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LAWSON SOFTWARE, INC. Form 10-K Index
Part IV

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number: 000-33335

LAWSON SOFTWARE, INC.
(Exact name of registrant as specified in its charter)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 Par Value Per Share
Preferred Stock Purchase Rights

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by Reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The aggregate market value of the voting and non-voting common stock held by non-affiliates of the Registrant, based upon the closing sale price of Common Stock on November 28, 2003 as reported on the Nasdaq National Market, was approximately $682,771,900.

        The number of shares of the registrant's common stock outstanding on July 19, 2004 was 98,144,729.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Proxy Statement for Registrant's 2004 Annual Meeting of Stockholders to be held October 28, 2004 are incorporated by reference in Part III of this Form 10-K Report.

LAWSON SOFTWARE, INC.
Form 10-K
Index

Forward-Looking Statements

        In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements. The forward-looking statements are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "anticipate," "intend," "estimate," "forecast," "project," "should" and similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements include, among others, statements about our future performance, the continuation of historical trends, the sufficiency of our sources of capital for future needs, the effects of acquisitions and the expected impact of recently issued accounting pronouncements. The forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Our Future Results or the Market Price of Our Stock." Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully review the risk factors described in this Annual Report on Form 10-K and in other documents the Company files from time to time with the Securities and Exchange Commission.

Part I

Item 1. Business

General

        We provide business application software, services and support to specific service industries. Our software includes financials, human resources, procurement, healthcare supply chain, distribution, retail operations, service process optimization, and enterprise performance management applications designed to help manage, analyze and improve our clients' businesses. Our applications automate and integrate critical business processes, facilitating collaboration among our clients and their partners, suppliers and employees. Our consulting services primarily help our clients implement their Lawson applications. Our support services provide ongoing maintenance and assistance to our clients.

        Founded in 1975, we have more than 2,000 clients, primarily in the following markets: healthcare, government and education, retail, financial services (including banking, insurance and other financial services), and professional services.

        We generate revenue through license fees and fees for consulting, training and implementation services and client support and maintenance. We market and sell our software and services primarily through a direct sales force, which is augmented by channel partners and resellers.

        Lawson Software is a Delaware corporation. In February 2001, we were reincorporated through a merger with our predecessor, Lawson Associates, Inc., a Minnesota corporation, which was incorporated in 1975. Our principal executive office is located at 380 Saint Peter Street, St. Paul, Minnesota 55102-1302. Our telephone number is (651) 767-7000, and our website is www.lawson.com.

Our Software

        We provide business application software that automates and improves the business processes of our clients. The open architecture of our software gives clients a choice to deploy a pre-configured,

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industry-tailored application or customize the application quickly and easily to conform to the client's unique business processes. The benefits of our software include:

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Automation, Collaboration, and Analysis. Our software automates business processes, enables collaboration among process participants and delivers detailed analyses of process results. In addition, our software suites can be integrated to deliver broader benefits to an organization. For example, our service process optimization software enables appropriate staff to assess critical information on service projects. Managers can easily identify and assign the appropriate personnel to projects based on skills and availability. Personnel can enter their time and expenses associated with a project into our service process optimization software, which processes these entries to automatically update: our financial management software to record client billings, revenue recognition and project accounting; our payroll application to update time records; our accounts payable application to reimburse any employee expenses; and our enterprise performance management application to deliver financial, project and resource performance reports to appropriate managers.



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Industry-Tailored Solutions. We use our expertise in targeted industries to provide pre-configured functionality that addresses the specific business needs of these industries, thus increasing the "out-of-the-box" utility of our applications. For example, our healthcare supply chain software streamlines and optimizes the supply chain operations from start to finish for one hospital or an entire network.



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Flexible, Web-Based Architecture. Our software can be deployed into a client's system with pre-configured functionality or easily customized to conform to the client's business processes using our software extension tools. Our open architecture enables our software to run on most leading hardware and operating system platforms and to operate with the leading relational database management systems. This allows our clients to choose the most appropriate platforms independently from selecting our applications. Furthermore, our applications can integrate with legacy systems through standard interfaces and integration protocols. Because many of our applications do not require software to reside on the desktop computer and are accessed directly through a standard Web-browser or a supported wireless device, we believe many of our applications can be deployed and used without extensive training. Our software is also highly scalable, enabling deployment in large, global enterprises and in small and medium-sized businesses.



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Rapid and Cost-Effective Implementation. Our industry focus and flexible software enable fast, efficient deployment. We believe our knowledge of our targeted industries allows our industry-focused consulting services teams to implement our software with an in-depth understanding of the business needs of the client, thereby reducing time, effort and expense.

Products

        Our software is comprised of:

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core business applications,



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enterprise performance management applications,



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and software extension tools.

        Our core business applications automate tasks related to financial management, human resources, procurement, healthcare supply chain, distribution, retail operations, and service-related projects or processes. These core business applications include components in each functional area, which we license separately or bundle together as suites designed for our targeted markets.

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        Our enterprise performance management applications track pre-configured business metrics, including industry-specific metrics that enable users to view and analyze key operational performance measurements and use graphical, end-user interfaces to navigate through relevant information stored in a client's transactional system.

        Our software extension tools can be added to almost any Lawson application to tailor the application to a client's specific needs. These include User Productivity Tools, Data Integration Tools, Development Tools, and System Tools.

Core Business Applications

        Our core business applications include: financials, human resources, procurement, healthcare supply chain, distribution, retail operations, and service process optimization. Our applications enable organizations to execute standard business processes in each of the following areas, as well as provide functionality specific to the industries we target. The following list details the primary components within each core business application.

        Lawson Financials Suite.    Lawson Financials applications enable our clients to create and track financial and accounting data across multiple companies, languages, currencies and books of accounts. These applications provide extensive analytical capabilities and integrate our clients' financial management processes with other core business applications. Principal components include:

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Accounts Payable allows clients to enter invoices, create and store vendor records, manage cash flow, and generate payments.



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Accounts Receivable processes payments, manages client credit, and tracks historical trends.



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Asset Management tracks assets throughout an organization.



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Financial Reporting Self-Service disseminates financial information and reports throughout an organization via the Internet.



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General Ledger captures, analyzes, and reports transactional information.



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Lease Management automates processing of operating and capital leases, along with related asset information.



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Payables Management streamlines the accounts payable process and accommodates large volumes of invoices.



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Project and Activity Accounting acts as the information bridge between the needs of the operational accounting and corporate financial accounting functions.



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Strategic Ledger captures strategic business information for analysis and reporting.



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Budgeting and Planning provides budgeting, periodic forecasting, and dynamic planning.



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Grant Management centralizes and secures grant information for administration, tracking, and reporting.



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Time and Expense allows employees to capture and submit time and expenses online.

        Lawson Human Resources Suite.    Lawson Human Resources applications assist in recruiting, developing and managing employees. These applications are integrated with our financials applications

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to automatically update the financial reporting functions for changes in employment and payroll. Principal components include:

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Benefits Administration automates health and welfare plans, providing enrollment, payroll deductions, plan updates, regulatory reporting and self-service Web access to benefit plans, plan administration, enrollment, and coverage details.



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Payroll automates payment processing, providing regulatory reporting and compliance, garnishments and court order management, and flexible creation of automated deductions.



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Absence Management streamlines administration of time-off programs and leave-of-absence activities.



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Personnel Administration manages employee information, including skills, certifications, health and safety issues, training programs, and job transfers.



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e-Recruiting is a Web-based employee recruitment management system.



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Time and Expense gathers all time and expense data in one place for employees, offsite workers, non-employees, and international staff.



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Tips captures, calculates, allocates, and reports gratuity information, supporting compliance with legal reporting requirements.



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Workforce Analytics allows human resources professionals to measure the value of their programs and services by automatically calculating more than 70 performance indicators or measurements.



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Employee and Manager Self-Service allows employees to view and maintain their own data via a secure Web interface. Employees have access to their employment, benefit, and payroll data and can make changes to their personal information.

        Lawson Procurement Suite.    Lawson Procurement applications automate the operational and administrative procurement process, promote adherence to purchasing policies, assist businesses in negotiating pricing for supplies, lower materials and services costs and improve inventory practices. Principal components include:

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Purchase Order streamlines the entire procurement process—from establishing vendor pricing agreements to creating and issuing purchase orders and receiving goods.



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Requisitions enables employees to order supplies, services, and equipment using a standard Web browser.



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Inventory Control monitors and manages inventory throughout an organization, whether inventory is maintained in one or numerous locations.



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Requisitions Self-Service decentralizes purchasing tasks by empowering employees with Internet access to manage their own internal requests for maintenance, repairs, and operating supplies.



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Vendor Self-Service permits vendors to retrieve and view information about invoices, payments, inventory levels and their shipment receipt status via any standard Web browser.



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e-Procurement simplifies integration with trading partners and digital marketplaces.

        Healthcare Supply Chain Management.    Lawson's healthcare-specific software streamlines and optimizes the supply chain operations from start to finish for one hospital or an entire network.

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Healthcare Supply Chain software helps standardize buying processes, manage supply costs, improve contract utilization, and ensure consistent supply availability. Principal components include:

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Procurement automates purchasing, manages inventory, and streamlines procurement processes—from requisition to vendor payment. Using Web-enabled self-service tools, Lawson Procurement enables healthcare employees to do their own purchasing using a list of predetermined vendors.



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Surgical Instrument Management helps hospitals ensure that the correct instruments and trays are available when and where they are needed. Using bar coding, wireless, and Internet technologies, Surgical Instrument Management simplifies tray assembly, pinpoints tray location, identifies deviations in sterilization procedures, and creates a wide variety of reports.



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Par and Cycle Counting uses wireless, handheld capabilities to allow healthcare organizations to keep inventory information accurate and up-to-date.



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Case Carts automates the assembly and management of case carts and allows healthcare organizations to track surgical resources on a patient-by-patient basis including detail supply, practitioner, procedural, and patient information.

        Lawson Distribution Suite.    Lawson Distribution applications provide sales order management, warehouse fulfillment, client invoicing and accounts receivable in an integrated solution. Principal components include:

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Order Entry is an order management system for client orders and sales quotations. Order Entry electronically processes client orders through credit or payment.



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Billing manages pricing and invoicing, providing a central repository, creating invoices from many integrated systems across a business.



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Client Self-Service enables clients, sales representatives, and franchisees to place orders and view order status online. Clients can enter and review orders, check order-shipping status, review invoices, make address changes, check item order histories, and order payment status.



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Franchise Management manages franchise contracts, automates billing and provides up-to-the-minute reports and analysis.

        Software for Retailers.    Lawson's retail-specific software includes Retail Operations and Retail InSight applications. Retail Operations applications are built for high-volume retail enterprises to manage item information, category planning and review, assortment, pricing, promotions, warehouse replenishment, multi-channel ordering, store replenishment, forecasting and order determination. Retail InSight applications help retailers select store locations, find the right product mix, and run successful promotions.

        Principal components of Retail Operations include:

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Merchandising assists category managers in the management, definition, planning, promotion, pricing and reviewing of product categories.



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Lawson Library serves as a data management hub for retailers' systems, including back office, merchandising, warehouse replenishment, distribution and even non-Lawson applications.



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Supply Chain provides an automated system for warehouse management and replenishment and centralized control of multi-channel ordering.



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Store Operations extends Lawson Supply Chain to each retail location and includes components to simplify and automate forecasting, replenishment, inventory control and analysis.

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        Principal components of Retail InSight include:

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Advanced Category InSight transforms transactional information into strategic data to understand consumer purchasing behavior to increase satisfaction and loyalty.



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Store Performance InSight provides insight into store performance.



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Promotions InSight analyzes potential promotional programs, forecasts the likely impact of a promotion, and measures the real impact of completed promotions.



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Shopping Missions Insight identifies the key factors that determine the success of a retail location.

        Lawson Service Process Optimization Suite.    Lawson Service Process Optimization includes Services Automation, Portfolio Management, and Time and Expense.

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Services Automation provides professional services organizations with the tools to manage work, resources, time, expenses, and finances—from the initiation of a sales opportunity to collecting the last dollar of revenue. Key components are: Opportunity Management, Project Management, and Resource Management.



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Portfolio Manager analyzes all active and prospective engagements to help determine which ones will deliver the best returns; also monitors key project metrics, including status.



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Time and Expense captures time and expense data in one place for traditional employees, offsite workers, non-employees, and international staff.

Enterprise Performance Management Applications

        Lawson Enterprise Performance Management (EPM) is an integrated suite of capabilities and applications designed to optimize corporate performance and corporate governance. It can access common data sources in an organization—including relational, OLAP (On Line Analytical Processing), XLS, XML, and flat files—and application data directly from Lawson and non-Lawson sources. As a result, Lawson EPM provides actionable, role-based self-service information from a single data source to help empower the key decision makers throughout an enterprise. Principal components include:

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Lawson Reporting Suite streamlines the way organizations gather, analyze, share, and act on business data. Offering "data access without borders," the Reporting Suite adds value to Lawson applications, and potentially to all systems in an enterprise. Reporting Suite includes:



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Smart Notification™ proactively monitors data sources, filters out "noise," and delivers essential, easy-to-understand information to decision-makers. Reporting Services creates actionable reports from data and distributes those reports in a variety of ways specific to individual needs.



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Scorecard provides instant access to enterprise data stored in an OLAP environment, even if the operation uses multiple systems. With Scorecard, staff at all levels of the organization view the same metrics but information is tailored to the role of each user—whether it's a detailed report for the financial manager or a summary for the CEO. Scorecard also delivers more than 100 prepackaged business ratios and the ability to create custom composite views with links to Web sites and related documents.



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ProcessFlow automates everyday processes, eliminating time-consuming manual steps and driving down costs. ProcessFlow is available for Lawson Financials, Human Resources, Procurement, and Distribution.



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Analytic Architect is an end-user application that transforms operational data into subject-specific business intelligence for analysis. It provides the power to transform data from

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Lawson Financials, Human Resources, Procurement, and Distribution systems into business intelligence stored in multidimensional OLAP data marts.

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Lawson Data Marts provide a multi-dimensional view into business data. Lawson-built cubes can be further customized to meet an organization's requirements, by using the powerful features of the world-class OLAP servers from Hyperion® and Microsoft®.



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Budgeting and Planning enables organizations to conduct budgeting, periodic forecasting, and dynamic planning—quickly, accurately, and productively. The application facilitates automatic rollups of forecasts from widely distributed participants in the forecasting process.

Software Extension Tools

        Lawson Software Extension Tools are adaptable building blocks that can be added to almost any Lawson application. These tools allow our clients to tailor their Lawson applications to meet their specific needs.

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User Productivity Tools make Lawson systems even more productive for users with additional information sharing, information collection, and process analysis tools.



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Data Integration Tools connect Lawson software with legacy systems, transaction systems, custom applications, and handheld devices.



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Development Tools allow developers to customize Lawson's interface and deploy Lawson software in new ways.



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System Tools allow the IT team to monitor and manage their organization's Lawson system, diagnosing and avoiding problems easily.

Services

        We offer comprehensive consulting, training and implementation services and ongoing client support and maintenance, which support our software applications. Generally, we charge our clients for these services on a fee-for-service basis, with training services billed based on attendance. Client support and maintenance typically is charged as a percentage of license fees and can be renewed annually at the election of our clients based on available support offerings. Our in-house services organization also educates third-party system integrators on the use of our software to assist them in providing services to our clients. Given our current base of more than 2,000 clients, our services organization is a large and important part of our overall business. As of May 31, 2004, our services organization consisted of 668 employees.

        Services.    Our consulting services are integral to our ability to provide clients with successful business software. Our industry-experienced employees work with clients to design and execute an implementation plan based on their business processes. Our services organization is aligned with our targeted industries to best support our clients' needs. We also provide our clients with education and training. Our training services include providing user documentation and training at our corporate offices in St. Paul, Minnesota, in several regional offices and at the client site, as well as Web-based training and computer-based training that our clients can access from their own offices.

        Client Support and Maintenance.    We provide our clients with software updates, new releases, new versions and corrections as part of our support services. We offer help desk support through our Global Support Center (GSC), which provides technical and product error reporting and resolution support. Clients can access the GSC by various methods, including online interactive support. We enable clients to monitor the progress of their requests for assistance, and offer a wide variety of up-to-date Lawson-specific product knowledge, including release planning, application descriptions, publications and

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training course dates, with intuitive search capabilities on our company-wide intranet, a portion of which is accessible by our partners and clients.

Technology Architecture

        Lawson's technology architectural foundation is based on the concept of separation of concerns, in which there is a clear separation of the various layers of Lawson's technology stack: the user access layer, the Web server layer, the application server layer, the database server layer, and the connection to external systems. This approach gives Lawson the flexibility to deliver releases for the various layers on different schedules, adopt new technologies and standards more readily, and develop industry-specific applications. This approach also helps protect client investment and eases their transition to new releases. Lawson's technology architecture adheres to the following principles:

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Open architecture. Lawson's open architecture and Business Component Integrator (BCI) help our clients connect all their other systems to Lawson, allowing our clients to work with the computing platforms and technologies they prefer or have to maintain—such as custom-built legacy systems. With Lawson's open architecture, there is no need for clients to abandon other technology investments or rebuild infrastructure to fit Lawson. Lawson's systems operate on most industry standard hardware platforms including IBM, Sun, and Hewlett-Packard, and industry standard operating systems, including IBM iSeries, Unix, and Windows on Intel servers.



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Thin-client architecture. Many of Lawson's products use thin-client architecture, which means that a client's Internet, intranet, or extranet connection gives quick, easy, and secure access to those applications. Thin-client architecture reduces staff training time, speeds implementation, eases administration costs, and gives clients a rapid return on their Lawson investment.



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Scalable. Our architecture is designed to grow with our clients and meet their evolving strategic needs. Lawson applications are designed to be personalized, extended, and integrated to meet the changing needs of an organization.



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Secure. Lawson's application and technology infrastructure allow clients to build security policies as simple or complex as needed to meet the organization's security requirements. Security policies can be created that authorize end users to access only the Lawson applications required to get their job done. Once an end user is authorized to access a Lawson application, even more restrictive security policies can be created that limit the end user to specific functions required to perform their job.

Architecture Model

        There are nine elements in Lawson's architectural model.

USER ACCESS LAYER

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Browser. Provides user access via a PC, desktop, laptop, or mobile device, an Internet/intranet connection, and a browser to access the Lawson Portal.

WEB SERVER LAYER

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Web Services. Encompasses the Web server, Internet Object Services and Lawson Portal, which are key components for deploying Lawson applications via the Internet. Supported Internet technologies include HTTP(s), XML, HTML, JavaScript™, Java™, and COM/DCOM. Certified Web servers include Apache with Tomcat Servlet Engine, Microsoft® IIS with Tomcat Servlet Engine, iPlanet, and WebSphere.

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

APPLICATION/DATABASE SERVER LAYER

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Internet Object Services. Provides the connection between Lawson and the World Wide Web and manages the communication between Lawson's browser-based interfaces and Lawson applications and databases. The three main services are: Application Gateway Services, Data Mining Engine, and Drill Around®—a key feature that allows drilling down to sub-detail information related to a Lawson application.



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Business Logic. A set of integrated business rules for Lawson core applications. These applications can be deployed separately or as suites or as fully integrated solutions. Suites include Financials, Human Resources, Procurement, Distribution, Service Process Optimization, Enterprise Performance Management.



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Database. Provides clients the flexibility to select their optimal relational database. Current databases supported include IBM DB2, Oracle, Microsoft SQL Server, Informix, and Sybase.



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Active Object Repository. A dynamic enterprise data model that includes Interface Form Definitions, Information Relationships, Process Definitions, Logic Definitions, Security Definitions, Transaction Management Definitions, Open Application Interfaces.



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Lawson Environment. Is the foundation of Lawson's architecture and critical to system performance, scalability, availability, and reliability; oversees all activities on the Lawson application server, including security, system resources, transactions, data access, and job schedules.



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Application Server. Choices give clients flexibility to use whatever platform fits their size, budget or strategic direction. Lawson runs on Compaq, Dell, Hewlett Packard, IBM, Microsoft, and Sun.

Trademarks

        Drill Around, Lawson, Lawson Software and the Lawson logo are registered trademarks of Lawson Software, Inc. Other trademarks and trade names appearing in this document are the property of their respective holders.

Strategic Partners

        We have relationships with other technology companies that allow us to expand and complement our technology, product and services offerings.

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Technology: Lawson's technology partners are market leaders in hardware systems, databases, operating systems, telecommunications equipment, and connectivity services. Examples include Hewlett-Packard, IBM Corporation, and Sun Microsystems.



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Products: Product partners provide key technology to extend Lawson product solutions. Typically, these products are embedded or re-sold in relation to the Lawson application. Examples include Ascential Software, Business Objects, Business Software, Inc and Micro Focus International, Inc.



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Services: Consulting and service partners are leading providers of systems integration expertise, hosting, business process redesign, configuration, and integration. These organizations provide industry and application-specific knowledge that augments Lawson's services offerings. Examples include BearingPoint, Ciber Enterprise Solutions, Deloitte, and IBM Global Services.

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Sales and Marketing

        We market and sell our software and services solutions through a combination of a direct sales force, strategic alliances with systems integrators and resellers.

        Our direct sales force and services organization is aligned with our strategy to provide industry-tailored applications, and focuses on the unique business processes for each of our targeted services industries. Within each services industry, we have a sales team dedicated to prospective clients, and another team dedicated to sales to existing clients. We also have regional sales teams that focus on specific geographic territories. Our U.S. sales offices are located in Atlanta, Boston, Chicago, Columbus, Dallas, Los Angeles, New Jersey, Philadelphia, San Francisco, Seattle, St. Paul and Washington, D.C. We also have international sales offices in Canada, France and the United Kingdom and sell our software through affiliates in other international locations.

        In addition to our direct sales teams, we enter into strategic alliances with systems integrators and resellers to benefit from our partners' resources, expertise and client base.

        Through our alliances, we believe we are able to expand our market presence through increased awareness of our software applications within their organizations and client base and through their personnel who are trained to implement our software. Our channel partners and resellers market and promote our software products and typically provide implementation services to their end users. Channel partners generate sales leads, make initial client contacts and assess needs prior to our introduction. In addition, some of our channel partners engage in client support and localization of our products. We also engage in joint marketing programs, presentation of seminars, attendance at trade shows and the hosting of conferences with many of our business partners.

        We also use application service providers ("ASPs") to distribute our products. ASPs allow us to reach small-to medium-sized businesses that prefer a hosted solution. Our software's architecture is easily distributed over the Internet and is highly scalable to serve many clients and supports multi-tenancy, which lets ASPs securely host multiple clients on a single set of our applications.

Research and Development

        Since inception, we have made substantial investments in research and software product development. We believe that timely development of new software applications, enhancements to existing software applications and the acquisition of rights to sell or incorporate complementary technologies and products into our software offerings are essential to maintain our competitive position in the market. The business application software market is characterized by rapid technological change, frequent introductions of new products, changes in client demands and rapidly evolving industry standards.

        Our total research and development expenses were $64.9 million, $59.1 million and $66.9 million in fiscal 2004, 2003 and 2002, respectively. As of May 31, 2004, our research and development organization consisted of 404 employees.

Competition

        The markets for our products and services are intensely competitive and we expect substantial additional competition from established and emerging software companies. We believe that the principal competitive factors affecting our market include:

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product features, functionality, performance and price;



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knowledge of a client's industry;



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ease of integration and speed of implementation;

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level of client service;



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sales and marketing efforts;



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new product and technology introductions; and



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company stability, resources and reputation.

        We believe we have competitive advantages over a number of our competitors. Some of these advantages include the breadth and completeness of our software applications, our focus on each of our targeted industries, the depth of our product functionality for each of our targeted industries, the openness and flexibility of our software's architecture, the industry knowledge and expertise of the members of our sales, marketing and services organizations and our long operating and product development history.

        Many of our competitors may have an advantage over us due to their larger client bases, greater name recognition, operating and product development history, greater international presence and substantially greater financial, technical and marketing resources. These competitors include well-established companies such as Oracle Corporation, PeopleSoft Inc. and SAP AG. We also compete with numerous other software companies including Internet software vendors, single-industry software vendors and those companies that offer a specific solution that directly competes with a portion of our comprehensive product offering.

Intellectual Property and Product Liability

        We regard certain aspects of our internal operations, software and documentation as proprietary, and rely on a combination of contract, copyright, trademark and trade secret laws and other measures, including confidentiality agreements, to protect our proprietary information. Existing copyright laws afford only limited protection. We believe that, because of the rapid pace of technological change in the computer software industry, trade secret and copyright protection is less significant than factors such as the knowledge, ability and experience of our employees, frequent software product enhancements and the timeliness and quality of support services. We cannot guarantee that these protections will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology. In addition, when we license our products to clients, we provide source code for most of our products. We also permit clients to possibly obtain access to our other source code through a source code escrow arrangement. This access to our source code may increase the likelihood of misappropriation or other misuse of our intellectual property. In addition, the laws of certain countries in which our software products are, or may be licensed, do not protect our software products and intellectual property rights to the same extent as the laws of the United States.

        Software companies have increasingly applied for, and relied on, the protection of patents. To date, we hold one patent and have filed several patent applications. These applications may not result in issued patents and, even if issued there is no assurance that the patents will provide us with any competitive advantage.

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

        Our license agreements with our clients contain provisions designed to limit the exposure to potential product liability claims. It is possible, however, that the limitation of liability provisions

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contained in these license agreements may not be valid as a result of future federal, state or local laws or ordinances or unfavorable judicial decisions.

        The license and support of our software for use in mission critical applications creates the risk of a claim being successfully pursued against us. Damages or injunctive relief resulting under such a successful claim could seriously harm our business.

Employees

        As of May 31, 2004, we had 1,579 employees, including 300 in sales and marketing, 404 in research and development, 668 in services and client support and 207 in administration. Our performance depends in significant part on our ability to attract, train and retain highly qualified personnel. None of our employees is represented by a labor union and we believe our relations with our employees are good.

        Our executive officers are:

        H. Richard Lawson is one of our founders and has been one of our directors and an executive officer since our inception in 1975. Mr. Lawson has served as the chairman of our board of directors since February 2001. From March 2000 until February 2001, Mr. Lawson was our chief executive officer. Prior to that time, Mr. Lawson served as our president and chief operating officer from October 1998 until March 2000 and our chairman from June 1996 until October 1998.

        John J. Coughlan has served as our chief executive officer since February 2001, our president since March 2000 and one of our directors since April 2000. From March 2000 until February 2001, Mr. Coughlan also served as our chief operating officer. From 1987 until March 2000, Mr. Coughlan worked for us in various capacities, most recently as executive vice president of field operations and marketing. Mr. Coughlan is a director of Minnesota Mutual Companies, a financial services company.

        Robert G. Barbieri has served as our executive vice president and chief financial officer since August 2000, as our executive vice president of operations from June 2003 to June 2004, and as our chief financial and performance officer since June 2004. From January 1997 until August 2000, Mr. Barbieri was employed by Apogee Enterprises, Inc., a publicly traded glass, coatings and service technologies company, serving most recently as vice president and chief financial officer. From 1984 until joining Apogee, Mr. Barbieri was employed by Air Products and Chemicals, Inc., a global gases and chemicals company, where he held several senior financial management positions, serving most recently as controller for the general industries division of the gases group. Mr. Barbieri is a certified management accountant.

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        Dean J. Hager has served as an executive vice president since June 2000, and as our chief product officer since June 2004. Mr. Hager has worked in various capacities since joining us in May 1998. Mr. Hager served as our executive vice president emerging markets from June 2003 until June 2004, our executive vice president global products division from February 2001 until May 2002, our executive vice president worldwide marketing from June 2000 to February 2001, our vice president, e-business marketing from June 1999 until June 2000, and our director of marketing for our former AS/400 business unit from May 1998 until June 1999. From March 1989 to May 1998, Mr. Hager was employed by IBM, where he held several senior management positions, serving most recently as senior program manager with its server products division.

        Eric C. Morgan has served as an executive vice president since February 2001. Since June 2002, he has been responsible for the healthcare industry practice and since June 2004 he has been responsible for the healthcare and retail industry practices. Mr. Morgan has worked in various capacities since joining us in 1991 as an account executive. Mr. Morgan served as our executive vice president, strategic market development from February 2001 until May 2002, vice president and general manager, healthcare, from September 1999 until February 2001, and our vice president of sales, healthcare, from March 1999 until September 1999. From 1988 to 1991, Mr. Morgan was employed by Global Turnkey Systems, an enterprise resource planning vendor for small- to medium-sized companies, serving in a variety of sales positions. From 1983 to 1988, Mr. Morgan was an account executive for NCR, a diversified hardware and software provider.

        Samuel H. Adams has served as senior vice president of our government and education practice since June 2004, senior vice president of public sector from September 2003 until June 2004 and senior vice president of emerging markets from June 2001 until September 2003. Mr. Adams joined us as an account executive in 1995 and has held several positions, including vice president of healthcare sales from 1999 until June 2001 and national director of healthcare major accounts from 1997 until 1999. Before joining us, Mr. Adams served in sales and sales management positions with Burroughs Computer Corporation, Concord Management Systems, Ross Systems, JD Edwards, and as director of corporate marketing for Concord Management Systems.

        Joanne L. Byrd has served as senior vice president of industry markets and international since June 2004, senior vice president of field operations from June 2002 until June 2004 and senior vice president of global consulting services from June 2000 until June 2002. Ms. Byrd joined us in 1996 as a regional sales manager in our healthcare group and served as vice president of sales and services for healthcare from June 1999 until June 2000. Before joining us, Ms. Byrd worked 17 years for Shared Medical Systems (later acquired by Siemens), where she held various management positions in sales and services.

        Scott D. Meyer has served as our senior vice president and chief marketing officer since December 2003 and as our chief marketing and human resources officer since June 2004. Before joining us in December 2003, Mr. Meyer was chief strategy officer of Weber Shandwick Worldwide from June 2002 until October 2003, and chief executive officer of Shandwick International from January 1997 until June 2002. In 1986, Mr. Meyer co-founded the Minneapolis-based public relations firm of Mona Meyer McGrath & Gavin, and served that firm in various capacities until the sale of the firm to Shandwick International in 1989.

        Bruce B. McPheeters has served as our chief legal officer since June 2004, our senior vice president of administration since June 2002, our general counsel since April 2000, our corporate secretary since October 1999, and our vice president of administration from April 2000 until May 2002. Mr. McPheeters joined us as corporate counsel in September 1999. From 1981 until September 1999, Mr. McPheeters was a business lawyer in private practice, focusing primarily in the areas of intellectual property, securities, and mergers and acquisitions of privately and publicly held companies. From

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December 1995 until September 1999, he was employed by the law firm of Gray, Plant, Mooty, Mooty & Bennett, P.A.

Available Information

        We make available, free of charge, on our website (www.lawson.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we have electronically filed or furnished such materials to the Securities and Exchange Commission. The information posted on our website is not incorporated into this Annual Report on Form 10-K.

Financial Information About Geographic Areas

        For financial information about geographic areas see Note 19 "Segment and Geographic Areas," of Notes to Consolidated Financial Statements filed as part of this Annual Report.

Item 2. Properties

        Our corporate headquarters and executive offices are in St. Paul, Minnesota, where we lease approximately 300,000 square feet of space. The lease on this facility expires July 31, 2015. We also lease approximately 140,000 square feet of space, primarily for regional sales and support offices, elsewhere in the United States. Additionally, we lease approximately 43,000 square feet of office space in countries outside the United States, used primarily as sales and services offices. Expiration dates of leases on these offices range from 2004 to 2017. We believe that our current domestic and international facilities will be sufficient to meet our needs for at least the next 12 months and that, if required, suitable additional or alternative space will be available on commercially reasonable terms to accommodate expansion of our operations.

Item 3. Legal Proceedings

        We are, and from time to time may become, involved in litigation in the normal course of business concerning our products and services. While the outcome of these claims cannot be predicted with certainty, we do not believe that the outcome of any one of these legal matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations or cash flows in a particular period.

Item 4. Submission of Matters to a Vote of Security Holders

        No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended May 31, 2004.

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Part II

Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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

        We have never declared or paid any cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. We intend to retain future earnings to fund the development and growth of our business.

        As of July 19, 2004, the approximate number of stockholders of record was 190.

        Between March 1, 2004 and May 31, 2004 we issued 173,476 shares of common stock pursuant to the exercise of outstanding stock options for an aggregate consideration of $135,005 in reliance upon Rule 701 of the Securities Act of 1933, as amended.

(b)

As of May 31, 2004, we held $121.0 million of net proceeds from our initial public offering in interest-bearing, investment grade securities. During the three months ended May 31, 2004, we used $19.8 million for the purchase of client maintenance contracts, $1.1 million for capital expenditures and $0.2 million for the repayment of debt.



(c)

The following table provides information as of May 31, 2004 with respect to the shares of common stock repurchased by the Company during the fourth quarter of fiscal 2004 (in thousands, except per share data):

(1)

In June 2003, the Company's Board of Directors authorized the repurchase of up to $50.0 million worth of the Company's common shares. No time limit has been set for the completion of the plan.

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Item 6. Selected Consolidated Financial Data