance and repairs are expensed as incurred. The costs of
retired assets are removed from asset accounts and related
depreciation is removed from accumulated depreciation.
Software and Other Intangibles
..............................
Costs related to research, design and development of computer
software are charged to research and development expense as
incurred. In accordance with current accounting rules, eligible
costs to complete a product are capitalized and amortized over
the economic life of the product on a straight-line basis,
generally three years. Internal software costs of $25.0 million,
$26.0 million and $27.7 million were capitalized in 1993, 1992
and 1991. Related amortization charges of $25.2 million for
1993, $22.2 million for 1992 and $13.9 million for 1991 are
reflected in cost of sales.
Intangible assets associated with acquisitions capitalized
in 1993 of $15.2 million were largely attributable to the
acquisitions of Approach Software Corporation and consulting
services businesses. Intangible assets of $22.1 million and $32.5
million were acquired in 1992 and 1991. These assets are
amortized on a straight-line basis, generally over a three to
five year period. Related amortization charges, substantially all
of which were reflected in cost of sales, totaled $22.5 million
in 1993, $19.2 million in 1992 and $15.9 million in 1991.
Income Taxes
............
The Company adopted Statement of Financial Accounting Standard
No. 109, Accounting for Income Taxes ("FAS 109"), retroactive to
January 1, 1991. Prior to 1991, the Company accounted for income
taxes under Accounting Principles Board Opinion No. 11. Under
FAS 109, deferred tax liabilities and assets are determined based
on the difference between the financial statement carrying
amounts and tax basis of assets and liabilities using current
statutory tax rates. FAS 109 also requires a valuation reserve
against deferred tax assets if, based upon weighted available
evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. (See Note H).
U.S. Federal income taxes, net of applicable foreign tax
credits, are provided on the portion of foreign earnings which
may be remitted to the parent in future years. Undistributed
earnings of foreign affiliates reinvested in those operations
indefinitely, and for which no U.S. taxes have been provided,
aggregated approximately $40 million at December 31, 1993 and
1992.
Net Income per Share
....................
Net income per share is calculated using the weighted average
number of common shares and common share equivalents outstanding
during the year. Common share equivalents are attributable to
unexercised stock options.
Foreign Currency Translation
............................
Assets and liabilities of foreign subsidiaries are translated to
U.S. dollars at year-end exchange rates. Income and expense
items are translated at average rates of exchange during the
year. Resulting translation adjustments are accumulated in a
separate component of stockholders' equity. The effect of
exchange rate changes on cash and cash equivalents was immaterial
in 1993, 1992 and 1991.
In an effort to minimize the effect of exchange rate
fluctuations on the results of its operations and the asset and
liability positions of foreign subsidiaries, the Company hedges
certain portions of its foreign currency exposure through the use
of forward exchange contracts and options on foreign currencies.
It does not engage in foreign currency speculation. The cash
flows related to the gains and losses on foreign currency hedges
are classified in the statements of cash flows as part of cash
flows from operating activities.
Forward exchange contracts primarily to exchange foreign
currencies for U.S. dollars totaling $50 million were outstanding
at December 31, 1993. These contracts are used to hedge asset
and liability positions of foreign subsidiaries. Gains and losses
associated with currency rate changes on these contracts are
recorded currently in income, offsetting losses and gains on the
related assets and liabilities. All contracts, which primarily
hedge European currencies and Japanese yen, mature during 1994.
Financial Instruments
.....................
The fair value of financial instruments, including cash
equivalents, marketable securities, debt, options on foreign
currencies and forward exchange contracts, approximated their
carrying values at December 31, 1993. Fair values have been
determined through information obtained from market sources and
management estimates.
Diversification of Credit Risk
...............................
The Company's investment portfolio is diversified and consists of
cash equivalents and short-term investments placed with high
credit qualified institutions. At December 31, 1993 and 1992,
approximately 41% and 38% of accounts receivable represented
amounts due from ten customers. The credit risk in the Company's
trade accounts receivable is substantially mitigated by the
Company's credit evaluation process, reasonably short collection
terms and the geographical dispersion of sales transactions.
C INVENTORY
Inventory consists of the following:
December 31,
(In thousands) 1993 1992
- ----------------------------------------------------------
Finished goods $13,962 $14,030
Raw materials 7,258 9,530
- ----------------------------------------------------------
Total $21,220 $23,560
==========================================================
D PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
(In thousands) 1993 1992
- ------------------------------------------------------------------
Land $ 7,395 $ 3,892
Buildings and building improvements 55,463 54,959
Leasehold improvements 36,699 39,537
Computer equipment 111,045 126,482
Manufacturing and other equipment 44,191 47,794
Furniture and fixtures 26,412 28,976
- ------------------------------------------------------------------
281,205 301,640
Less accumulated depreciation
and amortization 153,768 165,973
- ------------------------------------------------------------------
Property and equipment, net $127,437 $135,667
==================================================================
E INVESTMENTS AND OTHER ASSETS
Investments and other assets consist of the following:
December 31,
(In thousands) 1993 1992
- ----------------------------------------------------------
Marketable securities $ 3,004 $ 5,829
Deposits and other 10,213 8,615
- ----------------------------------------------------------
Total $13,217 $14,444
==========================================================
Marketable securities represent investments in interest bearing
securities held at a custodial institution in Puerto Rico. These
securities are carried at cost, which approximates market.
F LEASE OBLIGATIONS
The Company leases certain facilities and equipment under various
operating leases. At December 31, 1993, future minimum lease
payments under operating leases with terms in excess of one year
were as follows:
Year (In thousands)
- -----------------------------------
1994 $ 40,715
1995 30,109
1996 23,086
1997 19,136
1998 17,254
Future years 37,424
- ----------------------------------
Total $167,724
==================================
Total rental expense was approximately $41.7 million, $40.2
million and $38.9 million for the years ended December 31, 1993,
1992 and 1991.
G STOCK PLANS
Stock Option Plans
..................
The Company has stock option plans for employees and consultants
which provide for non-qualified and incentive stock options.
Options are granted at a price not less than the fair market
value on the date of grant. The options generally become
exercisable over a four-year period and expire over a period not
exceeding ten years. At December 31, 1993, 6.0 million shares
were available for grant.
The Company also has a stock option plan for non-employee
directors which provides that each independent director of the
Company be granted annually an option to acquire 10,000 shares of
common stock at a price equal to the fair market value on the
date of grant. The term of each option is for a period not
exceeding ten years. At December 31, 1993, 175,000 shares were
available for grant.
Activity in these plans was as follows:
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands, except option prices) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option, beginning of year 7,154 8,782 8,204
Options granted (at option prices of
$19.63 to $47.38 in 1993,
$17.38 to $33.88 in 1992 and
$18.13 to $35.63 in 1991) 2,453(B) 788(A) 3,081
Options exercised (2,937) (1,229) (1,605)
Options cancelled (856) (1,187) (898)
- ------------------------------------------------------------------------------
Shares under option, end of year
(at exercise prices of $16.00 to $47.38
in 1993 and $6.25 to $37.88 in 1992
and 1991) 5,814 7,154 8,782
- ------------------------------------------------------------------------------
Average price of options exercised $22.09 $20.74 $18.12
- ------------------------------------------------------------------------------
Shares exercisable 1,412 2,919 2,482
- ------------------------------------------------------------------------------
Average option price of shares
exercisable $23.71 $22.49 $21.92
==============================================================================
<FN>
(A) The Company's annual grant to employees, historically made
in December, was moved to January 1993 to more closely link
option grants to performance. In January 1993, the Company
granted 1.8 million options at fair market value on the date of grant.
(B) In January 1994, the Company granted a total of 2.6 million
options to its employees. Of the total grant, 1.6
million options were granted at fair market value on the
date of grant. The remaining 1.0 million options were
granted at 120% of fair market value on the date of grant.
</TABLE>
Employee Stock Purchase Plan
............................
The Employee Stock Purchase Plan authorizes the Company to sell
up to 4.1 million shares of common stock to employees on a
limited basis through voluntary payroll withholdings. The stock
price to employees is equal to 85% of the market price on the
first or last day of each six-month withholding period,
whichever is lower. Through December 31, 1993, approximately
2.2 million shares were purchased by employees pursuant to the
plan.
Shares issued to employees during the past three years are
summarized in the table below.
Years ended December 31,
(In thousands, except per share data) 1993 1992 1991
- -----------------------------------------------------------------------
Number of shares 360 395 464
Proceeds $8,033 $6,826 $7,802
Average price per share $22.34 $17.29 $16.82
=======================================================================
H INCOME TAXES AND CHANGE IN ACCOUNTING PRINCIPLE
In the first quarter of 1993, the Company adopted Financial
Accounting Standard No. 109, Accounting for Income Taxes ("FAS
109") which requires a change from an income statement to a
balance sheet approach for accounting for income taxes. The
Company has elected to apply the provisions of FAS 109
retroactively to January 1, 1991. Accordingly, the cumulative
effect of this change decreased 1991 net income by $10 million or
$0.23 per share relating to the establishment of a valuation
reserve for foreign tax benefits. The effect of the adoption of
FAS 109 on 1992 income was not significant.
The components of the provision for income taxes were as follows:
Years ended December 31,
(In thousands) 1993 1992 1991
- -------------------------------------------------------------------
Domestic:
Current $18,437 $7,970 $6,915
Deferred 7,581 17,902 (2,354)
- -------------------------------------------------------------------
26,018 25,872 4,561
- -------------------------------------------------------------------
Foreign:
Current 19,763 9,470 14,280
Deferred (347) 3,460 5,354
- -------------------------------------------------------------------
19,416 12,930 19,634
- -------------------------------------------------------------------
State:
Current 800 800 375
Deferred -- -- --
- -------------------------------------------------------------------
800 800 375
- -------------------------------------------------------------------
Total:
Current 39,000 18,240 21,570
Deferred 7,234 21,362 3,000
- -------------------------------------------------------------------
Total income taxes $46,234 $39,602 $24,570
===================================================================
Income before provision for income taxes and cumulative effect of
a change in accounting principle from domestic and foreign
operations was as follows:
Years ended December 31,
(In thousands) 1993 1992 1991
- -------------------------------------------------------------------
Domestic $37,337 $72,622 ($32,771)
Foreign 64,432 47,383 100,457
- -------------------------------------------------------------------
Total $101,769 $120,005 $67,686
===================================================================
Provisions for income taxes were at rates other than the U.S.
Federal statutory tax rate for the following reasons:
Years ended December 31,
1993 1992 1991
- -------------------------------------------------------------------
U.S. Federal statutory tax rate 35.0% 34.0% 34.0%
Foreign operations 4.4 (.8) (2.5)
Research and development credit (4.5) (4.0) --
Impact of U.S. Federal statutory
rate increase on beginning
deferred taxes 2.0 -- --
Tax exempt interest income (.6) (.9) (2.8)
Non-deductible amortization 2.0 3.7 5.6
Other, net (.3) 1.0 2.0
- -------------------------------------------------------------------
Subtotal 38.0 33.0 36.3
Non-deductible charge for purchased
research and development 7.4 -- --
- -------------------------------------------------------------------
Effective tax rate 45.4% 33.0% 36.3%
===================================================================
Consolidated net income includes income of manufacturing
subsidiaries operating in Ireland, Singapore and Puerto Rico.
Income from the sale and licensing of products manufactured in
Ireland is subject to a 10% tax rate through the year 2010.
Income from Singapore operations is taxed at favorable rates,
relative to U.S. statutory rates, for a limited time period under
a grant issued by the Singapore government. The income from
products manufactured in Puerto Rico, which is not subject to
U.S. Federal income tax, is subject to a local tax rate of
approximately 5%. In addition, remitted Puerto Rico earnings may
be subject to Puerto Rico withholding taxes at rates not in
excess of 10%.
For U.S. Federal income tax purposes, at December 31, 1993,
the Company has tax credit carryforwards of approximately $35
million and a net operating loss carryforward of $38 million,
which expire between 1994 and 2008. The net operating loss
carryforward includes tax deductions related to stock option
activity.
The Internal Revenue Service ("IRS") is examining the
Company's U.S. income tax returns for the years 1985 through
1989. The IRS has notified the Company that it intends to
propose adjustments to its income tax returns for that period.
The Company will contest these adjustments and believes that any
sustained adjustments from the IRS examination will not be
material to the financial statements.
Deferred taxes result from temporary differences in the
recognition of revenues and expenses for tax and financial
reporting purposes. The sources of these temporary differences
for 1993, 1992 and 1991, and the effect of each on the tax
provision, were as follows:
Years ended December 31,
(In thousands) 1993 1992 1991
- --------------------------------------------------------------------
Unrepatriated foreign earnings, net $14,110 $11,911 $17,237
Depreciation (1,130) (1,769) (2,616)
Compensation (1,423) 4,338 1,849
Capitalized software costs 1,590 557 1,760
Charges to (provision for) reserves (1,654) 2,031 (11,276)
Deferred revenue (2,171) 3,628 (3,418)
Other, net (2,088) 666 (536)
- ---------------------------------------------------------------------
Total $ 7,234 $21,362 $ 3,000
=====================================================================
The components of the net deferred tax liability are as follows:
December 31,
(In thousands) 1993 1992
- -------------------------------------------------------------
Deferred tax assets:
Reserves $16,352 $12,960
Depreciation 5,871 5,054
Tax credits against unrepatriated
foreign earnings 77,363 58,038
Tax return carryforwards 48,233 49,438
Deferred revenue 2,574 391
Other 11,934 9,312
- -------------------------------------------------------------
Total 162,327 135,193
- -------------------------------------------------------------
Valuation allowances (A) 35,794 29,360
- -------------------------------------------------------------
Net deferred tax assets 126,533 105,833
- -------------------------------------------------------------
Deferred tax liabilities:
Capitalized software costs 10,381 8,552
Unrepatriated foreign earnings 130,417 106,906
Compensation 2,972 4,269
Other 6,389 4,051
- -------------------------------------------------------------
Total 150,159 123,778
- -------------------------------------------------------------
Net deferred tax liability $23,626 $17,945
=============================================================
(A) At December 31, 1993 and 1992, there is a $10.0 million
valuation allowance for foreign tax benefits. In addition,
valuation allowances of $25.8 million and $19.4 million at
December 31, 1993 and 1992 have been established for tax
return carryforwards resulting from stock option deductions.
The tax benefit associated with the stock option deductions
will be credited to equity when realized.
I DEBT
Long-term Debt
..............
Long-term debt consists of the following:
December 31,
(In thousands) 1993 1992
- -------------------------------------------------------------
Notes payable to banks, bearing
interest at LIBOR plus 0.45%
per annum $50,000 $50,000
Notes payable to insurance
companies, bearing interest at
10.57% per annum 28,480 58,740
- --------------------------------------------------------------
Total debt 78,480 108,740
- --------------------------------------------------------------
Less current portion 28,480 --
- --------------------------------------------------------------
Long-term debt $50,000 $108,740
==============================================================
In July 1990, the Company completed a $50 million floating rate
financing with a group of banks collateralized by its office
facility in Cambridge, Massachusetts. Principal payment of the
notes is due in 1997.
In May 1989, the Company arranged a $100 million private
debt placement with a group of insurance companies. The final
principal payment of $28 million is due in June 1994. The Company
is required, among other things specified in the note agreements
with insurance companies, to maintain a minimum level of net
worth as well as specified debt to capitalization and fixed
charge coverage ratios.
The Company also maintains two multi-currency revolving
credit agreements with groups of domestic and international
banks. The agreements commit the participating banks, subject to
certain terms and conditions, to lend an aggregate of $150
million at December 31, 1993. Of this aggregate commitment, $75
million expires in June 1994 and the remaining $75 million
expires in June 1995. Interest rates on borrowings are set
under a number of bid options not exceeding 5/8% over LIBOR.
Commitment fees are payable on unborrowed amounts at a maximum
rate of 1/4% per annum. The covenants of these facilities
conform closely to the covenants in the insurance company note
agreements.
Short-term debt
...............
Notes payable to banks of $1.1 million at December 31, 1992 were
borrowings under unsecured credit facilities with several
domestic and international banks which are primarily used to meet
short-term domestic and international cash requirements. There
were no such borrowings outstanding at December 31, 1993. The
average short-term borrowing was $0.7 million for 1993 compared
with $2.2 million for 1992. The maximum aggregate amount
outstanding at any month-end was $1.2 million for 1993 and $6.2
million for 1992. The weighted average interest rate was 7.1%
during 1993, 9.1% during 1992 and 10.8% in 1991, and 11.1% and
7.1% at December 31, 1992 and 1991. As of December 31, 1993, the
Company had unused short-term credit facilities of $36 million.
J OTHER (INCOME)/EXPENSE, NET
Other (income)/expense consists of the following:
Years ended December 31,
(In thousands) 1993 1992 1991
- ------------------------------------------------------------------------
Charge for purchased
research and development $19,900 $ -- $ --
Restructuring charges -- 15,000 23,000
Gain on sale of investment in
Sybase, Inc. -- (49,706) --
Interest income (11,890) (10,679) (13,829)
Interest expense 8,525 13,547 16,738
Other, net 822 655 3,915
- -------------------------------------------------------------------------
Total other (income)/expense, net $17,357 ($31,183) $ 29,824
=========================================================================
In June 1993, the Company acquired all outstanding shares of
Approach Software Corporation. A significant portion of the
purchase price, $19.9 million, was allocated to purchased
research and development. This amount, which is not deductible
for tax purposes, was charged to operations at the acquisition
date.
In December 1992 and 1991, the Company recorded
restructuring charges of $15 million and $23 million. During
1993 and 1992, the Company took a number of actions consistent
with the previously recorded reserves, including the closing of
its Puerto Rican manufacturing facility, restructuring of
operations in North America and Europe, employee separations and
related facilities consolidations and equipment write-downs.
In 1992, the Company sold its investment in Sybase, Inc.,
resulting in a pre-tax gain of $49.7 million.
K ACQUISITIONS AND DISPOSITIONS
Approach Software Corporation
.............................
In June 1993, the Company acquired all outstanding shares of
Approach Software Corporation ("Approach"), a privately held
developer of end-user relational database applications for the
Windows environment. The purchase price consisted of
approximately $15 million of initial cash consideration, the
assumption of certain liabilities and future consideration. The
acquisition has been accounted for using the purchase method.
The purchase price was allocated among the identifiable
tangible and intangible assets based on the fair market value of
those assets. After allocating the purchase price to net tangible
assets, purchased software, which had reached technological
feasibility, was valued using a risk adjusted cash flow model,
under which future cash flows were discounted taking into account
risks related to existing and future markets and an assessment of
the life expectancy of the purchased software. This analysis
resulted in an allocation of $3.4 million to purchased software,
which was capitalized. The purchased software will be amortized
over three years.
Purchased research and development, which had not reached
technological feasibility and which had no alternative future
use, was valued using the same methodology. Expected future cash
flows associated with in-process research and development were
discounted considering risks and uncertainties related to the
viability of and potential changes in future target markets and
to the completion of the products that will be ultimately
marketed by Lotus. This analysis resulted in an allocation of
$19.9 million to purchased research and development expense.
This amount, which is not deductible for tax purposes, was
charged to operations at the acquisition date. Approach's
operating results have been included in the consolidated
financial statements from the date of acquisition. Pro forma
statements of operations would not differ materially from
reported results.
One Source
..........
Effective August 28, 1993, the Company sold its One Source
business, a developer and marketer of CD-ROM information
products. No gain or loss was recognized on the sale. The
financial statements reflect the operations of One Source through
the effective date.
cc:Mail
........
In March 1991, the Company acquired all outstanding shares of
cc:Mail, Inc. ("cc:Mail"), a privately held concern which
developed and marketed the leading LAN-based electronic mail
product, for $31.6 million and additional payments contingent
upon future performance. In 1992, final contingent payments of
$8.7 million were made. The acquisition has been accounted for
using the purchase method. cc:Mail's operating results have been
included in the consolidated financial statements from the date
of acquisition. Pro forma statements of operations would not
differ materially from reported results.
L EMPLOYEE BENEFIT PLANS
The Company maintains a discretionary, non-contributory profit
sharing plan for its employees. Contributions are based on a
percentage of consolidated operating profit and are allocated
among employees on the basis of compensation received during the
plan year. Profit sharing expense was $11.1 million, $7.1 million
and $8.3 million in 1993, 1992 and 1991.
In the U.S., the profit sharing plan was integrated with a
pension plan which provided a minimum guaranteed defined benefit
based on the employee's years of service and final average
compensation. In June 1992, the Company elected to suspend the
pension plan with the intent to terminate at a future date. The
curtailment did not have a material impact on the Company's
financial statements, nor will the expected termination. The
actuarially determined pension cost related to the minimum
guaranteed retirement benefit under the pension plan was not
significant in 1993, 1992 and 1991.
Additionally, the Company offers a savings plan which allows
eligible U.S. employees to make tax-deferred contributions, a
portion of which are matched by the Company. Company
contributions under the savings plan were $3.8 million in 1993,
$3.2 million in 1992 and $3.0 million in 1991.
The Company also maintains retirement plans, principally
defined contribution plans, covering substantially all of its
international employees. Costs related to these plans amounted
to approximately $3.4 million in 1993, $3.2 million in 1992 and
$2.5 million in 1991.
The Company does not offer postretirement benefits other
than those described above.
M INTERNATIONAL OPERATIONS
Sales and marketing operations outside the United States are
conducted principally through foreign sales subsidiaries and
through various representative and distributorship arrangements.
The Company's international manufacturing operations are
located in Ireland and Singapore. The products of these
manufacturing facilities are sold through the Company's foreign
sales subsidiaries and, where the Company has not established a
presence of its own, direct to distributors in those countries.
Other financial information by geographical area is summarized
below:
<TABLE>
<CAPTION>
(In thousands) North Asia/ Europe/
America Pacific Other Eliminations Consolidated
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993:
Net sales $531,536 $149,700 $308,938 ($9,006) $981,168
- ------------------------------------------------------------------------------------------
Operating income:
By area 51,151 34,085 46,659 (441) 131,454
Corporate expenses (12,328)
Other income/
(expense) (17,357)
---------
Income before
provision for
income taxes 101,769
- ------------------------------------------------------------------------------------------
Total assets $489,419 $130,869 $299,577 ($14,520) $905,345
==========================================================================================
1992:
Net sales $494,592 $116,199 $300,049 ($10,691) $900,149
- ------------------------------------------------------------------------------------------
Operating income:
By area 45,572 25,066 30,419 (567) 100,490
Corporate expenses (11,668)
Other income/
(expense) 31,183
---------
Income before
provision for
income taxes 120,005
- ------------------------------------------------------------------------------------------
Total assets $431,487 $78,545 $266,017 ($12,605) $763,444
==========================================================================================
1991:
Net sales $455,802 $117,180 $263,826 ($7,913) $828,895
- ------------------------------------------------------------------------------------------
Operating income:
By area 19,884 34,539 57,493 (895) 111,021
Corporate expenses (13,511)
Other income/
(expense) (29,824)
--------
Income before
provision for
income taxes and
cumulative effect
of change in
accounting principle 67,686
- ------------------------------------------------------------------------------------------
Total assets $431,598 $45,131 $255,745 ($6,937) $725,537
==========================================================================================
</TABLE>
Intersegment sales between geographic areas presented are
insignificant. For this presentation, certain expenses incurred
at the Company's corporate offices were classified as general
corporate expenses or allocated to geographic areas on the basis
of sales.
Sales to unaffiliated customers outside the United States,
including U.S. export sales, were $485.9 million for the year
1993, $434.9 million for the year 1992 and $421.0 million for the
year 1991. In 1993, one customer accounted for 12% of world wide
sales and a second customer accounted for 11% of such sales. No
one customer accounted for more than 10% of worldwide sales in
1992 or 1991.
N SHAREHOLDER RIGHTS PLAN
The Company has a shareholder rights plan which grants to holders
of record one stock purchase right per share of common stock upon
the occurrence of certain triggering events. Such events would
include the acquisition of Lotus shares through open market
purchases or a tender offer that, in the aggregate, equal or
exceed 15% of outstanding shares.
Should a triggering event occur, holders of such rights
would be entitled to purchase Lotus common stock (or stock of the
acquiring entity, as the case may be) at a 50% discount from its
then current market value. Each right entitles the holder to
purchase shares with a market value aggregating $150 for a price
of $75. Such rights do not extend to any holder whose action
triggered the rights.
The rights expire in November 1998 and may be redeemed prior
to that time at the option of the Board of Directors for nominal
consideration. Until a triggering event occurs, the rights will
not trade separately from the related Lotus common stock.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Lotus Development Corporation
We have audited the accompanying consolidated balance sheets of
Lotus Development Corporation as of December 31, 1993 and 1992,
and the related consolidated statements of operations, cash
flows, and stockholders' equity for each of the three years in
the period ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Lotus Development Corporation at December
31, 1993 and 1992, and the consolidated results of its operations
and cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Notes B and H to the consolidated financial
statements, effective January 1, 1991, the Company changed its
method of accounting for income taxes.
Coopers & Lybrand
Boston, Massachusetts
January 26, 1994
LOTUS SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
Five-Year Summary of Selected Financial Data
(In thousands, except per share data)
<CAPTION>
1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $981,168 $900,149 $828,895 $692,242 $556,033
Income before income taxes and cumulative
effect of change in accounting principle 101,769 120,005 67,686 52,826 84,951
Net income 55,535 80,403 33,116 23,254 67,961
Net income per share 1.24 1.87 0.75 0.54 1.61
Total assets 905,345 763,444 725,537 656,807 604,277
Cash and short-term investments 416,693 293,094 224,810 245,386 274,977
Working capital 398,643 296,166 207,670 226,961 299,958
Long-term debt 50,000 108,740 139,000 160,000 202,440
Stockholders' equity 528,391 399,438 323,113 309,439 278,305
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
Quarterly Results of Operations
(Unaudited)
<CAPTION>
(In thousands, except 1993, Three Months Ended
per share data) April 3 July 3 Oct 2 Dec 31 Year
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $227,004 $235,785 $240,104 $278,275 $981,168
Gross margin 176,625 184,751 193,295 224,054 778,725
Income before provision
for income taxes 20,791 5,949 28,600 46,429 101,769
Net income 12,267 (4,649) 18,304 29,613 55,535
Net income per
share $0.29 ($0.11) $0.41 $0.64 $1.24
Common stock prices
High 28 1/2 37 48 1/4 58 3/4 58 3/4
Low 18 3/4 23 1/2 30 1/4 41 3/4 18 3/4
(In thousands, except 1992, Three Months Ended
per share data) March 28 June 27 Sept 26 Dec 31 Year
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $227,063 $220,319 $206,742 $246,025 $900,149
Gross margin 177,018 171,775 159,353 191,900 700,046
Income before provision
for income taxes 31,006 22,299 44,937 21,763 120,005
Net income 20,774 14,940 30,108 14,581 80,403
Net income per
share $0.47 $0.34 $0.72 $0.35 $1.87
Common stock prices
High 38 3/4 35 1/2 20 3/4 22 3/4 38 3/4
Low 25 1/4 17 3/4 15 1/2 14 3/4 14 3/4
</TABLE>
The Company has historically not paid cash dividends on its
common stock and has retained earnings for use in its business.
At the end of 1993, the number of shareholders of the
Company's common stock was approximately 34,000.
Notes to Supplemental Financial Information and
Quarterly Results of Operations:
(1) 1993 amounts reflect a charge to operations of $19.9
million, or $0.45 per share, in the second quarter for purchased
research and development related to the Approach Software Corporation
acquisition.
(2) 1992 amounts include pre-tax gains on the sale of the
Company's investment in Sybase, Inc. of $34.6 million in the third
quarter and $15.1 million in the fourth quarter with a total gain
for the year of $49.7 million on a pre-tax basis and $33.3 million,
or $0.77 per share, on an after-tax basis. 1992 amounts also include
a restructuring charge in the fourth quarter of $15 million on a pre-tax
basis and $10.1 million, or $0.23 per share, on an after-tax basis.
(3) 1991 amounts include a fourth quarter restructuring charge of
$23 million on a pre-tax basis and $18.6 million, or $0.42 per share,
on an after-tax basis.
(4) 1990 amounts reflect a charge to operations of $53 million,
or $1.23 per share, in the fourth quarter for purchased research and
development related to the Samna acquisition.
(5) The Company's common stock is traded on the over-the-counter
market and is quoted on the NASDAQ National Market System under
the symbol LOTS.
BOARD OF DIRECTORS
Jim Manzi
President, CEO and Chairman of the Board
Lotus Development Corporation
Richard S. Braddock
Lawrence G. Graev
Partner
O'Sullivan Graev & Karabell
William H. Gray, III
President and CEO
United Negro College Fund
Aldo Papone
Senior Advisor
American Express Company, Inc.
Retired Chairman and CEO
American Express Travel Related Services, Inc.
Michael E. Porter
Professor of Business Administration
Harvard Business School
Chester A. Siuda
General Partner
Crown Associates
Henri A. Termeer
Chairman and CEO
Genzyme Corporation
EXECUTIVE AND CORPORATE OFFICERS
Jim Manzi
President and CEO
Kc Branscomb
Senior Vice President
Business Development
Edwin J. Gillis
Senior Vice President
Finance and Operations
Chief Financial Officer
John B. Landry
Senior Vice President
Development
Chief Technology Officer
June L. Rokoff
Senior Vice President
Development
Robert P. Schechter
Senior Vice President
International Business Group
Robert K. Weiler
Senior Vice President
North American Business Group
Thomas M. Lemberg
Vice President
General Counsel and Secretary
Lyn L. Benton
Vice President
Finance and Corporate Services
and Corporate Controller
VICE PRESIDENTS
Paul Bailey
Vice President
Europe/Middle East/Africa
Jeffrey Beir
Vice President
Spreadsheet and Database
Products Division
Deborah M. Besemer
Vice President
North American Sales
Russell J. Campanello
Vice President
Human Resources
Allen Carney
Vice President
International Marketing
David Champagne
Vice President
Customer Service and Support
David Connor
Vice President
Consulting Services Group
Gene P. Cort
Vice President
Information Technology
Larry L. Crume
Vice President
Electronic Messaging and
Mobile Computing Division
Hemang D. Dave
Vice President
Alliances
Tim Davenport
Vice President
SmartSuite Products and
Technology Division
James Fieger
Vice President
Lotus Development Latin America
Stuart C. Kazin
Vice President
Worldwide Operations and
Information Systems
Saburo Kikuchi
President
Lotus Development Japan
Steve King
Vice President
Lotus Development (Asia Pacific) B.V.
Ilene H. Lang
Vice President
International Product Development
Jack Martin
Vice President
Software Business Group
Finance and Business Development
Said Mohammadioun
Vice President
Word Processing and
Presentation Graphics Division
Jeffrey P. Papows
Vice President
Notes Product Division
Eileen Rudden
Vice President
Product Marketing
John C. Throckmorton
Vice President
Word Processing Division
Steve Turner
Vice President
1-2-3 Development
CORPORATE DIRECTORY
Corporate Headquarters
55 Cambridge Parkway
Cambridge, Massachusetts 02142
(617) 577-8500
Lotus North American Offices
Phoenix, Arizona
Irvine, California
Los Angeles, California
Mountain View, California
Redwood City, California
San Francisco, California
Denver, Colorado
Hartford, Connecticut
Miami, Florida
Orlando, Florida
Atlanta, Georgia
Chicago, Illinois
Indianapolis, Indiana
New Orleans, Louisiana
Boston, Massachusetts
Detroit, Michigan
Grand Rapids, Michigan
Minneapolis, Minnesota
St. Louis, Missouri
Edison, New Jersey
Clifton Park, New York
New York, New York
Rochester, New York
Durham, North Carolina
Cincinnati, Ohio
Cleveland, Ohio
Columbus, Ohio
Bala Cynwyd, Pennsylvania
Pittsburgh, Pennsylvania
Austin, Texas
Dallas, Texas
Houston, Texas
Arlington, Virginia
Seattle, Washington
Calgary, Alberta
Vancouver, B.C.
Ottawa, Ontario
Toronto, Ontario
Montreal, Quebec
Manufacturing and Distribution
Lotus Development Corporation
North Reading, Massachusetts
Lotus Development B.V.
Dublin, Ireland
Lotus Development Distribution Ltd.
Dublin, Ireland
Lotus Development B.V.
Singapore, Republic of Singapore
International Locations
Lotus Development Pty. Ltd.
Sydney, Canberra and Melbourne, Australia
Lotus Development GmbH
Vienna, Austria
Lotus Development Benelux B.V.
Brussels, Belgium
Lotus Desenvolvimento de Software Ltda.
Sio Paulo and Rio de Janeiro, Brazil
Lotus Development SOLA
(Argentina, Bolivia, Chile, Paraguay,
Peru, Uruguay)
Santiago, Chile
Lotus Development Denmark
Horsholm, Denmark
Lotus Development Finland
Helsinki, Finland
Lotus Development SA
Paris, France
Lotus Development GmbH
Berlin, Dusseldorf, Frankfurt, Hamburg,
Stuttgart and Munich, Germany
Lotus Development Software
(Hong Kong) Ltd.
Hong Kong
Lotus Development India
New Delhi, India
Lotus Development Indonesia
Jakarta, Indonesia
Lotus Development Ireland
Dublin, Ireland
Lotus Development Italia SPA
Milan and Rome, Italy
Lotus Development Japan Ltd.
Tokyo, Japan
Lotus Sales and Services Sdn Bhd
Kuala Lumpur, Malaysia
Lotus Development European Corporation
Mexico City, Mexico
Lotus Development Benelux B.V.
Diemen, The Netherlands
Lotus Development B.V.
Curaiao, Netherlands Antilles
Lotus Development NZ Ltd.
Wellington, New Zealand
Lotus Development Norway
Oslo, Norway
Lotus Development PRC
Beijing, People's Republic of China
Lotus Development Portugal
Lisbon, Portugal
Lotus Development Russia
Moscow, Russia
Lotus Development B.V.
Singapore, Republic of Singapore
Lotus Development SA Pty. Ltd.
Johannesburg, South Africa
Lotus Development Korea Ltd.
Seoul, South Korea
Lotus Development Iberica S.A.
Barcelona and Madrid, Spain
Lotus Development Nordic AB
Stockholm, Sweden
Lotus Development (Schweiz) AG
Glattbrug, Switzerland
Lotus Software Development Ltd.
Taipei, Taiwan
Lotus Development Middle East Office
Dubai, United Arab Emirates
Lotus Development U.K. Ltd.
Staines, Slough, Manchester and
Edinburgh, U.K.
Lotus Development Corporation
Caracas, Venezuela
Lotus is represented by authorized
distributors in the following countries:
Botswana
Bulgaria
Colombia
Costa Rica
Egypt
Greece
Hungary
Israel
Mauritius
Morocco
Nepal
Pakistan
Philippines
Poland
Romania
Slovenia
Taiwan
Turkey
Ukraine
Uruguay
SHAREHOLDER INFORMATION
Annual Meeting
The Annual Meeting of Shareholders will be held on Wednesday, May
25, 1994 at 11:00 a.m., at the Wang Center for the Performing
Arts, 270 Tremont Street, Boston, Massachusetts.
Copies of Lotus' Annual Report on Form 10-K are available,
without charge, upon request from:
Kay Waxman
Director of Investor Relations
Lotus Development Corporation
55 Cambridge Parkway
Cambridge, Massachusetts 02142
To request further information about Lotus Development
Corporation, please contact the Investor Relations Information
Line at (617) 693-1900.
Common Stock
Lotus' common stock is traded over the counter on the NASDAQ
National Market System - symbol LOTS.
Auditors
Coopers & Lybrand
Boston, Massachusetts
Legal Counsel
O'Sullivan Graev & Karabell
New York, New York
Transfer Agent
Bank of Boston
Boston, Massachusetts
- ------------------------------------------------------------------------------
APPENDIX TO 1993 REPORT TO SHAREHOLDERS
GRAPHIC AND IMAGE MATERIAL
CONTAINED IN PRESIDENT'S LETTER AND 3M STORY:
Figure Description
- ------ -----------------------------------------------------
1 Photo of Jim Manzi, President and CEO
2 Product box shot SmartSuite/Windows
3 Photo of Lotusphere collateral
4 Photo of 3M building
5 to 20 Two pages of photos of 3M and Lotus employees at work
21 Photo of David Drew, head of information technology
22 Photo of Bob Weiler, head of Lotus' North American
Business Group
23 Photo of Michael Makowski, manager of Common Document
System project at 3M
24 Photo of Michael Makowski of 3M
25 Photo of Erik Renaud, Lotus district sales manager
26 Photo of Lynne Capozzi, Lotus Strategic Account team
27 Notes screen shot
28 Photo of John Winterhalter, 3M
29 Photo of Tom Kieffer, CEO of Connect and Staff
30 Photo of Tom Kieffer of Connect
31 Photo of computer with Post-it note
- -----------------------------------------------------------------------------
EXHIBIT 22
<TABLE>
SUBSIDIARIES OF THE REGISTRANT
<CAPTION>
Name of Organization Jurisdiction
<S> <C>
Aleph 2, S.N.C. France
Approach Software Corporation California
cc:Mail, Inc. California
Lotus Assistance France
Lotus Charles Park Corporation Massachusetts
Lotus CSG Canada Limited Canada
Lotus Desenvolvimento de Software Ltda. Brazil
Lotus Development, B.V. Netherlands
Lotus Development Benelux, B.V. Netherlands
Lotus Development Canada Ltd. Canada
Lotus Development Caribe Corporation Delaware
Lotus Consulting Services Gmbh Germany
Lotus Development Corporation Massachusetts
Lotus Development Danmark AS Denmark
Lotus Development Distribution Limited Ireland
Lotus Development European Corporation Delaware
Lotus Development Foreign Sales Corporation, Ltd. Jamaica
Lotus Development Foundation, Inc. Massachusetts
Lotus Development GmbH Austria
Lotus Development Holdings, B.V. Netherlands
Lotus Development Iberica Spain
Lotus Development Italia SpA Italy
Lotus Development Japan Ltd. Japan
Lotus Development New Zealand, Ltd. New Zealand
Lotus Development Nordic A.B. Sweden
Lotus Development Norway AS Norway
Lotus Development Pty, Ltd. Australia
Lotus Development Russia Russia
Lotus Development S.A. France
Lotus Development S.A. (Pty.) Ltd. South Africa
Lotus Development (Schweiz) A.G. Switzerland
Lotus Development Security Corporation Delaware
Lotus Development Singapore Pte. Ltd. Singapore
Lotus Development (Software) Ltd. Israel
Lotus Development Software (Hong Kong) Ltd. Hong Kong
Lotus Development (U.K.), Ltd. United Kingdom
Lotus Fulfilment Limited Ireland
Lotus Korea Development Co. Ltd. Korea
Lotus Rogers Street Corporation Delaware
Lotus Club International S.A. (Pty.) Ltd. South Africa
PS Publishing Corporation California
Samna Corporation Georgia
Vanguard Business Solutions, Inc. California
</TABLE>
- ----------------------------------------------------------------------------
EXHIBIT 24
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation herein, and by reference in the
Registration Statements (Forms S-8) and related prospectuses to
the Lotus Development Corporation 1992 Stock Option Plan (No.
33-51263), Employee Stock Purchase Plan (Nos. 2-88906, 33-6366),
1986 Stock Option Plan for Non-Employee Directors (Nos.
33-35497, 33-55488) and Amended and Restated 1983 Non-Qualified
Stock Option Plan (Nos. 2-92360, 33-6702, 33-46652), of our
reports dated January 26, 1994, on our audits of the
consolidated financial statements and financial statement
schedules of Lotus Development Corporation as of December 31,
1993 and 1992 and for each of the three years in the period
ended December 31, 1993, which reports are included in this
Annual Report on Form 10-K or incorporated by reference in this
Form 10-K from the Financial section of the 1993 Annual Report
to Shareholders of Lotus Development Corporation.
COOPERS & LYBRAND
Boston, Massachusetts
March 25, 1994
- ------------------------------------------------------------------------------
