SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant /X/
Filed by a party other than the registrant /_/
Check the appropriate box:
/_/ Preliminary proxy statement
/X/ Definitive proxy statement
/X/ Definitive additional materials
/_/ Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Lotus Development Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/_/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1),
or 14a-6(j)(2).
/_/ $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
/_/ Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:<F1>
(4) Proposed maximum aggregate value of transaction:
/_/ Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
[FN]
<F1>Set forth the amount on which the filing fee is calculated
and state how it was determined.
April 13, 1994
Dear Shareholder:
You are cordially invited to attend the 1994 Annual Meeting
of Shareholders of Lotus Development Corporation, which will be
held at the Wang Center for the Performing Arts, 270 Tremont
Street, Boston, Massachusetts, on Wednesday, May 25, 1994 at
11:00 a.m., local time.
Information about the Annual Meeting, including a listing
and discussion of the matters on which the shareholders of the
Company will act, may be found in the enclosed formal Notice of
Annual Meeting and Proxy Statement. The Annual Report to
Shareholders for the fiscal year ended December 31, 1993 has also
been enclosed if not previously furnished to you.
We hope that you will be able to attend the Annual Meeting.
However, whether or not you anticipate attending in person, I
urge you to complete, sign and return the enclosed proxy card
promptly to ensure that your shares will be represented at the
Annual Meeting. If you do attend, you, of course, will be
entitled to vote in person, and such vote will revoke your proxy.
Sincerely,
/s/Jim P. Manzi
Jim P. Manzi
Chairman of the Board and President
Lotus Development Corporation 55 Cambridge Parkway, Cambridge,
Massachusetts 02142 617 577-8500
LOTUS DEVELOPMENT CORPORATION
55 Cambridge Parkway
Cambridge, Massachusetts 02142
______________________________
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
______________________________
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders (the "Meeting") of Lotus
Development Corporation, a Delaware corporation (the "Company"),
will be held on Wednesday, May 25, 1994 at 11:00 a.m., local
time, at the Wang Center for the Performing Arts, 270 Tremont
Street, Boston, Massachusetts. The purpose of the Meeting shall
be:
1. To elect directors of the Company to serve until the next
Annual Meeting of Shareholders and until their respective
successors have been duly elected and qualified.
2. To approve the amendment of the Company's 1986 Stock
Option Plan for Non-Employee Directors to provide for an
automatic grant of options to newly elected directors of the
Company.
3. To approve certain performance-based compensation payable
to the Company's Chief Executive Officer in order to retain its
deductibility for U.S. Federal Income Tax purposes.
4. To approve the amendment of the Company's Certificate of
Incorporation to provide for an increase in the number of
authorized shares of capital stock.
5. To ratify the selection of the firm of Coopers & Lybrand
as auditors for the Company for the fiscal year ending December
31, 1994.
6. To transact such other business as may properly come
before the Meeting or any adjournments thereof.
Only shareholders of record on the books of the Company at the
close of business on April 1, 1994 will be entitled to notice
of and to vote at the Meeting.
Please sign, date and return the enclosed proxy card in the
enclosed envelope at your earliest convenience. If you return
your proxy, you may nevertheless attend the Meeting and vote your
shares in person.
All shareholders of the Company are cordially invited to
attend the Meeting.
By Order of the Board of Directors
Thomas M. Lemberg
Secretary
Cambridge, Massachusetts
April 13, 1994
- -----------------------------------------------------------------
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE
AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED FROM WITHIN THE UNITED STATES.
- -----------------------------------------------------------------
LOTUS DEVELOPMENT CORPORATION
55 Cambridge Parkway
Cambridge, Massachusetts 02142
---------------
PROXY STATEMENT
------------
Annual Meeting of Shareholders To Be Held on May 25, 1994
Proxies enclosed with this Proxy Statement are solicited by
the Board of Directors of Lotus Development Corporation, a
Delaware corporation (the "Company"), for use at the Annual
Meeting of Shareholders (the "Meeting") to be held on Wednesday,
May 25, 1994 at 11:00 a.m., local time, at the Wang Center for
the Performing Arts, 270 Tremont Street, Boston, Massachusetts,
and any adjournments thereof.
Shares represented by duly executed proxies in the form
enclosed herewith received by the Company prior to the Meeting
will be voted at the Meeting FOR the election of the nominees
for director named below (except to the extent that authority
therefor is withheld) and FOR each proposal described in this
Proxy Statement. Where no choice has been specified on a proxy
with respect to a particular matter, the shares represented by
that proxy will be voted FOR the particular matter.
Any shareholder may revoke a proxy at any time prior to its
exercise by delivering a later-dated proxy or a written notice of
revocation to the Secretary of the Company at the address of the
Company set forth above, or by voting in person at the Meeting.
If a shareholder does not intend to attend the Meeting, any proxy
or notice should be returned for receipt by the Company not later
than the close of business on Tuesday, May 24, 1994. The persons
named in the proxies are officers of the Company. The Company
will bear the cost of solicitation of proxies relating to the
Meeting.
Only shareholders of record as of the close of business on
April 1, 1994 (the "Record Date") will be entitled to notice of
and to vote at the Meeting and any adjournments thereof.
As of the Record Date there were 45,732,141 shares (excluding
treasury shares) of the Company's Common Stock, $.01 par value
(the "Common Stock"), issued and outstanding. Such shares of
Common Stock are the only voting securities of the Company.
Shareholders are entitled to cast one vote for each share of
Common Stock held of record on the Record Date.
The Board of Directors (the "Board of Directors") of the
Company is not aware of any other matters to be presented at the
Meeting. If any other matter should be presented at the Meeting
upon which a vote properly may be taken, shares represented by
all duly executed proxies received by the Company will be voted
with respect thereto in accordance with the best judgment of the
persons named in the proxies. An Annual Report to Shareholders,
containing financial statements for the fiscal year ended
December 31, 1993, preceded or accompanies this Proxy Statement.
This Proxy Statement and the proxy enclosed herewith were first
mailed to shareholders on or about April 13, 1994.
The mailing address of the Company's principal executive
offices is 55 Cambridge Parkway, Cambridge, Massachusetts 02142.
PRINCIPAL HOLDERS OF VOTING SECURITIES
Security Ownership of Certain Beneficial Owners
The following table sets forth as of December 31, 1993 the
name of each person who, to the knowledge of the Company, owned
beneficially more than five percent (5%) of the shares of Common
Stock of the Company outstanding at such date, the number of
shares owned by each such person and the percentage of the
outstanding shares represented thereby. The information below
with respect to beneficial ownership is based upon information
filed with the Securities and Exchange Commission ("SEC")
pursuant to Sections 13(d) or 13(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and furnished to the
Company by the respective shareholders.
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership Percent of Class
<S> <C> <C>
The Capital Group, Inc. 2,585,000(1) 5.75%
333 South Hope Street
Los Angeles, CA 90071
FMR Corp. 6,154,039(2) 13.70%
82 Devonshire Street
Boston, MA 02109
Manning and Napier 2,807,868(3) 6.25%
Advisors, Inc.
1100 Chase Square
Rochester, NY 14604
The Prudential Insurance 3,250,833(4) 7.24%
Company of America
751 Broad Street
Newark, NJ 07102-3777
Twentieth Century 4,164,900(5) 9.27%
Companies, Inc.
4500 Main Street
Kansas City, MO 64141
<FN>
(1) Represents shares held by Capital Research and Management
Company, a registered investment adviser ("CRMC") and an
operating subsidiary of The Capital Group, Inc. As of the date
set forth above, CRMC exercised sole investment discretion with
respect to all of such shares, all of which were owned by
various institutional investors. CRMC had no voting power with
respect to such shares and disclaims beneficial ownership of
such shares.
(2 ) Represents shares beneficially owned by (i) FMR Corp.
through its wholly owned subsidiaries, Fidelity Management &
Research Company, a registered investment adviser ("Fidelity"),
and Fidelity Management Trust Company, a bank ("FMTC"), (ii) by
certain investment companies (including the Fidelity Magellan
Fund) for which Fidelity serves as investment adviser (the
"Fidelity Funds"), and (iii) by Edward C. Johnson 3d, as
Chairman of FMR Corp., and through certain members of his family
by virtue their controlling interest as a group in the voting
stock of FMR Corp. The Fidelity Magellan Fund beneficially
owned 4,208,100 shares or 9.37% of the Common Stock outstanding
as of the date set forth above. Mr. Johnson and FMR Corp. each
held shared voting and dispositive power with respect to all
shares reported above. FMR Corp. and Mr. Johnson, each through
their control of Fidelity, and the Fidelity Funds each had sole
dispositive power with respect to the 5,996,849 shares owned by
the Fidelity Funds. FMR Corp., through its control of FMTC,
had sole dispositive power over 157,190 Shares and sole voting
power with respect to 91,690 of these shares and no voting power
with respect to 65,000 shares owned by institutional accounts
managed by FMTC.
(3) The beneficial owner, a registered investment adviser,
possessed sole voting power with respect to 2,742,218 of these
shares and sole dispositive power with respect to all such shares
as of the date stated above.
(4) Represents shares held by The Prudential Insurance
Corporation of America ("Prudential ") directly as well as
shares held for the benefit of Prudential's clients, by its
separate accounts, externally managed accounts, registered
investment companies, subsidiaries and/or other affiliates.
Includes 3,153,300 shares or 7.02% of the Common Stock then
outstanding beneficially owned by Jennison Associates Capital
Corp., a registered investment advisor ("Jennison"). As of the
date set forth above, Prudential, possessed sole voting power
and sole dispositive power with respect to 280,493 of these
shares, shared voting power with respect to 2,394,040 shares and
shared dispositive power with respect to 2,967,040 shares. As
of such date, Jennison possessed sole voting power with respect
to 422,100 shares, shared voting power with respect to
2,186,300 shares and shared dispositive power with respect to
3,153,300 shares.
(5) Represents shares beneficially owned by Twentieth Century
Companies, Inc. ("TCC") on its own behalf, on behalf of its
wholly owned subsidiary, Investors Research Corporation ("IRC"),
a registered investment adviser, on behalf of Twentieth Century
Investors, Inc. ("TCI"), a registered investment company managed
by IRC, and on behalf of Mr. James E. Stowers, Jr., a
controlling shareholder of TCC. As of the date set forth above,
TCC, IRC and Mr. Stowers each possessed sole voting power with
respect to 4,164,800 of these shares, sole dispositive power
over all 4,164,900 of these shares and shared voting power with
respect to 20,100 of these shares. TCI possessed sole voting
and dispositive power with respect to 3,520,000 of these shares.
</TABLE>
Security Ownership of Directors and Executive Officers
The following table sets forth for each member of the Board
of Directors, the Company's Chief Executive Officer ("CEO"), and
each of the next four most highly compensated executive officers
of the Company, the position presently held by such person and
the number of shares and percentage of outstanding Common Stock
of the Company beneficially owned by each and by all directors
and executive officers as a group, as of March 1, 1994.
<TABLE>
<CAPTION>
Name Positions and Offices Amount and Nature of
with the Company Beneficial Ownership (1) Percent of Class
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jim P. Manzi Chairman of the Board 1,244,906(2) 2.74%
and President
Richard S. Braddock Director 3,000(3) *
Lawrence G. Graev Director 59,000(4) *
William H. Gray III Director 0 *
Aldo Papone Director 31,000(5) *
Michael E. Porter Director 3,500 *
Chester A. Siuda Director 45,000(6) *
Henri A. Termeer Director 0 *
John B. Landry Senior Vice President-- 26,156(7) *
Development and
Chief Technology
Officer
June L. Rokoff Senior Vice President-- 17,194(8) *
Development
Robert P. Schechter Senior Vice President-- 83,011(9) *
International Business
Group
Robert K. Weiler Senior Vice President-- 50,218(10) *
North American Business
Group
All directors and executive 1,668,779(11) 3.64%
officers as a group (16
persons)
________________
* less than 1%
<FN>
(1) Except where expressly stated otherwise, each named person
possesses sole voting and investment power with respect to the
shares.
(2) Includes 26,201 shares held in trust for the benefit of
Mr. Manzi's children. Includes 25,000 shares that Mr. Manzi
has the right to acquire within 60 days of March 1, 1994 by
the exercise of stock options.
(3) Includes 2,500 shares that Mr. Braddock has the right to
acquire within 60 days of March 1, 1994 by the exercise of stock
options.
(4) Includes 45,000 shares that Mr. Graev has the right to
acquire within 60 days of March 1, 1994 by the exercise of stock
options. Includes 14,000 shares held in trust for the benefit of
Mr. Graev through the O'Sullivan Graev & Karabell Profit Sharing
Plan.
(5) Includes 30,000 shares that Mr. Papone has the right to
acquire within 60 days of March 1, 1994 by the exercise of stock
options.
(6) Includes 45,000 shares that Mr. Siuda has the right to
acquire within 60 days of March 1, 1994 by the exercise of stock
options.
(7) Includes 16,406 shares that Mr. Landry has the right to
acquire within 60 days of March 1, 1994 by the exercise of stock
options. Includes 8 shares held in trust for the benefit of Mr.
Landry under the Company's 401k and Profit Sharing Plan and 1,200
shares over which Mr. Landry exercises investment discretion as
custodian of such shares held for the benefit of his minor
children.
(8) Includes 1,562 shares that Ms. Rokoff has the right to
acquire within 60 days of March 1, 1994 by the exercise of stock
options. Includes 6,632 shares held in trust for the benefit of
Ms. Rokoff under the Company's 401k and Profit Sharing Plan.
(9) Includes 79,531 shares that Mr. Schechter has the right to
acquire within 60 days of March 1, 1994 by the exercise of stock
options.
(10) Includes 49,218 shares that Mr. Weiler has the right to
acquire within 60 days of March 1, 1994 by the exercise of stock
options.
(11) Includes 400,011 shares that directors and executive
officers of the Company have the right to acquire within 60 days
of March 1, 1994 by the exercise of stock options and 6,640
shares of Common Stock held in trust as described above.
</TABLE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION CONCERNING DIRECTORS
AND EXECUTIVE OFFICERS
Summary Compensation
The following table sets forth information concerning the
cash and noncash compensation in each of the last three fiscal
years for the Company's CEO and the next four most highly
compensated executive officers.
<TABLE>
<CAPTION>
Annual Compensation(1) Long Term All Other
_____________________ Compensation Compensation
Name and Principal Position Year Salary ($) Bonus ($) Options (#) ($)(2)
_______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Jim P. Manzi 1993 650,000 650,000 40,000 35,046
Chairman of the Board 1992 650,000 0 0 34,214
and President 1991 650,000 195,000 50,000 36,738
John B. Landry 1993 325,000 325,000 12,500 28,325
Senior Vice President -- 1992 325,000 0 0 208,889(3)
Development and Chief 1991 12,500(4) 0 150,000(5) 325,625(3)
Technology Officer
June L. Rokoff -- 1993 325,000 325,000 25,000 19,771
Senior Vice President -- 1992 307,400(6) 0 65,000 19,945
Development 1991 258,000 140,000 75,000 17,123
Robert P. Schechter 1993 325,000 325,000 42,500 19,771
Senior Vice President -- 1992 325,000 0 0 22,469
International Business 1991 325,000 195,000 25,000(7) 20,488
Group
Robert K. Weiler 1993 325,000 325,000 17,500 19,771
Senior Vice President -- 1992 325,000 0 0 24,688
North American 1991 298,750(4) 260,000 175,000(5) 283,935(8)
Business Group
<FN>
(1) Does not include perquisites or other personal benefits in
any year for which the aggregate amount was less than the
lesser of either $50,000 or 10 percent of the total annual
salary and bonus for the executive officer in that year.
(2) Includes amounts credited to the account of the executive
officer in those years in which he or she served in such capacity
in connection with (i) the profit sharing feature of the
Company's 401k and Profit Sharing Plan, (ii) the Company's
Defined Contribution Restoration Plan and (iii) the Company
matching contribution under the savings feature of
the 401k and Profit Sharing Plan as follows:
</TABLE>
<TABLE>
<CAPTION>
Defined
Contribution
Profit Sharing Restoration 401K Matching
Name Year Amount ($) Plan ($) Contribution ($)
________________________________________________________________________________________
<S> <C> <C> <C> <C>
Manzi . . . . . . . 1993 11,084 19,465 4,497
1992 7,781 22,069 4,364
1991 11,111 21,389 4,238
Landry . . . . . . . 1993 11,084 12,744 4,497
1992 7,781 14,744 4,364
1991 625 0 0
Rokoff . . . . . . 1993 11,084 4,190 4,497
1992 7,781 7,800 4,364
1991 11,111 1,774 4,238
Schechter . . . . . 1993 11,084 4,190 4,497
1992 7,781 10,324 4,364
1991 11,111 5,139 4,238
Weiler . . . . . . 1993 11,084 4,190 4,497
1992 7,781 12,543 4,364
1991 11,111 18,586 4,238
<FN>
(3) Includes payment by the Company of $325,000 in 1991 and
$182,000 in 1992 related to Mr. Landry's prior employment for
cash and other compensation that he had foregone by joining the
Company.
(4) Represents salary received for that portion of the year that
the executive officer was employed by the Company.
(5) Represents options granted to the executive officer at the
time of joining the Company.
(6) Upon becoming Senior Vice President -- Development in May
1992, Ms. Rokoff's annual base salary rate was increased to
$325,000.
(7) Does not include options granted to Mr. Schechter's spouse
in fiscal 1991 to purchase 2,500 shares of Common Stock, of which
options and shares Mr. Schechter disclaims beneficial ownership.
(8) Includes payment by the Company of $250,000 related to Mr.
Weiler's prior employment for cash and other compensation that he
had foregone by joining the Company.
</TABLE>
Option Grants in Last Fiscal Year
The following table sets forth information concerning
individual stock option grants made to the Company's CEO and each
of the Company's next four most highly compensated executive
officers during fiscal 1993.
<TABLE>
<CAPTION>
Individual Grants (1)
-------------------------------------------------------------- Potential Realizable
Value at Assumed
Annual Rates of
Percent of Stock Price Appreciation
Total Options for Option Term (2)
Options Granted to Employees Exercise --------------------
Granted in Fiscal Year Price Expiration 5% 10%
Name (#) (%) ($/Sh) Date ($) ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jim P. Manzi 40,000 1.66 22.13 January 27, 2000 360,284 839,615
John B. Landry 12,500 0.52 22.13 January 27, 2000 112,589 262,380
June L. Rokoff 25,000 1.04 22.13 January 27, 2000 225,117 524,759
Robert P. Schechter 42,500 1.76 22.13 January 27, 2000 382,802 892,091
Robert K. Weiler 17,500 0.73 22.13 January 27, 2000 157,624 367,331
<FN>
(1) All grants described above are non-qualified stock options
that become exercisable with respect to 25% of the total number
of shares subject to option on the first anniversary of the date
of grant and thereafter, with respect to the remaining 75% of
such shares, over the next succeeding 36 months in equal monthly
installments. All options were granted at a per share exercise
price equal to the fair market value of a share of Common Stock
on the date of grant.
(2) Calculation of potential realizable values are based on
theoretical rates of return mandated by the rules of the SEC and
may or may not accurately reflect or predict the actual value of
the stock options.
</TABLE>
Aggregated Option Exercises In Last Fiscal Year And Fiscal
Year-End Option Values
The following table sets forth information concerning each
exercise of stock options by the CEO and each of the Company's
next four most highly compensated executive officers during
fiscal 1993 and the value of unexercised options at the end of
that fiscal year.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised in-the-Money
Options at Fiscal Options at
Shares Year-End Fiscal Year-End(1)
Acquired Value Exercisable/ Exercisable/
on Exercise Realized Unexercisable Unexercisable
Name (#) ($) (#) ($)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jim P. Manzi 76,250 1,420,156 33,750 / 65,000 1,062,500 / 2,218,125
John B. Landry 37,500 758,438 37,500 / 87,500 1,317,188 / 3,045,313
June L. Rokoff 111,075 1,919,871 15,000 / 117,500 510,156 / 3,363,906
Robert P. Schechter (2) 66,750 1,329,861 103,750 / 80,000 3,025,781 / 2,551,094
Robert K. Weiler 51,250 1,487,969 6,250 / 105,000 225,781 / 3,792,500
<FN>
(1) Based on the closing price on the NASDAQ National Market
System for a share of Common Stock on December 31, 1993 of
$55.00.
(2) Does not include information with respect to Mr.
Schechter's spouse, as to whose shares of Common Stock and
options to purchase such shares Mr. Schechter disclaims
beneficial ownership. During 1993, Mr. Schechter's spouse
acquired 14,575 shares of Common Stock through the exercise of
stock options for a realized value of $82,383. At fiscal year
end, his spouse held no exercisable or unexercisable options to
purchase Common Stock.
</TABLE>
Pension Plan
In 1985, the Company established the Lotus Development
Corporation Pension Plan (the "Pension Plan") for the purpose of
assisting its employees in meeting the needs of retirement. In
1992, the Company determined that its Profit Sharing and 401k
Plan could provide adequate retirement assistance to employees
and, effective June 1, 1992, suspended the Pension Plan. While
all benefits accrued under the Pension Plan through May 31, 1992
have become fully vested, no further benefits have accrued to
employees after that date.
Benefits under the Pension Plan will be based on an average of
the participant's highest consecutive 36 months of total annual
compensation during the 72 months of service prior to June 1, 1992
("Final Average Compensation"). The monthly benefit payable upon normal
retirement in the form of a single life annuity is computed as
follows: 1/12th of 1.5% of Final Average Compensation is
multiplied by the employee's total number of years of service at
May 31, 1992. From that result is subtracted the monthly value
of the annuity that could be acquired (on specified actuarial
assumptions) with the amount of Company profit sharing contributions
for the employees account for 1990 and subsequent years accumulated
with a deemed interest return.
The table below sets forth the estimated annual benefits
payable upon normal retirement under the Pension Plan formula to
employees in the specified average salary and years of service
classifications:
Years of Service
----------------
Remuneration 5 10
$25,000 1,875 3,750
50,000 3,750 7,500
75,000 5,625 11,250
100,000 7,500 15,000
125,000 9,375 18,750
150,000 11,250 22,500
175,000 13,125 26,250
200,000 15,000 30,000
228,860* 22,500 45,000
___________________
* The maximum permitted salary recognized under the
Internal Revenue Code of 1986, as amended (the
"Code") as in effect in 1992.
As of June 1, 1992, the date on which the accrual of future
benefits was suspended, Mr. Manzi had eight years, Mr. Landry had
less than one year, Ms. Rokoff had seven years, Mr. Schechter had
four years and Mr. Weiler had one year of service under the
Pension Plan.
Other Benefit Plans
The Company currently provides certain benefits to its
eligible employees (including its executive officers) through the
additional benefit plans described below:
1992 Stock Option Plan. The Company maintains the 1992
Stock Option Plan (the "Stock Option Plan") to attract and
retain the best available personnel for positions of substantial
responsibility and to provide additional incentives to certain
employees and consultants to contribute to the success of the
Company. The Stock Option Plan is administered by a committee of
the Board of Directors that consists of independent directors.
Stock options granted under the Plan may not be granted at less
than fair market value on the date of grant.
Employee Stock Purchase Plan. The Company maintains the
Employee Stock Purchase Plan (the "Employee Plan") to provide
incentive and to encourage ownership of Common Stock by all
eligible employees of the Company and its subsidiaries. Employees
of the Company may participate in the Employee Plan by
authorizing payroll deductions over a six month period, with the
proceeds being used to purchase shares of Common Stock for the
participant at a discounted price. The Employee Plan is intended
to be an "employee stock purchase plan" under Section 423 of the
Code.
Profit Sharing Plan and 401k Plan. The Company's Profit
Sharing and 401k Plan (the "Plan") provides savings options to
eligible U.S. employees of the Company through deferment of a
portion of their compensation. Participants may elect to defer
2% to 12% of their compensation into the Plan and may also elect
to contribute up to an additional 10% of their compensation on a
non-deferred basis; provided that the combination of deferred and
non-deferred contributions cannot exceed 12% of annual
compensation. The Company also makes matching contributions equal
to a percentage of the participant's monthly deferred
contributions.
Under the Plan, an annual discretionary profit sharing
contribution by the Company based on a percentage of operating
profit is allocated to the accounts of all participants, who do
not themselves make any profit sharing contribution. The level of
Company profit sharing and matching contributions is set annually
by the Board of Directors.
The Plan is administered by a committee appointed by the
Board of Directors. Each participant's contributions to the Plan
are held in trust by a bank trustee and are invested in certain
investment funds in accordance with the participant's
instructions. The Plan is intended to be a qualified plan under
Section 401(k) of the Code.
Defined Restoration Plan. The Company adopted the Defined
Contribution Restoration Plan to provide supplemental retirement
benefits to employees, who because of limitations imposed by the
law on benefits under tax qualified plans, would receive less
than the full benefits to which they would have otherwise been
entitled under the Company's qualified retirement plan. Under the
Defined Contribution Restoration Plan, a participant's account is
credited each year with the amount by which his or her profit
sharing allocation under the Company's Profit Sharing and 401k
Plan, calculated without consideration of the limitations imposed
under the Code, exceeds the amounts permitted under the Code. The
Company's funding policy is to pay these supplemental benefits
directly to participants as they become due, and no assets are
being set aside in advance for this purpose.
Compensation Committee Report on Executive Compensation
The Company's executive compensation program is administered
by the Compensation Committee of the Board of Directors (the
"Committee"). The Committee, which is composed of four
independent directors, makes recommendations to the Board on the
three key components of the Company's executive compensation
program, base salary, annual incentive awards and long term
incentives.
Compensation Policies for Executive Officers.
The Company's executive compensation program is designed to
attract and retain fully qualified executives in the highly
competitive high technology marketplace. The levels of executive
compensation established by the Committee are designed to be
consistent with those available to other executives in the
industry.
The Committee establishes individual compensation awards
based on the contribution the executive has made in attaining the
Company's short term and strategic performance objectives as well
as the executive's anticipated future contribution. The Company's
executive compensation program consists primarily of the
following integrated components:
1. Base Salary-which is designed to compensate executives
competitively within the industry and marketplace.
2. Annual Incentives-which provide a direct link between
executive compensation and annual Company performance against
predetermined measures.
3. Long Term Incentives-which consist of stock options that
link management decision making with long-term Company
performance and shareholder interests.
Base Salary. Base salary levels for executive officers of
the Company are reviewed annually by the Committee.
The Committee's current policy is to maintain base salary levels
within the upper quartile of the industry, based on industry
surveys and competitive analyses compiled by the Company's Human
Resources department and reviewed by the full Board of Directors.
With the exception of June Rokoff, who was promoted to Senior
Vice President of Development in May 1992, base salary levels
have not increased since 1990 for the Company's named executive
officers.
Annual Incentives. All executive officers participate in an
Executive Incentive Program, which compensates officers in the form
of annual cash bonuses. Awards under this program are based on the
attainment of specific Company performance measures established
by the Compensation Committee at the beginning of the fiscal
year. These performance measurements are keyed to management's
annual operating plan and are based on the achievement of
specific operating profit, revenue growth, revenue per employee
and expense per employee.
Long Term Incentives. The Company provides long term
incentives through its Amended and Restated 1983 Nonqualified
Stock Option Plan and its 1992 Stock Option Plan. The purpose of
these plans is to create a direct link between compensation and
the long-term performance of the Company. Stock options under
these plans are granted at or above fair market value and vest in
installments, generally over four years. Options granted before
January 1, 1993 have a five year term and options granted on or
after that date have a seven year term. The Company makes its
annual grant of options to its employees, including its executive
officers, in January, to enable the Company to more closely link
option grants to individual contribution and Company performance.
When recommending option awards for an executive officer,
the Committee considers (i) the executive's current contribution
to Company performance, (ii) the anticipated contribution in
meeting the Company's long-term strategic performance goals and
(iii) industry practices and norms. Because the receipt of value
by an executive officer under a stock option is dependent upon an
increase in the price of the Company's Common Stock, this portion
of the executives' compensation is directly aligned with an
increase in shareholder value.
In 1994, the Company adopted a "premium" stock option
program for the CEO, the executive officers and certain other
officers of the Company, which program is designed to enhance the
link between the participant's compensation and the long-term
performance of the Company, and assist in the retention of each
participant. Under this program, participants receive options to
purchase Common Stock under the 1992 Stock Option Plan at 20%
above fair market value. Options granted under this program have
a seven year term and vest over three years beginning on the
second anniversary of the date of grant and thereafter in equal
monthly installments over the succeeding 36 months.
In January 1994, the Company granted "premium" options to
purchase the following number of shares of Common Stock to the
CEO and the next four most highly compensated executive officers
at an exercise price of $64.50 per share: Mr. Manzi - 200,000;
Mr. Landry - 100,000; Ms. Rokoff - 100,000; Mr. Schechter -
100,000; and Mr. Weiler- 100,000.
CEO Compensation
Base Salary. The CEO's salary is positioned competitively
to the mid-range of the marketplace through comparison of
industry surveys and competitive analyses compiled by the
Company's Human Resources department and reviewed by the
Committee. The CEO has not received a base salary increase since
January 1990.
Incentive Compensation. During the past four years, the
Committee has gradually moved to increase the incentive portion
of the CEO's total potential compensation through the annual
Executive Incentive Program. The Executive Incentive Program is
dependent on Company performance as determined by four
measurements, each of which has a weighting that comprises 100%
of the CEO's target incentive award. The CEO's maximum potential
annual incentive award under this program is 150% of base salary.
The four award measurements are: (i) the Company's performance
against operating profit (ii) total revenue growth (iii) average
revenue dollars per employee and (iv) average expense per employee.
These targets are set and approved by the Committee annually.
This year, the Company is soliciting the approval of the material
terms under which compensation is payable to the CEO under the
Executive Incentive Program in order to retain its deductibility
for U.S. federal income tax purposes. See "Proposal No. 3"
below.
Long Term Incentive. In January 1994, the CEO received a
"premium" option grant as described above. Consistent with the
Committee's considerations for awards under this plan, the award
was based on the anticipated contribution of the CEO to the
attainment of the Company's
long-term strategic performance. Based upon an assessment of
industry norms, the Committee believes that the awarding of this
grant is within the scope of the marketplace for industry
executives.
Respectfully submitted by the
Compensation Committee,
Richard S. Braddock, Chairman
Chester A. Siuda
Henri Termeer
Aldo Papone
Compensation of Directors
All Directors, with the exception of Mr. Manzi, received an
annual retainer of $24,000 for the fiscal year ended December 31,
1993, together with reimbursement of expenses incurred in
attending meetings of the Board of Directors.
On January 1, 1994, Mr. Braddock, Mr. Graev, Mr. Papone, Mr.
Porter, Mr. Siuda and Mr. Termeer were each granted an option to
acquire 10,000 shares of the Company's Common Stock at an
exercise price of $53.875 per share, which price was equal to the
market value of the Company's Common Stock on the first business
day following that date, pursuant to the Company's 1986 Stock
Option Plan for Non-Employee Directors. For a more complete
description of that plan, see "Proposal No. 2" below.
Compensation Committee Interlocks and Insider Participation
Mr. Braddock, Mr. Graev, Mr. Papone, Mr. Siuda and Mr.
Termeer each served on the Compensation Committee of the Board
during 1993.
Mr. Graev, who is a member of the Company's Board of
Directors and who was a member of its Compensation Committee during 1993,
is also a member of the law firm of O'Sullivan Graev & Karabell.
During fiscal year 1993, the Company paid to O'Sullivan
Graev & Karabell fees of approximately $2,738,000 for legal services.
Compliance with Section 16(a) of the Exchange Act
Michael E. Porter, a Director of the Company, made one late
filing reporting the purchase of 500 shares of Common Stock that was
required to be filed in 1993 on Form 4 pursuant to Section 16(a) of the
Exchange Act. Mr. Porter subsequently reported this transaction.
Performance Graph
The following indexed graph indicates the Company's total
return to its shareholders for the past five year period ended
December 31, 1993 as compared to the total return over such
period for the Standard & Poor's 500 Composite Index and the
Standard & Poor's High Tech Composite Index. This graph assumes a
$100 investment at the beginning of the five-year period and the
reinvestment of all dividends.
(Pursuant to Item 304 of Regulation S-T, the Company has submitted
the performance graph under cover of Form S-E)
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
Each of the persons named below has been nominated for
election as a director of the Company until the 1995 Annual
Meeting of Shareholders and until his successor has been duly
elected and qualified. No proxy may be voted for more persons
than the number of nominees listed below. Shares represented by
all duly executed proxies received by the Company and not marked
to withhold authority to vote for any individual director or for
all directors will be voted FOR the election of all the nominees
named below. The Board of Directors knows of no reason why any
such nominee should be unable or unwilling to serve, but if such
should be the case, the shares represented by duly executed
proxies received by the Company will be voted for the election
of a substitute nominee selected by the Board of Directors. The
nominees receiving a plurality of the votes cast at the Meeting
will be elected as directors.
Information Pertaining to Nominees
The following table sets forth the name and address of each
nominee, the age of each nominee, the year in which each nominee
first became a director of the Company, the principal occupation
of each nominee during the past five years and any other
directorships held, as of March 1, 1994, by each nominee in any
company subject to the reporting requirements of the Exchange Act
or in any company registered as an investment company under the
Investment Company Act of 1940, as amended.
<TABLE>
<CAPTION>
Year in
Which
Nominee
First Became Principal Occupation
Name and Address Age Director During Past 5 Years Directorships
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jim P. Manzi 42 1984 Chairman of the Board of the None
c/o Lotus Development Company (1986 to present);
Corporation President and Director of the
55 Cambridge Parkway Company (1984 to present)
Cambridge, MA 02142
Richard S. Braddock 52 1992 Chief Executive Officer (1993), Eastman Kodak Company
c/o Lotus Development Medco Containment Services, Inc.
Corporation (health care related services
55 Cambridge Parkway company); President and Chief
Cambridge, MA 02142 Operating Officer (1990-1992),
Citicorp and Citibank, N.A.
(bank and financial services
companies); Sector Executive
(1985-1989), Citicorp and
Citibank, N.A.
William H. Gray III 52 1994 President and Chief Executive Chase Manhattan Corp.;
c/o United Negro College Fund Officer of the United Negro MBIA Corp.; Prudential
700 13th Street, N.W. College Fund (since 1991); Insurance Corp. of
Suite 1180 Congressman 2nd District America; Rockwell Int'l
Washington, D.C. 20005 Pennsylvania, U.S. House of Corp.; Scott Paper Co.;
Representatives (1979-1991) Union Pacific Corp.;
Warner Lambert Corp.;
and Westinghouse Electric
Corp.
Michael E. Porter 46 1993 Professor, Harvard Business Alpha Beta Technologies, Inc.
c/o Harvard Business School (1973 - present)
School
Aldrich Building,
Room 200
Soldiers Field Road
Boston, MA 02163
Henri A. Termeer 47 1993 Chairman, President and Chief Abiomed Inc.;
c/o Genzyme Corporation Executive Officer, Genzyme AutoImmune Inc.;
One Kendall Square Corporation (1988 - present) Hambrecht & Quist
Cambridge, MA 02139 Health Care Investors,
Inc.; Hambrecht & Quist
Life Sciences; IG
Laboratories, Inc.; and
Neozyme II Corp.
</TABLE>
Board Meetings and Committees
The Board of Directors is comprised of Jim P. Manzi, Richard
S. Braddock, Lawrence G. Graev, William H. Gray III, Aldo Papone,
Michael E. Porter, Chester A. Siuda and Henri A. Termeer. The
Board of Directors met seven times during the year ended December
31, 1993. The Board of Directors has a Compensation Committee,
which establishes and reviews compensation of senior management
and which consists of Messrs. Braddock, Termeer, Papone and
Siuda. The Compensation Committee met three times during 1993.
The Board of Directors also has an Audit Committee which oversees
actions taken by the Company's independent auditors and reviews
the Company's internal controls, consisting of Messrs. Porter,
Papone and Siuda. The Audit Committee met twice during 1993.
The Board of Directors of the Company had a Nominating
Committee consisting of Messrs. Braddock, Graev, Papone and
Siuda for the purpose of recommending nominees for election as
directors of the Company to the Board of Directors. The
Nominating Committee met once during 1993. The Nominating
Committee was disbanded in September 1993.
Pursuant to the Company's By-laws, the Board of Directors
has set the number of directors of the Company to be elected at
the Meeting at five. All nominees are currently members of the
Board of Directors. Mr. Graev, Mr. Papone and Mr. Siuda have
decided not to stand for re-election in 1994.
Certain Transactions
In 1993, the Company paid fees for legal services to
O'Sullivan Graev & Karabell, the law firm of which Mr. Graev, a
director of the Company, is a member. See "Compensation
Committee Interlocks and Insider Participation" above.
The Company's Profit Sharing and 401k Plan invests in a
number of investment funds at the direction of its participants.
During 1993, the Profit Sharing and 401k Plan invested in the
Fixed Income Fund, which is managed by Fidelity Management Trust
Company, and in the Fidelity Magellan Fund and the Fidelity
Equity Income Funds, which are managed by Fidelity Management &
Research Company. Both Fidelity Management Trust Company and
Fidelity Management & Research Company are wholly owned
subsidiaries of FMR Corp., which, as of December 31, 1993,
beneficially owned greater than 5% of the outstanding Common
Stock of the Company. See "Principal Holders of Voting
Securities" and "Other Benefit Plans--Profit Sharing and
401k Plan" above.
The Board of Directors unanimously recommends that shareholders vote
FOR the election of the nominees listed above.
PROPOSAL NO. 2 - TO APPROVE AMENDMENT
OF THE NON-EMPLOYEE DIRECTORS PLAN
Description of the 1986 Stock Option Plan for Non-Employee
Directors
Purpose. The 1986 Stock Option Plan for Non-Employee
Directors (the "Directors Plan") was approved by the Company's
shareholders in April 1987. The purpose of the Directors Plan is
to attract and retain the services of experienced and
knowledgeable independent directors of the Company for the
benefit of the Company and its shareholders.
Shares to be Optioned. Subject to adjustment as described
below, no more than 500,000 shares of the Company's Common Stock
may be issued through the exercise of options granted pursuant to
the Non-Employee Directors Plan. No option may be granted under
the Non-Employee Directors Plan after April 27, 1997 (the
"Termination Date").
Administration of the Plan. The Plan is administered by the
Board of Directors of the Company, which has the power to
construe the Plan, to determine all questions arising thereunder,
and to adopt and amend such rules and regulations for the
administration of the Plan as it deems desirable.
Eligible Persons. Each member of the Board of Directors of
the Company who is not, and who during the immediately preceding
12-month period has not been, an employee of the Company or any
subsidiary of the Company automatically becomes a participant (a
"Participant") in the Plan. There are currently seven directors
- - Richard S. Braddock, Lawrence G. Graev, William H. Gray III,
Henri A. Termeer, Aldo Papone, Michael E. Porter, and Chester A.
Siuda - eligible to receive options under the Plan. Each
Participant who is in office on November 15 of any year is, on
the immediately succeeding January 1, automatically granted an
option to acquire 10,000 shares of Common Stock. More than one
option may be granted to any one person and be outstanding at any
time.
Option Price. The price of shares that may be purchased
upon exercise of an option granted under the Directors Plan is
the fair market value of the Common Stock on the date of grant as
determined in accordance with the Directors Plan.
Exercise of Options. Each option granted under the
Directors Plan is evidenced by an option agreement which is
subject to the terms and conditions of such plan. Options
granted pursuant to the Directors Plan, except as described
below, are exercisable in installments of 25% upon each
anniversary of the date of grant. The term of each option,
except as described below, is for a period not exceeding ten
years from the date of grant. Upon exercise of an option, a
Participant may pay the Company the amount of the aggregate
option exercise price with cash or check or with shares of Common
Stock.
Restrictions on Options. No options may be granted under
the Directors Plan and no shares of Common Stock may be issued
upon the exercise of options unless and until the Company and/or
the Participant shall have complied with all laws and regulations
relating thereto, including but not limited to federal and state
securities laws. Option granted under the Directors Plan are
nonassignable and nontransferable by a Participant except by will
or by the laws of descent and distribution.
Changes in Capital Structure. In the event of a stock
dividend, stock split or other change in the capital structure of
the Company affecting its Common Stock, an adjustment shall be
made in the number of shares subject to the Directors Plan and
the number and option price of shares subject to options granted
thereunder, as may be determined to be appropriate.
Change in Control. In the event of a Change in Control of
the Company (as defined below), an option granted to a
Participant will become fully exercisable if, within one year of
such Change in Control, such Participant ceases for any reason to
be a member of the Board. A "Change in Control" will be deemed
to have occurred if (a) there is consummated (i) any
consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which
shares of Common Stock are converted into cash, securities or
other property, other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the
same proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (ii) any sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all of the
assets of the Company; (b) the Company's shareholders approve any
plan or proposal for the liquidation or dissolution of the
Company; (c) any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Exchange Act) becomes the beneficial owner
(within the meaning of Rule 13d-3 under said Act) of 30% or more
of the outstanding Common Stock; or (d) during any period of two
consecutive years, individuals who at the beginning of such
period constitute the entire Board of Directors cease for any
reason to constitute a majority thereof unless the election, or
the nomination for election by the Company's shareholders, of
each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the
beginning of the period. Any exercise of an option permitted in
the event of a Change in Control must be made within 180 days of
the related Participant's termination as a director of the
Company.
Amendment. The Directors Plan may be terminated, modified
or amended at any time prior to the Termination Date by the Board
of Directors, provided such termination, modification or
amendment does not (i) increase the maximum aggregate number of
shares for which options may be granted under the Directors Plan
or the number of shares for which an option may be granted to any
Participant without the approval of the shareholders of the
Company or (ii) affect the rights of a Participant in the
Directors Plan with respect to options previously granted to him
or her without his or her consent.
Termination of Options. In the event of the death of a
Participant, any option granted to such Participant may be
exercised, to the extent exercisable on the date of death, by the
estate of such Participant, or by any person or persons who
acquired the right to exercise such option by will or by the laws
of descent and distribution. Such option may be exercised at any
time within 180 days after the date of death of such Participant,
but not after the date on which the option expires by its terms.
In the event that a Participant ceases to be a director for the
Company, other than by reason of his or her death, any option
granted to such Participant may be exercised, to the extent
exercisable on the date the Participant ceases to be a director,
for a period of 30 days after such date, but not after the date
on which the option expires by its terms.
Proposed Action
On March 24, 1994, the Board of Directors of the Company
approved the amendment of the Directors Plan to provide that,
subject to the approval of the shareholders of the Company, any
non-employee of the Company elected to the Board of Directors
between January 1 and June 30 of 1994 or any period from November
16 through June 30 thereafter shall be automatically granted the
option to purchase 10,000 shares of Common Stock on the later to
occur of (i) the date that such amendment was approved by the
Board or (ii) the date of the first meeting of the Board of
Directors following the election of the new director. Such
option will be at a per share exercise price equal to the fair
market value of a share of Common Stock on the date of grant, as
such value is determined under the Directors Plan and will be on
the same terms as other options granted under the Directors Plan.
The amendment will provide for option grants to new members
of the Board who because of the timing of their election to the
Board would not receive the same benefits under the Directors
Plan as other Board members serving during substantially the same
period of time. Approval of the amendment is being sought so
that the Company can continue to attract and retain the services
of experienced and knowledgeable independent directors for the
benefit of the Company and its shareholders.
Approval of the amendment to the Plan is also being
requested so that options granted to Directors pursuant to the
Directors Plan may qualify for favorable treatment under Rule
16b-3 promulgated by SEC under the Exchange Act. Approval of the
Directors Plan will require the affirmative vote of a majority of
shares of Common Stock present or represented, and entitled to
vote, at the Meeting. If the amendment is authorized, the text
of the Section 4 of the Directors Plan will be restated as
follows by adding the language indicated below in italics:
4. Eligibility: Grant of Option. Each director
of the Corporation who is not, and has not during
the immediately preceding 12 month period been,
an employee of the Corporation or any subsidiary
of the Corporation (a "Participant") shall
automatically be a participant in the Plan. Each
Participant who is in office on November 15 of
any year (commencing with November 15, 1986)
shall, on the immediately succeeding January 1,
automatically be granted an option to acquire
10,000 Shares under the Plan. In addition, any
Participant who is elected to the Board of
Directors on or between January 1, 1994 and June
30, 1994 or during any seven and one-half month
period beginning November 16 and ending June 30
thereafter shall automatically be granted an
option to acquire 10,000 Shares on the later to
occur of (i) March 24, 1994 or (ii) the date of
the first meeting of the Board following the
election of such Participant as a director."
New Plan Benefits
If the Plan is approved by shareholders, Mr. Gray, who was
elected to the Board in January 1994, will receive an option to
purchase 10,000 shares of Common Stock at the per share exercise
of $81.75.
The Board of Directors unanimously recommends that
shareholders vote for the approval of the amendment to the
Directors Plan.
PROPOSAL NO. 3 - TO APPROVE THE DEDUCTIBILITY
OF CERTAIN EXECUTIVE COMPENSATION
Under a recently enacted amendment to the Code, the United
States Congress voted to deny a deduction for U.S. Federal Income
Tax purposes to publicly held corporations to the extent that
compensation paid to a corporation's CEO or any one of the four
next most highly paid executive officers exceeds $1,000,000.
These deduction limits do not apply, however, to certain types of
"performance-based" compensation that meet the requirements of
Section 162(m) of the Code, which requirements include approval
by the shareholders of the material terms under which the
compensation is payable.
This proposal solicits approval of shareholders for purposes
of Section 162(m) of the Code of the material terms under which
the CEO is paid an annual cash bonus under the Company's
Executive Incentive Program. See "Compensation Committee Report on
Executive Compensation" above.
Awards to the CEO under the Executive Incentive Program are
based on the attainment of specific Company performance measures
approved by the Compensation Committee of the Board of Directors.
These performance measurements are keyed to management's annual
operating plan and are based on the achievement of specific
operating profit, revenue growth and, revenue per employee and
expense per employee. According to the written performance goals
established for the CEO under the Executive Incentive Program, the
maximum bonus award payable to the CEO under the Executive
Incentive Program is equal to 150% of the CEO's base salary for the
year with respect to which the award is made.
Approval of this proposal will enable the Company to
continue to offer its CEO an incentive compensation package that
will continue to retain and attract qualified executives in the
highly competitive high technology market place, while preserving
for the Company a deduction for U.S. Federal Income Tax purposes
for the full amount of such compensation. Approval of this
proposal will require the affirmative vote of a majority of
shares of Common Stock present or represented, and entitled to
vote, at the Meeting.
The Board of Directors unanimously recommends that
shareholders vote FOR the approval of the material terms of the
compensation program described above.
PROPOSAL NO. 4 - TO AMEND THE CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Under the provisions of the Fourth Article of the Company's
Second Amended and Restated Certificate of Incorporation, as
amended, the Company's current authorized capital stock is one
hundred five million shares, consisting of one hundred million
shares of common stock, $.01 par value ("Common Stock"), and five
million shares of preferred stock, $1.00 par value ("Preferred
Stock"). As of March 1, 1994, there were approximately
45,475,965 shares of Common Stock issued and outstanding and
another 13,307,689 shares reserved for issuance under the
Company's stock option and employee stock purchase plans. On
March 24, 1994, a resolution was unanimously adopted by the Board
of Directors which approved submission to a vote of the
shareholders a proposal to amend the first sentence of the Fourth
Article of the Certificate of Incorporation to provide for a
total authorized capital stock of the Company of 205,000,000,
consisting of 200,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock. In all other respects, the Fourth
Article of the Certificate of Incorporation would remain
unchanged.
If approved, the increased number of authorized shares of
Common Stock will be available for issue from time to time for
such purposes and consideration as the Board of Directors may
approve and no further vote of shareholders of the Company will
be required, except as provided under Delaware law or the rules
of the NASDAQ System or of any national securities exchange on
which the shares of Common Stock of the Company are at the time
listed. The availability of additional shares for issue, without
the delay and expense of obtaining the approval of shareholders
at a special meeting, will afford the Company greater flexibility
in acting upon proposed transactions or in declaring a stock
dividend. The Company from time to time investigates acquisition
opportunities which might involve the issuance of its Common
Stock and is currently considering the declaration of a stock
dividend. The availability of sufficient authorized shares will
enable the Company to take advantage of these opportunities more
readily. However, the Company currently has no agreements to
issue additional shares of Common Stock other than the shares of
Common Stock that previously have been reserved for issuance as
described above.
The additional shares of Common stock for which
authorization is sought would be identical to the shares of
Common Stock of the Company now authorized. Holders of Common
Stock do not have preemptive rights to subscribe to additional
securities which may be issued by the Company.
Approval of this amendment to the Certificate of
Incorporation will require the affirmative vote of a majority of
shares of Common Stock entitled to vote at the Meeting. If the
amendment is authorized, the text of the first sentence of the
Fourth Article of the Company's Certificate of Incorporation will
be as follows:
"FOURTH. The total number of shares of stock
which the Corporation shall have authority to issue is
two hundred five million (205,000,000) shares,
of which 200,000,000 shares shall be Common
Stock, $.01, par value and 5,000,000 shares shall
be Preferred Stock, $1.00 par value."
The Board of Directors unanimously recommends that
shareholders vote FOR the proposed increase in authorized shares
of Common Stock.
PROPOSAL NO. 5 RATIFICATION OF SELECTION OF AUDITORS
The Board of Directors has selected the firm of Coopers &
Lybrand, independent certified public accountants, to serve as
auditors for the fiscal year ending December 31, 1994. Coopers &
Lybrand has served as the Company's auditors since 1982. It is
expected that a member of the firm of Coopers & Lybrand will be
present at the Meeting and will be available to make a statement
and to respond to appropriate questions. If the shareholders do
not ratify the selection of Coopers & Lybrand, the Board of
Directors may consider selection of other independent certified
public accountants to serve as independent auditors, but no
assurances can be made that the Board of Directors will do so or
that any other independent certified public accountants would be
willing to serve.
The Board of Directors unanimously recommends that shareholders
vote FOR the ratification of this selection.
VOTING PROCEDURES
For purposes of determining whether a proposal has received
a majority vote, abstentions will be included in the vote totals,
with the result that an abstention will have the same effect as a
negative vote. In instances where brokers are prohibited from
exercising discretionary authority for beneficial holders who
have not returned a proxy (so-called "broker non-votes"), those
shares will not be included in the vote totals and, therefore,
will have no effect on the outcome of the vote. Shares that
abstain or for which the authority to vote is withheld on certain
matters will, however, be treated as present for quorum purposes
on all matters.
OTHER BUSINESS
The Board of Directors knows of no business which will be
presented for consideration at the Meeting other than that stated
above. If other business should come before the Meeting, the
persons named in the proxies solicited hereby, each of whom is an
officer of the Company, may vote all shares subject to such
proxies with respect to any such business in the best judgment of
such persons.
SHAREHOLDER PROPOSALS
It is currently contemplated that the 1995 Annual Meeting of
Shareholders will be held on or about May 10, 1995. Proposals of
shareholders intended for inclusion in the proxy statement to be
furnished to all shareholders entitled to vote at the next
annual meeting of the Company must be received at the Company's
principal executive offices not later than December 14, 1994. It
is suggested that proponents submit their proposals by certified
mail, return receipt requested.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the
Company. Proxies will be solicited principally by the Company by
use of the mails. The Company has also engaged the services of
Georgeson & Company Inc., a professional proxy solicitation firm,
to assist in the solicitation of proxies for a fee of $7,500 plus
expenses. Further solicitation of proxies from some shareholders
may be made by directors, officers and regular employees of the
Company personally or by telephone, telegraph or letter. No
additional compensation, except for reimbursement of reasonable
out-of-pocket expenses, will be paid for any such further
solicitation. In addition, the Company may request banks, brokers
and other custodians, nominees and fiduciaries to solicit
customers of theirs who have shares of Common Stock registered in
the name of a nominee. The Company will reimburse any such
persons for their reasonable out-of-pocket expenses.
Dated: April 13, 1994
_______________________________________________________________________________
LOTUS DEVELOPMENT CORPORATION
55 Cambridge Parkway
Cambridge, Massachusetts 02142
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Edwin J. Gillis and Thomas
M. Lemberg as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and to vote
all the shares of Common Stock, $.01 par value, of Lotus
Development Corporation held of record by the undersigned on
April 1, 1994, at the Annual Meeting of Shareholders to be held
on May 25, 1994, or any adjournment thereof, on all matters on
which the undersigned would be entitled to vote.
This Proxy when properly executed will be voted in the
manner indicated herein by the undersigned. If no contrary
indication is made, the proxies will vote FOR the other proposals
described in this Proxy and the accompanying Proxy Statement.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
Please mark
X votes as in
------ this example
The Board of Directors recommends that you vote FOR Proposals 1
through 5.
1. Election of Directors
Nominees: Jim P. Manzi, Richard S. Braddock,
Ratification of selection of
William H. Gray III, Michael E. Porter
and Henri A. Termeer
FOR WITHHELD
______ ______
______________________________________
For all nominees except as noted above
2. Amendment of 1986 Stock Option Plan for Non-Employee Directors
FOR AGAINST ABSTAIN
________ ________ _________
3. Approval of certain compensation payable to CEO for U.S.
Federal Income Tax purposes
FOR AGAINST ABSTAIN
________ ________ _________
4. Amendment of Certificate of Incorporation to increase number
of authorized shares
FOR AGAINST ABSTAIN
_______ ________ _________
5. Ratification of selection of Coopers & Lybrand as auditors
FOR AGAINST ABSTAIN
______ ________ _________
MARK HERE FOR ADDRESS CHANGE
AND NOTE AT LEFT ____________________________
This Proxy must be signed exactly as your name appears
hereon. When shares are held by joint tenants both should sign.
Executors, administrators, trustees, etc. should indicate their
capacities. If the signer is a corporation, please sign full
corporate name and indicate capacity of duly authorized
officer executing on behalf of the corporation.
Signature:__________________________ Date:________________
Signature:__________________________ Date:________________
___________________________________________________________________________
LOTUS DEVELOPMENT CORPORATION
1993 REPORT TO SHAREHOLDERS
<TABLE>
FINANCIAL HIGHLIGHTS
(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
--------- --------
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)
- ------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<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.
Sao 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.
Curacao, 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
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