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________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended FEBRUARY 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _________ To ________
Commission File Number 0-16006
COGNOS INCORPORATED
(Exact Name Of Registrant As Specified In Its Charter)
CANADA 98-0119485
(State Or Other Jurisdiction Of (IRS Employer Identification No.)
Incorporation Or Organization)
3755 Riverside Drive,
P.O. Box 9707, Station T,
Ottawa, Ontario, Canada K1G 4K9
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (613) 738-1440
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Shares Without Nominal Or Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ____
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. [X]
The aggregate market value of Common Shares held by non-affiliates of the
registrant, based on the last reported sales price of the Common Shares on the
Nasdaq National Market on May 5, 2000, was approximately US$2,201,681,000.
As of May 5, 2000, 87,366,527 Common Shares, without nominal or par value, were
outstanding.
________________________________________________________________________________
continued....
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the COGNOS INCORPORATED Annual Report to Shareholders for the fiscal
year ended February 29, 2000, are incorporated by reference into Items 5, 6, 7,
7A and 8 of Part II of this Annual Report on Form 10-K. The incorporated
portions are filed as Exhibit 13.
REPORTING CURRENCY
All financial information contained in this document is expressed in United
States dollars, unless otherwise stated.
TRADEMARKS
Cognos, the Cognos logo, Better Decisions Every Day, Axiant, Cognos Accelerator,
CognoSuite, DataMerchant, DecisionStream, HeadStart, Impromptu, NovaView,
PowerCube, PowerHouse, PowerPlay, Scenario, 4Thought and 24 Ways are trademarks
or registered trademarks of Cognos Incorporated in the United States and/or
other countries. All other trademarks or trade names referenced to in this
Annual Report on Form 10-K are the property of their respective owners.
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TABLE OF CONTENTS
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PART I
Item 1. Business........................................... 1-13
Item 2. Properties......................................... 14
Item 3. Legal Proceedings.................................. 14
Item 4. Submission of Matters to a Vote of Security Holders 15-16
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters.................. 17
Item 6. Selected Financial Data............................ 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 17
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk...................................... 17
Item 8. Financial Statements and Supplementary Data........ 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........... 18
PART III
Item 10. Directors and Executive Officers of the
Registrant....................................... 19-20
Item 11. Executive Compensation............................ 21-26
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................... 27-28
Item 13. Certain Relationships and Related Transactions.... 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................. 29-31
Signatures .................................................. 32
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PART I
ITEM 1. BUSINESS
The Corporation
The Corporation was incorporated under the Canada Corporations Act on December
23, 1969, under the name Quasar Systems Ltd., and was continued under the Canada
Business Corporations Act on August 9, 1976. The Corporation's name was changed
to Cognos Incorporated on February 1, 1984. The Corporation's corporate
headquarters are located in Ottawa, Canada.
Cognos develops, markets, and supports two complementary lines of software tools
that are designed to satisfy business critical needs for the extended enterprise
within traditional and e-business markets. The Corporation's business
intelligence products are designed to give individual users the ability to
independently access, explore, analyze, and report corporate data. The
Corporation's client/server application development tools are designed to
increase the productivity of systems analysts and developers. Cognos products
are distributed both directly and through resellers worldwide.
Revenue is derived from the licensing of software and the provision of related
services, which include product support and education, consulting, and other
services. The Corporation generally licenses software and provides services
subject to terms and conditions consistent with industry standards. Customers
may elect to contract with the Corporation for product support, which includes
product and documentation enhancements, as well as telephone support, by paying
an annual fee or, alternatively, fees based on usage of support services.
The Corporation operates internationally, with a substantial portion of its
business conducted in foreign currencies. Accordingly, the Corporation's results
are affected by year-over-year exchange rate fluctuations of the United States
dollar relative to the Canadian dollar, to various European currencies, and to a
lesser extent, other foreign currencies.
Certain statements made by the Corporation in this Annual Report on Form 10-K
may constitute forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Statements relating to the
Corporation's expectations concerning future revenues and earnings from the
licensing of its business intelligence and application development products, and
relating to the sufficiency of capital to meet working capital and capital
expenditure requirements constitute forward-looking statements, subject to risks
and uncertainties that may cause future results to differ materially from those
expected. Investors are cautioned that all forward-looking statements involve
risks and uncertainties, including those detailed in the Corporation's filings
with the Securities and Exchange Commission. See also "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Certain Factors That May Affect Future Results" filed as Item 14, Exhibit 13.3
to this Annual Report on Form 10-K.
The financial results in this Annual Report on Form 10-K are reported on a
consistent basis for all periods presented; in United States (U.S.) dollars, the
Corporation's reporting currency; and in accordance with U.S. generally accepted
accounting principles.
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Industry Background
Business Intelligence Market
Organizations in many industries are seeking to improve the ability for every
individual to make more informed, faster business decisions. Many organizations
have come to regard data as a corporate asset and the use of information for
decision making as a source of competitive advantage. Over the past few years
these organizations have implemented Enterprise Resource Planning systems (ERP)
and invested in the design and construction of "data warehouses" and "data
marts", which are repositories of large amounts of corporate data. The challenge
is to extract and present selected data from these data sources in intuitive
formats that give individual users the ability to access and analyze business
information to support the mission of their respective organizations. Now e-
business, enabled in part by Web technologies for user access and data marts and
data warehouses for business-ready information content, has expanded the market.
Now companies can share reports with partners and suppliers that help to drive
business efficiency and deploy business intelligence content more broadly and
easily within the enterprise and between organizations.
In order to accommodate this evolution to data warehouses and data marts and
information sharing, there is a need for a more effective means of making
corporate information available more broadly throughout an enterprise and
between organizations. The solution is to provide every decision-maker with
effective tools to access and analyze information. Effective tools make
decision-making within the business faster and more accurate. This process also
off-loads requests for ad hoc reports, currently made to Information Systems
(IS) departments, to the users themselves, thus streamlining the business
process of corporate reporting and decision-making even further. The ever-
increasing need of decision-makers to have access to corporate information has
resulted in products that address what is termed the "business intelligence"
market.
The Corporation believes that its business intelligence products address the
current market environment and the growing need for distributing corporate
information to the end-user's desktop. In recent years, this has been done using
corporate intranets, extranets, and client/server network computing
environments. The Corporation believes that the rapid expansion of Web
infrastructure remains an emerging business opportunity for distributing
corporate information within organizations and beyond.
Application Development Market
With the restructuring of organizations, information processing has moved from
centralized systems to distributed networks that bring line-of-business and
market-oriented systems closer to the relevant business units. As firms
reengineer their business processes, IS departments must be able to migrate
existing server-based applications to client/server applications, and quickly
deliver new systems that exploit the infrastructure. In addition, the
Corporation believes there has been a fundamental shift over the past several
years from 4GL development languages toward packaged solutions. Organizations
are now choosing to buy their next generation of business systems, rather than
attempt to build these corporate applications internally. While the bulk of
commercial applications operate in traditional host-terminal environments or
LAN-based client/server environments, the Corporation believes the market is
evolving to include applications which can also operate on Web-servers with
Internet browser clients. Organizations with existing large investments in
internally developed applications are now faced with migrating them to new
technologies, such as the Web; developing interfaces to allow them to integrate
with the new packaged solutions; or replacing those systems entirely to update
to Web technology and/or packaged based systems.
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Corporate Strategy
The Corporation believes the growing importance of information and information
access by front-line and knowledge workers, in conjunction with the increased
availability of corporate data, creates a growing demand for business
intelligence products and certain application development tools. The change in
the needs of the end-user and the evolution in the application development
requirements is the foundation for the Corporation's current product strategy
and is the framework within which the Corporation has focused, and will continue
to focus, its product development efforts.
The Corporation's strategy is to develop, market, and support complementary
lines of software products that are designed to satisfy business-critical needs
for the extended enterprise within traditional and e-business markets. The
Corporation's business intelligence products give users the ability to
independently access, explore, analyze, and report corporate data. The
Corporation's client/server application development tools are designed to
increase the productivity of system analysts and developers.
The Corporation believes that, in order to be successful, it is essential to
have a portfolio of products at various stages of their respective product life
cycles, to augment its current products with the development and acquisition of
new and emerging technologies (see Research and Development), and to explore the
possibilities of partnerships with market-leading companies in both horizontal
and vertical application software markets. (see Sales and Marketing--
Technological and Marketing Relationships).
Products
A description follows of the products available during the year ended February
29, 2000 (fiscal 2000). For the Corporation's fiscal 2001 product plans, see
Research and Development.
Business Intelligence Products
The Corporation's business intelligence products provide users with direct
access to corporate data to enable them to improve business decisions. These
products provide this direct access in both Web and client/server environments.
A key value of these products lies in highly intuitive user interfaces that
present data in a meaningful business context, allowing the user to directly and
productively review and analyze corporate information to gain knowledge.
The Cognos business intelligence (BI) product platform builds on a single,
common technology foundation to deliver a highly integrated and scalable BI
solution. The platform leverages this common technology underpinning to deliver
a complete, end-to-end infrastructure. As a result, organizations are provided a
consistent, corporate-wide view of business intelligence reports and analyses.
The platform's architecture consists of five service layers encompassing data
mart creation, integrated metadata modeling, content management and a single
point of personalized access/distribution through a full-featured portal. The
fifth layer, the security service layer, spans the other four, which operate in
parallel, and provides a common, centrally managed security. The scalability of
the platform architecture means that organizations can deliver enterprise-wide
business intelligence applications to a broad user community that may comprise
stakeholders inside and outside the organization.
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The depth and breadth of the product set embodied within the platform result in
a rich offering of server-level capabilities that include visualization and
scorecarding, reporting and analysis, and ad hoc querying. The integrated
solution can provide a unified view of both an organization's traditional
processes and its e-business processes.
The server level capabilities described above are represented in the following
products.
PowerPlay - Multidimensional Analysis
- -------------------------------------
PowerPlay(R) is an OLAP tool that provides high-speed graphical navigation of
multidimensional data. With PowerPlay, users can perform their own ad hoc
analysis by investigating, in any combination and at any level, the critical
success factors that drive their business. It enables them to see patterns and
trends that they cannot readily find with any other style of analysis. Users can
manipulate information by "drilling down" through layers of summary information
in successively greater levels of detail and can present the information in
multiple graphical displays. Powerful features like ranking, exception
highlighting, and comparing enable users to analyze data on every part of their
business. In order to enable this graphical exploration of data, PowerPlay
creates a multidimensional structure, a PowerCube(R), from relational data or
flat files. PowerPlay requires no custom programming. PowerPlay is integrated
with Impromptu(R) and Scenario(TM), and supports Web, client/server and stand-
alone implementations. PowerCubes can be stored on a PC, Intranet Server, Web
Server, or, for larger amounts of corporate data, in ORACLE, Informix, Sybase
SQL Server, or Microsoft SQL Server relational databases. PowerPlay Enterprise
Server is a single OLAP application server that supports Web, Windows and
Microsoft Excel mobile users from a single, centrally administered server, and
supports Windows NT, as well as UNIX servers running HP/UX, Sun Solaris, or IBM
AIX operating systems and supports all popular Web browsers. During fiscal 2000
the Corporation released PowerPlay 6.6, which provides Web managed reporting and
analysis functions for intranet, extranet and Internet access to OLAP data.
Impromptu - Enterprise Database Reporting
- -----------------------------------------
Impromptu Web Reports is a Web-based managed reporting tool that enables
information consumers in an organization (those that need to consume
information, not interact with it) to view, print, and execute Impromptu reports
through a Web browser. Impromptu Web Reports is server-based and runs on Windows
NT. It supports both Netscape and Microsoft Web Browsers. Impromptu is a
database reporting tool that allows report authors, with no knowledge of any
query language, to access, manipulate, and integrate detailed corporate data to
create useful reports. Information is presented to users in a useful, business-
oriented manner in a Windows environment. By pointing and clicking on a series
of icons, the database query syntax is generated automatically and transparently
to the user. Impromptu is integrated with PowerPlay and Scenario, and provides
the user with interactive ad hoc and standard reporting capabilities against
corporate relational databases and local PC relational data such as ORACLE,
Sybase SQL Server, Microsoft SQL Server, CA-Ingres, Informix, MDI DB2 Gateway,
dBASE, and Paradox. Impromptu also supports DB2/400 and Microsoft Access with an
open database connectivity (ODBC) driver. Impromptu supports Windows 95, Windows
NT, and Windows 3.1 as well as UNIX servers running HP/UX, Sun Solaris, or IBM
AIX operating systems.
Cognos Query - Intuitive, Web-based Database Query and Navigation
- -----------------------------------------------------------------
Cognos Query is a Web-based database query tool that enables Web-browser users
to easily navigate database information. The software uses a Web link metaphor
to allow the users to jump from query to
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query to see related information. Cognos Query runs both Netscape and Microsoft
Web servers, and on Windows NT, and supports both Netscape and Microsoft Web
browsers.
PowerPlay and Impromptu and Cognos Query have data administration components
that allow IS professionals to set operating limits and establish parameters
within which users may access and manipulate corporate data.
Cognos Visualizer
- -----------------
Cognos Visualizer is software that uses graphical representations of data for
easier and better understanding of the data. Its advanced graphical techniques,
including maps, 3-D charts, and visual filtering systems enable users to see
complex business relationships and interplay between factors that drive a
company's business. The foremost application of Cognos Visualizer is for the
construction of Balanced Scorecard systems that take advantage of the product's
capabilities for displaying the status of multiple business measures in one
presentation. The software has a Windows 95 or Windows NT based authoring and
analysis component and a JAVA-based viewing and analysis component for use with
popular Web browsers.
Scenario - Data Mining for Business Users
- -----------------------------------------
Scenario is a PC-based software that helps knowledge workers better understand
the factors driving their business, by uncovering the patterns and relationships
that exist in business data, giving users the insight needed to make informed,
timely, business decisions. Scenario identifies and ranks the factors that have
a significant impact on key business measures. For each factor, Scenario can
drill down to identify other factors that are further contributing to a result.
Scenario supports Windows 95 and Windows NT and is integrated with Impromptu and
PowerPlay.
CognoSuite(TM) - PowerPlay, Impromptu, and Scenario
- ---------------------------------------------------
Integration between the PC versions of PowerPlay, Impromptu, and Scenario allows
users to drill-through from a level of summary data in PowerPlay and retrieve
the detailed records using Impromptu, as well as enabling Impromptu and
PowerPlay to perform additional exploration on a Scenario analysis. This
functionality is available either as stand-alone products or packaged together
in a suite.
4Thought
- --------
4Thought(TM) is a PC-based data modeling and forecasting tool that utilizes
advanced neural network technology to help analysts discover complex
relationships and deliver reliable, accurate forecasts for all types of business
data. 4Thought develops highly predictive business models using advanced curve
fitting technologies and finds patterns and relationships in data. Users can
conduct what-if analysis and forecasting that lets them accurately pinpoint how
decisions will impact overall profitability and business performance. 4Thought
is ideally suited for a number of highly leveraged business activities, such as:
optimizing price, forecasting demand, measuring business unit performance,
analyzing market conditions, quantifying advertising effectiveness, and even
measuring return on investment (ROI). The product runs on Windows 95 and Windows
NT.
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Cognos Finance
- --------------
Cognos Finance is a set of financial reporting, consolidation, budgeting and
forecasting tools that gather business financial data from disparate sources,
transform it into financial information and provide to end users the ability to
create reports and analyze information. Cognos Finance is frequently used to
support statutory and management historical financial reporting as well as
managerial budgeting that is integrated with past financial performance. The
system contains specialized features and functions for manipulating financial
data including hierarchical aggregation, intercompany eliminations, allocations,
and currency translation. The system allows integration of financial data with
other types of data, providing users with insight into past and future business
performance. Cognos Finance supports Windows 95, 98, 2000, and Windows NT 4.0.
Cognos NovaView
- ---------------
Cognos NovaView(TM) is OLAP client software that operates with Microsoft's OLAP
Services server software. Cognos NovaView provides PC client access to
Microsoft's server-based OLAP Services, an integrated utility packaged with the
Microsoft SQL Server 7.0 database. Using Cognos NovaView, OLAP Services
information can be analyzed by "slicing" data to see correlations, patterns and
trends, or by "drilling down" to finer, underlying levels of detail and viewed
and manipulated in graphical or crosstab format. NovaView provides rich PC
client-side exposure of OLAP Services functionality, permitting sophisticated
exception highlighting, filtering and calculations. NovaView is tightly
integrated with the Microsoft SQL Server 7.0 OLAP Services and Microsoft
Management Console technologies, and NovaView views can be published to
Microsoft Excel. NovaView client operates with Windows 95, 98, and Windows NT
operating systems, and NovaView Administrator operates with Windows NT.
DecisionStream
- --------------
DecisionStream(TM) is a data extraction, transformation, and loading (ETL)
product that is designed to extract transaction data and transform it to deliver
dimensional data mart solutions. It is a scalable product with native support
for all major relational database platforms and built-in framework for
implementing data marts with shared dimensions. The design of DecisionStream
transformation processes is done in graphical user interface environments that
run on all Windows desktop platforms. The extract, transform, and load engine
runs on HP-UX, Sun Solaris, IBM AIX, DEC Alpha and Windows NT.
Cognos e-Applications
- ---------------------
Cognos e-Applications automate the creation of a data mart with pre-defined
mapping and use ERP data to populate pre-packaged reports. As an end-to-end
solution, e-Applications reduce the time and effort required to create a data
mart. Cognos e-Applications consist of a series of subject-oriented
applications, built on best practices derived from customer experience, that are
extendible, integrated and share common dimensions. The Corporation currently
has Sales Analysis, Financial Analysis and Inventory Analysis Applications
available. These applications contain ready-to-use reports that address the
specific reporting, key performance indicators and analysis needs of the sales,
finance and inventory management functions. All applications can be extended and
customized to fit organizational requirements. Cognos e-Applications use ERP
data that has been transformed and loaded into Cognos designed data marts.
Cognos e-Applications support data marts using Oracle 7.3 or higher databases.
Reports are subsequently accessed with PowerPlay Enterprise Server and Impromptu
Web Reports using popular Web browsers.
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Cognos Accelerator for SAP
- --------------------------
Cognos Accelerator(TM) for SAP allows SAP users to migrate their SAP and non-SAP
transactional data into relational databases from which multidimensional
reporting environments are created which, in turn, are accessed, analyzed and
reported on by end-users throughout the enterprise. As an IT administrators'
tool, Cognos Accelerator for SAP extracts, transforms and loads data into an
open data mart or warehouse where it can be optimized by Cognos business
intelligence software, including PowerPlay, Impromptu and Scenario. Cognos
Accelerator for SAP eliminates the need for costly and time-consuming extraction
projects by generating ABAP code dynamically from a graphical interface. Cognos
Accelerator for SAP runs on Windows NT with native support for Oracle 7.3,
Oracle 8.0 and Microsoft SQL Server 6.5 databases, both as sources or targets.
Other databases are supported via ODBC.
Application Development Tools
As indicated in Industry Background--Application Development Market, the
Corporation believes that the market trend for application development tools is
toward the (i) purchase of packaged applications rather than in-house developed
systems or (ii) operation of applications on client/server, and Web-servers with
Internet browser clients. The Corporation continues to update its application
development products to reflect the changing needs of its customers (also see
Research and Development).
PowerHouse - Server-Based Applications
- --------------------------------------
PowerHouse(R) is a server-based application development toolset that allows
developers to work in classic character-based development environments.
PowerHouse is available on the leading midrange UNIX and proprietary operating
system environments, including those running on selected computers distributed
by Hewlett-Packard Company (Hewlett-Packard), Compaq Computer Corporation
(Compaq), Data General Corporation (Data General), International Business
Machines Corporation (IBM), Sun Microsystems, Inc. (Sun), as well as on personal
computers running under SCO/UNIX. PowerHouse supports the leading proprietary
file systems and relational database management systems, as well as the major
third-party relational database systems for their respective UNIX-based
platforms.
PowerHouse Web - Web based Applications
- ---------------------------------------
PowerHouse Web is an extension to existing PowerHouse 4GL technology, enabling
deployment to the Web of business-critical applications built using PowerHouse
4GL. New features in PowerHouse 4GL enable developers to generate an HTML
interface for a PowerHouse screen. The default HTML interface uses standard HTML
3.2 for compatibility with as many Web browsers as possible. The HTML interface
can be enhanced by the developer. These applications can then be deployed across
one or more PowerHouse 4GL server platforms (MPE/iX, OpenVMS, UNIX, and Windows
NT), with access to all of the legacy data stored on those machines and in any
of the supported relational databases. PowerHouse Web includes a flexible
request distribution and load balancing mechanism to eliminate or minimize
potential single points of failure and to spread the workload across all
available application server machines.
Axiant - Client/Server Applications
- -----------------------------------
Axiant(R) 4GL was developed to address PowerHouse users' evolution toward
client/server technology and more recently access to Web technology. Axiant is a
Windows-based graphical 4GL development
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environment that enables migration of existing PowerHouse applications to new
environments, such as, client/server and the Web. It also provides a development
environment for building new applications for client/server or Web deployment
environments.
Existing PowerHouse applications can be imported into Axiant 4GL, and then
reengineered and redeployed to take full advantage of the Web and client/server
development model. Axiant 4GL applications can be deployed under several
client/server topologies, across several platforms and databases including UNIX,
Windows NT, Open VMS, and MPE/iX.
Sales and Marketing
The market for the Corporation's products is international, encompassing North
and South America, Europe, Africa, and Asia/Pacific. The Corporation utilizes an
international, multi-tiered channel distribution system to reach customers cost
effectively and to support these channels with an extensive organization of pre-
sales technical specialists. The Corporation's executive and research and
development functions are carried out at its corporate headquarters in Ottawa,
Canada. Its worldwide sales and marketing organizations are managed from its
Burlington, Massachusetts location.
Sales Channels
The Corporation supports its sales channels with lead generation and marketing
programs, including direct mail, public relations, advertising, telemarketing,
Web-based programs, promotional seminars, and participation in trade shows and
user group meetings. The principal elements of the Corporation's distribution
system are as follows:
Direct Sales
- ------------
The Corporation utilizes a direct sales force in all major markets as the
primary channel for distribution. The Corporation believes its direct sales
force increases its visibility and market penetration, ensures long-term
customer contact, and facilitates sales of additional Cognos products. As of
February 29, 2000, the Corporation employed approximately 238 sales
representatives in 49 sales offices located in 18 countries.
Third Parties
- -------------
The Corporation also sells and markets its products through third-party
channels, which include resellers, certified resellers, application value-added
resellers (AVARs), original equipment manufacturers (OEMs), system integrators,
services partners, dealers, and distributors in selected regions to extend the
Corporation's geographic coverage. The Corporation is not dependent upon any
single distributor or any small group of distributors, the loss of which would
have a material adverse affect on the Corporation.
Telesales
- ---------
The Corporation utilizes telesales representatives to sell products and services
primarily to its installed base of customers.
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Technological and Marketing Relationships
Cooperative marketing arrangements with hardware and other software vendors
provide additional visibility of the Corporation in the market. These
relationships permit the Corporation's sales representatives to work in close
cooperation with sales representatives of these vendors, enabling prospective
customers to evaluate software applications, services and, in certain instances,
hardware together as a complete solution.
Business Intelligence Products
- ------------------------------
The Corporation's marketing relationships can be classified into four broad
categories:
. Technology Partners - consists of industry-leading database, server, OLAP
server, Internet, enterprise application, and connectivity technology
companies.
. Solutions Partners - most Solutions Partners are also third-party
resellers, such as certified resellers, OEMs, AVARs, and geographic
distributors. Solutions Partners combine their applications and business
expertise with the Corporation's products to come to market with a more
customized solution.
. Services Partners - include "Big 5" accounting firms, large consulting
firms, system integrators, Information Technology consulting organizations,
and certified resellers. These companies implement business intelligence
solutions.
. Specialty Partners - typically include third-party resellers and Services
Partners that support the Corporation's implementation programs including
the 24 Ways(TM) Program.
The Corporation offers the following partner programs to support the above
categories: AllianceGroup, Enterprise Application Software Partners, Insight
Program Partners, Solutions Partners, Services Partners, and 24 Ways Partners.
These technology and marketing relationships also provide an opportunity for the
Corporation to jointly come to market with combinations of packaged solutions.
The Corporation believes that solution-selling can shorten sales cycles and
increase sales opportunities for the Corporation's sales channels. Some of these
packaged solutions are data warehousing- and data mart- oriented. Some of the
data warehousing solutions are supplied in conjunction with IBM, NCR Corporation
(NCR), and Sybase, Inc. (Sybase). A data mart solution example is the
relationship with Microsoft Corporation (Microsoft).
In addition to solution packages marketed through relationships with partners,
the Corporation's direct sales force leverages solution components generated by
the Corporation. These solution components include the Corporation's
HeadStart(TM) Solutions. The HeadStart Solutions provide predefined elements
that accelerate implementation of the Corporation's products when used in
conjunction with enterprise applications. Some of these HeadStart Solutions have
been generated for use with applications from the following companies: SAP AG
(SAP), Oracle Corporation (Oracle), PeopleSoft, Inc. (PeopleSoft), BAAN Company
N.V. (BAAN), System Software Associates, Inc. (SSA), and J.D. Edwards & Company
(J.D. Edwards).
The Corporation also participates in cooperative technological and marketing
programs of many hardware, software, and database vendors. Some of these
programs or relationships include: Microsoft Data Warehousing Alliance
(Microsoft), SAP Complementary Software Partner (SAP), Compaq Solutions Alliance
(Compaq), Hewlett-Packard OpenWarehouse Alliance Partner (Hewlett-Packard), IBM
Information Warehouse Alliance Partner (IBM), Informix Solution Alliance Partner
(Informix), Sybase Open Solutions CODE Partner (Sybase), Oracle Partner Program
(Oracle), Hyperion Essbase Ready Partner (Hyperion), and Scalable Data Warehouse
Partner (NCR).
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Application Development Tools
- -----------------------------
The Corporation has formed technological or cooperative marketing relationships
with Hewlett-Packard, Compaq, IBM, and Sun. These technological relationships
typically involve the modification by the Corporation of one or more of its
products to run on one of the vendor's platforms, in return for which the vendor
may supply technical assistance, equipment, or other assistance. These
technological relationships ensure a regular exchange of technical information,
which enables the Corporation to provide enhancements to its products that are
specific to each hardware vendor's environment on a timely basis. None of the
Corporation's technological or cooperative marketing relationships with these
hardware vendors is on an exclusive basis. Accordingly, each of the hardware
vendors may sell products of its own or of a third-party which compete with one
or more of the Corporation's products.
Support Services
The Corporation is committed to providing a high quality and a broad range of
support services that will ensure ongoing customer satisfaction and influence
customers' future purchasing decisions. These services include product support,
and education, consulting, and other services.
Product support services primarily consist of product enhancements,
documentation, and support for product and documentation problem resolution.
Telephone support and customer self-service support through Web-based support
offerings are available worldwide. These solutions provide supported customers
with online answers to their product questions, 24 hours a day. A commitment by
a customer to the Corporation's products typically requires specific training.
The Corporation believes customer education helps maximize the productivity
gains from the Corporation's products. The Corporation provides courses at
Cognos education centers and customer sites and is developing e-training for its
customers enabling users to be trained using the "virtual classroom" concept on
the Web. The Corporation also provides a variety of product consulting services
to its customers, such as performance and design reviews.
Customers
The Corporation's products are licensed for use by a wide range of organizations
from small organizations with a few million dollars in annual revenue to major
multinational companies. Many of the Corporation's customers have a variety of
computing environments, often in different physical locations, with various
Cognos products installed. This installed base of customers creates an
opportunity for additional licenses of the Corporation's products and support
services. This base also acts as a referral source for new customers.
No single customer accounted for 10% or more of the Corporation's revenue during
any of the last three fiscal years. In addition, the Corporation is not
dependent upon any single distributor or any small group of distributors, the
loss of which would have a material adverse effect on the Corporation.
The Corporation has no material backlog of orders, as its customers generally
require delivery on a current basis.
10
<PAGE>
Research and Development
The Corporation's research and development efforts are aimed at enhancing and
extending its existing product technologies, and at creating new products. The
Corporation's research and development staff consisted of 642 full-time
equivalent employees as of February 29, 2000. Research and development is
primarily performed at the Corporation's corporate headquarters and leased
facilities in Ottawa, Canada. The Corporation believes its talented and
experienced research and development staff is a core strength of its business.
The Corporation incurred gross research and development costs of $54.2 million,
$42.7 million, and $34.0 million in fiscal 2000, 1999, and 1998, respectively.
Gross research and development costs have continued to increase, in dollar
terms, over the last three fiscal years but have remained relatively constant as
a percentage of total revenue./1/
As indicated in the preceding discussion on Industry Background--Business
Intelligence Market, the Corporation believes there is a current market need for
distributing corporate information to the end-user's desktop in an extended
enterprise environment utilizing the Internet and corporate intranets and
extranets. In earlier years the Corporation addressed this emerging market with
the release of Web-based products: PowerPlay Web, Impromptu Web Reports, and
Cognos Query (formerly Impromptu Web Query).
During fiscal 2000 the Corporation launched a single, integrated platform for
Enterprise Business Intelligence. This platform, which includes DecisionStream,
provides a single user interface or portal to support access to all Cognos
business intelligence products in an extended enterprise environment. This
platform provides a unified data infrastructure for data mart building; allows
integrated metadata modeling and integrated security as well as common metadata
managing. The platform framework supports users both internal and external to an
organization to address the needs of the extended enterprise. During fiscal 2000
the Corporation released PowerPlay 6.6, which provides Web managed reporting and
analysis functions for intranet, extranet and Internet access to OLAP data.
Also, during fiscal 2000 the Corporation released Cognos Visualizer, a business
management and measurement product that extends the capabilities of PowerPlay
and Impromptu with advanced visual reporting and analysis. The Corporation also
released new versions of Impromptu Web Reports, DataMerchant(TM), and Cognos
Finance (formerly LEX2000).
To support the existing PowerHouse customer base, the Corporation has released
versions of PowerHouse Web and Axiant 4GL over the past year. The Corporation
believes that these products give its customers more deployment options and
provide protection of their investment in its technologies.
During fiscal 2001 the Corporation will invest in research and development of
business intelligence solutions, particularly those solutions that support the
Corporation's strategy to meet the needs of the extended enterprise customers
within the e-business economy. These investments will include the development of
e-Application packages, which include pre-defined data marts, key reports and
analysis solutions. The Corporation will continue the development of business-
to-business solutions using BI to extend the enterprise to incorporate the
supply chain and the relationship with an enterprise's customers.
__________________
/1/ See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Research and Development" of the Annual Report to
Shareholders, filed as Item 14, Exhibit 13.3 of this Form 10-K.
11
<PAGE>
PowerPlay, Impromptu, Scenario, Cognos Visualizer, PowerHouse, and Axiant 4GL
were developed primarily using internal resources. In support of the development
of its products, the Corporation has acquired or licensed specialized products
and technologies from other software firms. The Corporation has engaged in
further development to integrate these products into the Corporation's
offerings. Most of the third-party licenses are non-exclusive and do not
preclude the third parties from entering into similar agreements with
competitors of the Corporation. During fiscal 1998 and fiscal 1999, the
Corporation completed four acquisitions that resulted in new technology being
added to its business intelligence offerings. The Corporation acquired Right
Information Systems Limited (RIS) of London, England. RIS was the provider of
4Thought, business modeling and forecasting software. Cognos Query is the
renamed, and highly revised product acquired as part of the acquisition of
Interweave Software, Inc. (Interweave) of Santa Clara, California, U.S.A. The
Corporation acquired substantially all of the assets of Relational Matters
including DecisionStream software, which aggregates and integrates large volumes
of transaction data with multidimensional data structures. The Corporation also
acquired LEX2000 Inc., a developer of financial planning and reporting software,
which has been renamed Cognos Finance.
Although the Corporation plans to introduce the above-mentioned enhancements and
new products, there can be no assurance that the Corporation's efforts will
result in the development of commercially available products in fiscal 2001 or
that any such products, when developed, will be commercially successful.
Competition
The Corporation expects to continue to experience significant competition from a
variety of sources with respect to its products. This includes competition from:
other independent software vendors, like Cognos, which operate independently of
hardware vendors, but who may have marketing or technology agreements with these
vendors; database vendors, who offer application development, query, and
reporting products for their own databases; large diversified vendors which
offer products in numerous market segments; and other companies that may in the
future announce offerings of business intelligence products. Some of the key
factors which affect the Corporation's competitive position include:
distribution, product performance, ease of use, price, support, training, and
vendor stability and experience. There can be no assurance that the
Corporation's current products, products under development, or ability to
discover new technologies will be sufficient to enable it to compete effectively
with its competitors.
Business Intelligence Products
The market for Business Intelligence products is highly competitive and rapidly
changing. The Corporation competes directly and indirectly against various
products, depending on user needs and computing environments. The two broad
competitive categories are query and reporting for detail-oriented information
stored in relational databases and OLAP for summarized reporting against
aggregated data stored in an OLAP cube. Query and reporting vendors include
BusinessObjects and WebIntelligence software (Business Objects S.A.), Brio One
(Brio Technology, Inc.), Seagate Info (Seagate Software, Inc.) and Hummingbird
BI Suite (Hummingbird Communications Ltd.). OLAP vendors include Hyperion
Essbase (Hyperion Solutions Corporation), Express (Oracle Corporation), and
MicroStrategy (MicroStrategy Inc.), Crystal Info (Seagate Software, Inc.), and
GQL and PaBLO (Hummingbird Communications Ltd.). The Corporation's products are
also complementary to many of the above, and thus the Corporation has
cooperative marketing relationships with some of these vendors, including Oracle
Corporation and Hyperion Solutions Corporation (see Sales and Marketing--
Technological and Marketing Relationships). The Corporation expects its current
competitors and
12
<PAGE>
potentially new competitors to continue to improve the performance of their
current products and to introduce new products or new technologies that provide
improved cost of ownership and performance characteristics.
Application Development Tools
In the application development tools market, the Corporation competes with other
software companies offering alternative application development tools.
Competition comes from companies such as Progress Software Corporation (Progress
4GL); Forte Software, Inc. which is focused on high-end, large-scale deployment
solutions; and Borland International, Inc. (Delphi) and Microsoft which offer
PC-centric, workgroup-based solutions. The Corporation also competes with
relational database vendors offering tools in conjunction with their database
systems, including Oracle and Sybase.
Employees
As of February 29, 2000, the Corporation had 2,154 full-time permanent
employees. The Corporation believes that its future success will depend, in
part, on its ability to continue to identify, hire, motivate, and retain skilled
and experienced personnel. In the software industry, there is a high demand for
such employees. Historically, the Corporation has been successful in recruiting
and retaining sufficient numbers of qualified personnel to conduct its business.
However, there can be no assurance that it will be able to do so in the future.
The Corporation's employees are not represented by a labor union.
Copyright, Trademarks, Patents, and Licenses
In accordance with industry practice, the Corporation relies upon a combination
of contract provisions and copyright, trademark, and trade secret laws to
protect its proprietary rights in its products. The Corporation licenses the use
of its products to its customers rather than transferring title to them. These
licenses contain terms and conditions prohibiting the unauthorized reproduction,
disclosure, or transfer of the Corporation's products. In addition, the
Corporation attempts to protect its trade secrets and other proprietary
information through agreements with customers, suppliers, employees, and
consultants. Although the Corporation intends to protect its rights vigorously,
there can be no assurance that these measures will be successful.
The source code versions of the Corporation's products are protected as trade
secrets and, in all major markets, as unpublished copyright works. However,
effective copyright protection may not be available in some countries in which
the Corporation licenses or markets its products. The Corporation recognizes
that patent law may offer effective protection for its current and future
products, and has embarked on a program to identify and seek patent protection
for appropriate elements of its products. There can be no assurance that any
patentable elements will be identified or, if identified, that patent protection
will be obtained. The Corporation has also obtained or applied for trademark
registration of most of its product names, as well as the name Cognos, in all of
its major markets. While the duration of trademark and copyright protections
varies from country to country, the Corporation believes that the duration of
this protection will be adequate to protect its products during the periods of
their economic value.
However, the Corporation believes that, due to the rapid pace of innovation
within its industry, technological and creative skills of its personnel are even
more important to establishing and maintaining a technology and product
leadership position within the industry than are the various legal protections
of its technology.
13
<PAGE>
ITEM 2. PROPERTIES
Cognos owns the building located at 3755 Riverside Drive, Ottawa, Canada, the
Corporation's corporate headquarters. The building has approximately 82,000
square feet and is located on approximately two acres of land. The property is
subject to a mortgage with a principal amount outstanding, as of February 29,
2000, of $2,142,000. Cognos owns approximately 2.5 acres of adjacent land.
During fiscal 2000 the Corporation announced plans for, and began the
construction of a second building on this land. The new building, which will
provide office space of approximately 180,000 square feet, is expected to be
substantially complete before the end of fiscal 2001.
The Corporation also conducts its operations from leased facilities totaling
approximately 187,000 square feet in Canada, 162,000 square feet in the United
States, 119,000 square feet in Europe, and 23,000 square feet in Asia/Pacific.
ITEM 3. LEGAL PROCEEDINGS
On May 5, 2000 an action was filed in the United States District Court for the
Northern District of California against the Corporation and its subsidiary,
Cognos Corporation (collectively "Cognos") by Business Objects S.A.
("Complainant"), for alleged patent infringement. The complaint alleges that the
Corporation's Impromptu product infringes the Complainant's United States Patent
No. 5,555,403 entitled "Relational Database Access System using Semantically
Dynamic Objects". The complaint seeks relief in the form of an injunction
against the Corporation and unspecified damages. The Corporation believes the
complaint is without merit and intends to vigorously contest it. As this action
is at a very preliminary stage, the Corporation cannot estimate the financial
impact, if any, at this time.
In addition, the Corporation and its subsidiaries may, from time to time be
involved in other legal proceedings, claims, and litigation that arise in the
ordinary course of business which the Corporation believes would not reasonably
be expected to have a material adverse effect on the financial condition of the
Corporation.
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 2000, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
Executive Officers of the Registrant
The following table sets out as of May 5, 2000, the name; age; position with the
Corporation; and the principal occupation, business or employment during the
last five years of each executive officer of the Corporation.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ ------- ------------------------------------------------------------
<S> <C> <C>
Renato (Ron) Zambonini 53 President and Chief Executive Officer, and Director
Robert G. Ashe 41 Senior Vice President, Worldwide Customer Services
Robert A. Engels 44 Senior Vice President, European Operations
Terry Hall 51 Senior Vice President, Operations and Chief Operating
Officer
Joanne Masingill 53 Senior Vice President, Marketing
Robert Minns 54 Senior Vice President, New Products
Donnie M. Moore 51 Senior Vice President, Finance & Administration and
Chief Financial Officer
Alan Rottenberg 50 Senior Vice President, e-Business Intelligence
Applications Unit
</TABLE>
Mr. Zambonini was appointed Chief Executive Officer of the Corporation in
September 1995. Mr. Zambonini has also served as President since January 1993
and was elected to the Board of Directors in June 1994. Mr. Zambonini previously
served as Chief Operating Officer of the Corporation from January 1993 to
September 1995. Mr. Zambonini joined the Corporation in September 1989.
Mr. Ashe was appointed Senior Vice President, Worldwide Customer Services in
July 1999. He served as Senior Vice President, Products from May 1997 to July
1999; as Senior Vice President, Application Development Tools from April 1996 to
May 1997; as Vice President, Application Development Tools from April 1994 to
April 1996. Mr. Ashe joined the Corporation in September 1984.
Mr. Engels was appointed Senior Vice President, European Operations in March
1996. Previously, he served as Vice President, European Operations from March
1993 to February 1996. Mr. Engels joined the Corporation in February 1986.
Mr. Hall was appointed Senior Vice President Operations and Chief Operating
Officer in July 1999. He served as Senior Vice President, Worldwide Sales from
March 1993 to July 1999. Mr. Hall joined the Corporation in September 1983.
15
<PAGE>
Ms. Masingill was appointed Senior Vice President, Marketing in January 2000.
Prior to joining the Corporation she served as Vice President, Worldwide
Marketing and Business Strategy for the CLARiiON Storage Division of Data
General from December 1998 to January 2000 (CLARiiON was acquired by EMC in
October 1999); as Vice President, Channel Sales and Marketing for
Compaq/Networks Access Communications Group from December 1997 to October 1998;
as Vice President and General Manager, Software Business Unit, and Vice
President, Corporate Strategy and Marketing, Remote Access and Central Site
Communications for Microcom from July 1995 to December 1997 (Microcom was
acquired by Compaq in July 1997); and as Northeast Vice President, Sales and
Marketing for The Registry, Inc. from June 1994 to May 1995.
Mr. Minns was appointed Senior Vice President, New Products in March 1998. He
served as Vice President, New Products from May 1997 to March 1998; and as Vice
President, Technology from 1986 to May 1997. Mr. Minns joined the Corporation in
March 1973.
Mr. Moore has been Senior Vice President, Finance and Administration of the
Corporation since August 1989. Mr. Moore has also served as Chief Financial
Officer since he joined the Corporation in December 1986.
Mr. Rottenberg was appointed Senior Vice President, e-Business Intelligence
Applications Unit in January 2000. He served as Senior Vice President, Marketing
and Business Strategy from May 1997 to January 2000; and as Senior Vice
President, Business Intelligence Tools from June 1994 to May 1997. Mr.
Rottenberg joined the Corporation in June 1989.
Officers are appointed annually by, and serve at the discretion of, the Board of
Directors.
16
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
For information relating to the market for the Corporation's common shares and
related shareholder matters, reference is made to page 67 of the 2000 Annual
Report to Shareholders, which is incorporated herein by reference and filed
herewith as Item 14, Exhibit 13.1.
On December 3, 1998, the Corporation acquired substantially all the assets of
Relational Matters including DecisionStream software. DecisionStream aggregates
and integrates large volumes of transaction data with multidimensional data
structures. Relational Matters will receive approximately $7,550,000 over three
years and 250,980 shares of the Corporation's common stock valued at $1,823,000
over the same time period. The shares, all of which were issued, are being held
in escrow by the Corporation and will be released on the second (40%) and third
(60%) anniversaries of the closing of the transaction. The shares were issued in
a private placement pursuant to Section 4(2) of the Securities Act of 1933.
On February 24, 1999, the Corporation acquired LEX2000 Inc., a developer of
financial data mart and reporting software, for a combination of cash and the
Corporation's common stock. The shareholders of LEX2000 Inc. will receive
approximately $7,444,000 over three years and 252,118 shares of the
Corporation's common stock valued at $1,940,000 over the same time period.
Approximately 14,200 shares were delivered at closing; the remainder, all of
which were issued, are being held in escrow by the Corporation and will be
released equally on the second (50%) and third (50%) anniversaries of the
closing of the transaction. The shares were issued in a private placement
pursuant to Regulation D, promulgated under the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
For information relating to Selected Financial Data, reference is made to page
63 of the 2000 Annual Report to Shareholders, which is incorporated herein by
reference and filed herewith as Item 14, Exhibit 13.2.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For Management's Discussion and Analysis of Financial Condition and Results of
Operations, reference is made to pages 24 to 41 of the 2000 Annual Report to
Shareholders, which is incorporated herein by reference and filed herewith as
Item 14, Exhibit 13.3.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For quantitative and qualitative disclosures about market risk, reference is
made to page 36 of the 2000 Annual Report to Shareholders, which is incorporated
herein by reference and filed herewith as Item 14, Exhibit 13.4.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For information relating to the Corporation's consolidated supplementary data
and consolidated financial statements, reference is made to pages 41 to 62 of
the 2000 Annual Report to Shareholders, which is incorporated herein by
reference and filed herewith as Item 14, Exhibit 13.5.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
1. (a) Identification of Directors
The following table sets out the name and age of each person nominated for
election as a director at the Annual Meeting of Shareholders ("Meeting") to be
held on June 21, 2000; the period of service as a director; the principal
occupation, business or employment of the nominee during the last five years;
all other positions with the Corporation (or its significant subsidiaries) now
held by the nominee, if any; and the name of any publicly-traded corporation of
which the nominee is a director.
<TABLE>
<CAPTION>
Name and Age Director Since Principal Occupation During Past Five Years
<S> <C> <C>
John E. Caldwell (50) +(S) 2000 Private Investor since October 1999. President
and Chief Executive Officer, CAE Inc., a provider
of civil and military flight simulation and
control systems and other advanced technologies
for the aerospace, defense and forestry sectors,
from June 1993 to October 1999. Director of
Stelco Inc.
Douglas C. Cameron (61) *+ 1983 Investment Advisor, RBC Dominion Securities
Inc., an investment dealer, since October 1993.
President, Noranda Enterprise Limited from May
1983 to March 1993.
Pierre Y. Ducros (61) ++ 1986 Private Investor since June 1996. Chairman and
Chief Executive Officer, DMR Group Inc. from
February 1973 until June 1996. Director of
Alliance Atlantis Communication Inc., BAE Systems
Canada Inc., BCE Emergis, National Bank
Financial, NovAtel Inc. and The Manufacturers
Life Insurance Company.
Douglas J. Erwin (47) ++ 1998 President and Chief Executive Officer, PentaSafe,
Inc., an auditing and security software company,
since April 1998. Chief Operating Officer BMC
Software, Inc. from April 1994 to October 1997.
Robert W. Korthals (66) ++ 1997 Chairman, Ontario Teachers Pension Plan Board
since January 2000 and Chairman, Co-Steel Inc., a
minimill steel producer, since June 1997.
Chairman, North American Life Assurance Company
from April 1995 to December 1995. Director of
Global Telecom Split Shares Corp., Jannock
Properties Limited, MCM Split Shares Corp.,
Premium Income Corporation, Rogers Communications
Inc., and Suncor Energy Inc.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Name and Age Director Since Principal Occupation During Past Five Years
<S> <C> <C>
Candy M. Obourn (50) +(S) 1999 President, Document Imaging and Senior Vice
President Eastman Kodak Company, a photographic
products and imaging company, since April 1998.
President, Document Imaging and Vice President
from October 1993 to March 1998.
James M. Tory, Q.C. (70) *+ 1982 Chairman of the Board of Directors. Chair
Emeritus and Counsel, Torys, Barristers &
Solicitors. Director of Inmet Mining Corporation,
and Goldlist Properties Inc.
Renato (Ron) Zambonini (53) 1994 President since January 1993 and Chief Executive
Officer since September 1995.
</TABLE>
* Member of the Corporate Governance Committee.
+ Member of the Audit Committee.
++ Member of the Human Resources & Compensation Committee.
(S) Candy M. Obourn and John E. Caldwell were appointed directors on December
21, 1999 and March 14, 2000, respectively, pursuant to the powers granted
to the Board in the Articles of the Corporation.
(b) Identification of Executive Officers
Information regarding executive officers of the Company is set forth under Part
I of this Form 10-K.
2. Compliance with Section 16(a) of the Exchange Act
As a foreign private issuer, the Corporation is not subject to the reporting
requirements of Section 16 of the Securities Exchange Act of 1934.
20
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
On April 6, 2000, subsequent to the year-end, the Board of Directors of the
Corporation authorized a two-for-one stock split, effected in the form of a
stock dividend, payable on or about April 27, 2000 to shareholders of record at
the close of business on April 20, 2000. Share and per-share amounts have been
adjusted retroactively for this split.
The following Summary Compensation Table sets out the compensation received for
each of the last three fiscal years for Mr. Zambonini, the Chief Executive
Officer of the Corporation, and those persons who were, at February 29, 2000,
the other four most highly compensated executive officers of the Corporation.
Summary Compensation Table
(All dollar amounts are in U.S. dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Long-term
Compensation
Annual Compensation Awards (3)
---------------------------------------------------------------------------------------------------
Other Securities
Name and Principal Fiscal Annual Underlying All Other
Position Year Salary (1) Bonus (2) Compensation Options/SARs (#) Compensation (4)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Renato Zambonini (5) 2000 $254,585 $375,938 --- 150,000 $ 4,583
President and Chief 1999 $230,049 $391,083 --- 0 ---
Executive Officer 1998 $228,775 $200,902 --- 0 ---
Terry Hall 2000 $281,250 $518,036 --- 200,000 $ 1,708
Senior Vice President, 1999 $235,000 $440,740 --- 0 $ 531
Operations and Chief 1998 $220,000 $287,194 --- 0 $ 2,791
Operating Officer
Robert A. Engels (6) 2000 $244,826 $199,907 --- 30,000 $ 8,737
Senior Vice President, 1999 $233,773 $202,750 --- 0 $11,118
European Operations 1998 $208,822 $ 95,719 --- 0 $11,013
Alan Rottenberg (5) 2000 $159,540 $156,078 --- 100,000 $ 3,708
Senior Vice President, 1999 $146,698 $204,044 --- 0 $ 3,684
e-Business Intelligence 1998 $142,539 $103,127 --- 40,000 $ 3,782
Applications Unit
Donnie M. Moore (5)(7) 2000 $152,751 $157,721 --- 100,000 $ 3,793
Senior Vice President, 1999 $150,032 $170,036 --- 0 $ 3,684
Finance & Administration 1998 $151,804 $ 83,095 $32,580 0 $ 3,849
and Chief Financial Officer
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Salary is base salary earned for the current year.
(2) Bonuses for each year include amounts earned for that year, even if paid in
the subsequent year, and exclude bonuses paid during that year but earned
for a prior year.
21
<PAGE>
(3) As of the Record Date, the Corporation has not granted restricted shares, or
stock appreciation rights ("SARs"), as compensation.
(4) The amounts in this column pertain to the Corporation's annual contribution
to each individual's savings plan. The Corporation contributes to a
Retirement Savings Plan on behalf of Messrs. Zambonini, Rottenberg and
Moore. Cognos Limited (U.K.) contributes to the Cognos Limited Executive
Retirement Scheme for Mr. Engels, and Cognos Corporation (U.S.A.)
contributes to a 401(k) savings plan for Mr. Hall.
(5) These individuals are employed in Canada and paid in Canadian dollars. The
amounts shown in the above table are expressed in U.S. dollars using the
following weighted annual exchange rate for the Corporation's fiscal years
ending on the last day of February:
2000 -- C$1.00 = US$0.6789
1999 -- C$1.00 = US$0.6668
1998 -- C$1.00 = US$0.7128
(6) Mr. Engels is employed in Europe and paid in pounds sterling. The amounts
shown in the above table are expressed in U.S. dollars using the following
weighted annual exchange rate for the Corporation's fiscal years ending on
the last day of February:
2000 -- UK(Pounds)1.00 = US$1.6107
1999 -- UK(Pounds)1.00 = US$1.6527
1998 -- UK(Pounds)1.00 = US$1.6443
(7) In fiscal 2000 and fiscal 1999 the entire bonus amount was contributed on
behalf of Mr. Moore to a retirement arrangement; for fiscal 1998 the bonus
amount includes $61,144 which was contributed to a retirement arrangement.
The fiscal 1998 amount of $32,580 represents a non-recurring payment for
settlement of expatriate tax differences with the Canada Customs and Revenue
Agency (formerly Revenue Canada) for tax years 1990-1993.
Option/SAR Grants in Last Fiscal Year
The following table provides information with respect to stock option grants by
the Corporation to the named executive officers for the fiscal year ended
February 29, 2000.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Individual Grants
--------------------------------------------------------------------
Number of % of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of
Underlying Granted to Exercise Expiration Stock Price Appreciation for
Options Employees in Price per Date Option Term (3)
Name -----------------------------------
Granted (1) Fiscal Year Share (2) (mm/dd/yy) 5% 10%
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------
Renato Zambonini 150,000 5.4% $10.82 4/12/2007 $774,584 $1,855,247
- ---------------------------------------------------------------------------------------------------------------------
Terry Hall (4) 100,000 3.6% $10.82 4/12/2007 $516,389 $1,236,831
100,000 3.6% $17.43 11/13/2007 $832,133 $1,993,087
- ---------------------------------------------------------------------------------------------------------------------
Robert A. Engels 30,000 1.1% $10.82 4/12/2007 $154,917 $ 371,049
- ---------------------------------------------------------------------------------------------------------------------
Alan Rottenberg 100,000 3.6% $10.82 4/12/2007 $516,389 $1,236,831
- ---------------------------------------------------------------------------------------------------------------------
Donnie M. Moore 100,000 3.6% $10.82 4/12/2007 $516,389 $1,236,831
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Option awards are typically made following the release of the Corporation's
year-end results. During the course of the year other awards may be granted
in special circumstances. In all cases, option awards are approved by the
Human Resources & Compensation Committee, the administrator of the
Corporation's Stock Option Plans.
(2) Exercise price is equivalent to the market value, on The Toronto Stock
Exchange, of securities underlying options on the day preceding the date of
grant.
(3) These amounts represent the gain that may be realized upon exercise of the
options immediately prior to the expiration of their term (net of the
option exercise price but before taxes associated with the exercise)
assuming the specified compound rates of appreciation (5% and 10%) of the
Corporation's shares over the term of the options. These amounts are
calculated based on rules promulgated by the United States Securities and
Exchange Commission and do not reflect the Corporation's estimate of future
stock price increases. Actual gains, if any, on any stock option exercises
and resultant shareholdings are dependent on the timing of each exercise
and the future share performance. There can be no assurance that the rates
of appreciation assumed in this table can be achieved or that the amounts
reflected will be received by the individuals.
(4) All named executive officers are participants in the executive option award
described in Long-Term Incentives. The circumstances giving rise to the
second award granted to Mr. Hall are described within this section.
Aggregated Option Exercises and Fiscal Year-End Option Values
(All dollar amounts are in U.S. dollars)
The following table provides information on stock option exercises in the fiscal
year ended February 29, 2000, by the named executive officers and the number and
value of such officers' outstanding options as at February 29, 2000. Dollar
values indicated represent the net of market value less exercise price.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised In-
Shares Aggregate Underlying Unexercised The-Money Options at
Acquired on Value Options at Fiscal Year-End Fiscal Year-End
---------------------------------------------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Renato Zambonini 300,000 $6,013,479 0 390,000 - $9,132,550
Terry Hall 99,996 $ 953,676 0 400,004 - $8,641,229
Robert A. Engels 45,004 $ 688,182 24,998 130,002 $650,073 $3,072,088
Donnie M. Moore 116,000 $2,003,724 3,000 300,000 $ 78,015 $7,046,466
Alan Rottenberg 113,328 $1,986,089 0 326,672 - $7,634,037
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Employment Agreements
The employment agreements of each of Messrs. Zambonini, Hall and Moore provide,
among other things, that if their employment is terminated without cause, the
Corporation will pay severance in an amount equal to one year's salary at the
time of termination. If either of Mr. Zambonini or Mr. Hall is subsequently
employed by another party for any portion of the year following termination, the
severance payment will be reduced on a pro-rata basis for that portion.
The employment agreements of each of Messrs. Zambonini, Hall and Moore have been
amended in the manner described in the discussion of the Senior Executive Option
Award in Long-Term Incentives.
24
<PAGE>
Long-Term Incentives
Long-term incentives are provided through stock options awarded under the 1997-
2002 Stock Option Plan ("1997 Option Plan"), which was adopted by the Board on
April 9, 1997 and approved by shareholders on June 25, 1997. Directors,
officers, employees and consultants of the Corporation are eligible to
participate in the 1997 Option Plan. Through the award of stock options, the
Corporation seeks to attract, reward and retain employees by providing them with
a means of sharing in the financial success created by their combined efforts.
In particular, the award of stock options to executive officers seeks to provide
them with an incentive to enhance shareholder value. Options are granted on the
basis of an individual's level of responsibility and potential to contribute to
the Corporation's future success.
Options to employees are awarded at the discretion of management and typically
vest equally on each of the successive four anniversaries of the date of grant
and expire on the eighth anniversary of the date of grant. All options are
priced at the market price of the Corporation's shares on The Toronto Stock
Exchange on the trading day preceding the date of grant.
On April 15, 1996, the Committee awarded certain key officers of the Corporation
and its subsidiaries, including all of its executive officers, options under the
predecessor of the 1997 Option Plan, the 1993-1998 Stock Option Plan ("1993
Option Plan"), subject to terms that the Committee viewed as further aligning
key officers' interests with those of shareholders and encouraging the
enhancement of shareholder value ("Senior Executive Option Award"). These
options vest equally on the third, fourth, and fifth anniversaries of the date
of grant and expire on the eighth anniversary of that date. At the time of
granting of the Senior Executive Option Award, its terms provided that the net
proceeds (after tax) of any exercise of these options occurring on or before the
seventh anniversary of the date of grant would be used to purchase common shares
of the Corporation in the name of the executive at prevailing market prices. The
shares purchased would be held in trust by the Corporation and released to the
executive in equal portions on the first and second anniversaries of purchase
("Trust Shares"). This Trust Shares procedure was reviewed by the Committee
during the recent fiscal year and it concluded that it was unduly complex. On
May 19, 1999 this requirement was ended and replaced by share ownership
guidelines for executives, which in the view of the Committee achieved the same
end.
Absent special circumstances, participants in the Senior Executive Option Award
were not eligible to receive additional annual option awards until March 1,
1999. However, on April 23, 1997, Mr. Rottenberg was awarded an option to
acquire 40,000 shares under the 1993 Option Plan upon his appointment as Senior
Vice President, Marketing and Business Strategy. The importance of his
appointment to the implementation of the Corporation's strategic initiatives to
focus and upgrade the Corporation's marketing and business development
activities were deemed by the Committee to be special circumstances justifying
the award. The option vests equally on the second, third, and fourth
anniversaries of the date of grant and expires on the seventh anniversary of
that date.
Mr. Robert Minns, Senior Vice President, New Products, became an executive
officer during the fiscal year ended February 28, 1998, and did not participate
in the Senior Executive Option Award. On April 14, 1998, Mr. Minns was awarded
an option to acquire 30,000 shares under the 1997 Option Plan. The option vests
equally on the second, third, and fourth anniversaries of the date of grant and
expires on the eighth anniversary of that date.
On April 12, 1999, the Committee awarded option grants to certain key employees
of the Corporation and its subsidiaries, including all of the named executive
officers as set out in "Option/SAR Grants in Last Fiscal Year". In recognition
of his appointment as Senior Vice President, Operations and Chief Operating
Officer, Mr. Hall was awarded an option to acquire an additional 100,000 shares
under the 1997 Option Plan on November 13, 1999. The Committee based this award
on Mr. Hall's importance in implementing the Corporation's aggressive growth
strategy. The option vests equally on the second, third, and fourth
anniversaries of the date of grant and expires on the eighth anniversary of that
date.
25
<PAGE>
As of the Record Date, options to purchase 6,711,559 shares under the 1997
Option Plan, and predecessor plans, were outstanding at a weighted average
exercise price of $11.39.
Share Ownership
To promote better alignment of management and shareholder interests, in May 1999
the Corporation adopted share ownership guidelines for the Chief Executive
Officer, Senior Vice Presidents and Vice Presidents of the Corporation
("Executives"). Executives are expected to accumulate and hold shares having a
market value at least equal to a multiple of their annual base salary. That
multiple increases with the level of responsibility of the executive. Executives
have three years from the time they become subject to the guidelines to achieve
the designated level of stock ownership. Compliance with the guidelines, while
voluntary, is strongly recommended. Failure to comply could result in the
reduction or suspension from participation in the Corporation's incentive
programs.
26
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets out information, as at May 5, 2000, with respect to (a)
all shareholders known by the Corporation to be beneficial owners of more than
5% of its outstanding shares, and (b) share ownership, including the right to
acquire shares by exercise of stock options on or before July 4, 2000, by each
nominee for director, each executive officer named in the Summary Compensation
Table, and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Name Shares Beneficially Owned Percentage/(1)/
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Michael U. Potter (2) 11,668,468 13.2%
Sixty-Two John Street,
Ottawa, Ontario, Canada, K1M 1M3
Private Capital Management, Inc. 9,280,196 10.5%
3003 Tamiami Trail North,
Naples, FLA, U.S.A. 34103
Wellington Management Company, LLC (3) 6,687,574 7.6%
75 State Street,
Boston, MA, U.S.A. 02109
John E. Caldwell (4) 20,800 *
Douglas C. Cameron (5) 31,000 *
Pierre Y. Ducros (6) 39,000 *
Douglas J. Erwin (7) 24,000 *
Robert W. Korthals (8) 27,000 *
Candy M. Obourn (9) 20,000 *
James M. Tory (10) 108,000 *
Renato Zambonini (11) 414,572 *
Terry Hall (12) 235,570 *
Robert A. Engels (13) 32,552 *
Alan Rottenberg (14) 157,062 *
Donnie M. Moore (15) 106,984 *
Directors and Executive Officers as a group 1,576,989 1.8%
(15 persons)(1) (16)
- -------------------------------------------------------------------------------------------------
</TABLE>
* Indicates less than 1%
(1) Percentage ownership is calculated using as the denominator total shares
outstanding as of the Record Date plus the number of shares which the
person, entity, or group indicated has a right to purchase pursuant to
options currently exercisable or exercisable within 60 days, or on or before
July 4, 2000. Reference to shares that the persons named below have right to
acquire through options includes options currently exercisable or
exercisable on or before July 4, 2000.
27
<PAGE>
(2) Mr. Potter beneficially owns or controls 11,659,468 shares and has the
right to acquire 9,000 shares through options.
(3) Wellington Management Company, LLC is an investment advisor holding the
shares on behalf of investment advisory clients and disclaims any pecuniary
interest in such shares.
(4) Mr. Caldwell has the right to acquire 20,000 shares through options.
(5) Mr. Cameron has the right to acquire 19,000 shares through options.
(6) Mr. Ducros has the right to acquire 19,000 shares through options.
(7) Mr. Erwin has the right to acquire 24,000 shares through options.
(8) Mr. Korthals has the right to acquire 25,000 shares through options.
(9) Ms. Obourn has the right to acquire 20,000 shares through options.
(10) Mr. Tory has the right to acquire 19,000 shares through options.
(11) Mr. Zambonini has the right to acquire 157,500 shares through options.
(12) Mr. Hall has the right to acquire nil shares through options.
(13) Mr. Engels has the right to acquire 32,496 shares through options.
(14) Mr. Rottenberg has the right to acquire 138,328 shares through options.
(15) Mr. Moore has the right to acquire 93,000 shares through options.
(16) The group is comprised of the individuals named in the Summary Compensation
Table on page 21, the remaining executive officers of the Corporation, and
those persons who were directors of the Corporation on the Record Date. The
amount shown includes 843,441 shares which the directors and executive
officers as a group have the right to acquire by exercise of stock options
granted under the Corporation's stock option plans through July 4, 2000.
Statements contained in the table as to securities beneficially owned or
controlled by directors, officers, and 5% beneficial owners are, in each
instance, based upon information obtained from such directors, officers, and
beneficial owners.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Cameron is an Investment Advisor with RBC Dominion Securities, a subsidiary
of the Royal Bank of Canada, the Corporation's principal banker. From time to
time, Mr. Cameron has acted on behalf of various executives and other employees
of the Corporation in his capacity as an Investment Advisor. The Board has been
apprised by Mr. Cameron of these relationships and is of the view that neither
their nature nor the amounts involved are significant. While the law firm of
Torys, of which Mr. Tory is Chair Emeritus and Counsel, provides legal services
to the Corporation, neither the amount nor dollar value of these services is
significant when compared to the overall amount or dollar value of legal
services obtained by the Corporation. The Board does not consider that the
amount paid to Mr. Tory in respect of additional duties carried out as Chairman
of the Board impairs his status as an unrelated director as that amount is
payable in respect of his increased responsibilities in his function as Chairman
of the Board.
Directors are compensated for duties outside those normally undertaken by
directors at the rate of C$2,000 per day. Employees of the Corporation serving
on the Board do not receive directors' compensation.
It is the Corporation's policy that all transactions with related parties must
be approved by a majority of the independent and disinterested directors
considering a particular transaction and that a transaction be subject to terms
no less favorable to the Corporation than can be obtained at arm's length.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
The following documents are filed as part of this Report:
(a) 1. Consolidated Financial Statements-The following Consolidated Financial
Statements of the Corporation and its subsidiaries, and the Auditors'
Report related thereto, are included in the Corporation's 2000 Annual
Report to Shareholders and are incorporated by reference into Items
hereto, and filed as Exhibit 13.5 herewith:
Report of Management
Auditors' Report
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
(a) 2. Financial Statement Schedules-The Schedules supporting the Consolidated
Financial Statements which are filed as part of this report are as
follows:
Schedule II Valuation and qualifying accounts
Note: Schedules other than those listed are omitted as they are
not applicable, not required, or the information is
included in the consolidated financial statements or the
notes thereto.
(a) 3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
3.0 Articles of Incorporation and Bylaws
3.1 --Articles of Incorporation and amendments thereto (filed as Exhibit 3.1 to Form
10-K filed for the year ended February 28, 1997)
3.2 --By-laws of the Corporation (filed as Exhibit 3.2 to Form
10-K filed for the year ended February 28, 1997)
4.0 Instruments defining the rights of security holders, including indentures
4.1 --Form of Share Certificate (filed as Exhibit 4.0 to Amendment No. 2 to
Registration Statement No. 33-14245 on Form S-1 filed on July 1, 1987)
4.2 --Description of Common Shares contained in the Articles of Incorporation
and amendments thereto, (filed as Exhibit 3.1 to Amendment No. 2 to
Registration Statement No. 33-14245 on Form S-1, filed on July 1, 1987)
</TABLE>
continued....
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION (continued)
<S> <C>
10.0 Material Contracts
10.1 --Charge/Mortgage of Land between the Company and Campeau Corporation, as
tenants in common, and London Life Insurance Company dated September 16,
1985 (filed as Exhibit 10.16 to Registration Statement No. 33-14245 on Form
S-1, filed on May 13, 1987)
10.2 --1988-1993 Stock Option Plan (Incentive and Non-Qualified), as amended
(filed as Exhibit 10.2 on Form 10-K, filed for year ended February 28, 1989)
10.3 --Form of Incentive Stock Option Agreement under 1988-1993 Stock Option
Plan (Incentive and Non-Qualified) (filed as Exhibit 10.4 to Registration
Statement No. 33-39892 on Form S-2 filed on April 9, 1991)
10.4 --Form of Non-Qualified Stock Option Agreement under 1988-1993 Stock Option
Plan (Incentive and Non-Qualified) (filed as Exhibit 10.5 to Registration
Statement No. 33-39892 on Form S-2 filed on April 9, 1991)
10.5 --Letter Agreement between the Company and The Royal Bank of Canada, dated
July 5, 1990 (filed as Exhibit 10.8 to Registration Statement No. 33-39892
on Form S-2 filed on April 9, 1991)
10.6 --1993-1998 Employee Stock Purchase Plan
10.7 --1993-1998 Stock Option Plan (Incentive and Non-Qualified)
10.8 --Form of Incentive Stock Option Agreement under 1993-1998 Stock Option
Plan (Incentive and Non-Qualified)
10.9 --Form of Non-Qualified Stock Option Agreement under 1993-1998 Stock Option
Plan (Incentive and Non-Qualified)
10.10 --Amended and Restated 1988-1993 Stock Option Plan (Incentive and
Non-Qualified) (filed as Exhibit 10.12 of Form 10-Q filed for the quarter
ended August 31, 1996)
10.11 --Amended and Restated 1993-1998 Stock Option Plan (Incentive and
Non-Qualified) (filed as Exhibit 10.13 of Form 10-Q filed for the quarter
ended August 31, 1996)
10.12 --1997-2002 Stock Option Plan (Incentive and Non-Qualified) (filed as
Exhibit 4.1 to Registration Statement No. 333-8552 on Form S-8, filed on
March 31, 1998)
10.13 --Form of Incentive Stock Option Agreement under 1997-2002 Stock Option
Plan (Incentive and Non-Qualified) (filed as Exhibit 4.2 to Registration
Statement No. 333-8552 on Form S-8, filed on March 31, 1998)
10.14 --Form of Non-Qualified Stock Option Agreement under 1997-2002 Stock Option
Plan (Incentive and Non-Qualified) (filed as Exhibit 4.3 to Registration
Statement No. 333-8552 on Form S-8, filed on March 31, 1998)
10.15 --Amended and Restated 1993-1999 Employee Stock Purchase Plan (filed as
Exhibit 10.17 of Form 10-K filed for the year ended February 28, 1998)
10.16 --Amended and Restated Cognos Employee Stock Purchase Plan (filed as
Exhibit 10.16 of Form 10-Q filed for the quarter ended August 31, 1999)
</TABLE>
continued....
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION (continued)
<S> <C>
11.0 Statements regarding Computation of Earnings Per Share
11.1 --Computation of Earnings Per Share in accordance with Canadian Generally
Accepted Accounting Principles
11.2 --Computation of Earnings Per Share in accordance with United States Generally
Accepted Accounting Principles
13.0 Selected Portions of the Annual Report to Shareholders for the fiscal year ended
February 29, 2000
13.1 Market for the Corporation's common shares and related shareholder matters
incorporated by reference to page 67 of the 2000 Annual Report to Shareholders.
13.2 Selected Financial Data, incorporated by reference to page 63 of the 2000 Annual
Report to Shareholders.
13.3 Management's Discussion and Analysis of the Corporation's Financial Condition and
Results of Operations incorporated by reference to pages 24 to 41 of the 2000
Annual Report to Shareholders.
13.4 Quantitative and qualitative disclosures about market risk incorporated by
reference to page 36 of the 2000 Annual Report to Shareholders.
13.5 Financial Statements and Supplementary Data incorporated by reference to pages 41
to 62 of the 2000 Annual Report to Shareholders.
21.0 Subsidiaries of the Company
23.0 Consent of Ernst & Young LLP, Independent Chartered Accountants
99.0 Consolidated Financial Information in accordance with Canadian Generally Accepted
Accounting Principles
</TABLE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last
quarter of the fiscal year ended February 29, 2000.
(c) The Company hereby files as part of this Form 10-K, the exhibits listed in
Item 14(a)3, as set forth above.
(d) The Company hereby files as part of this Form 10-K, the schedules listed in
Item 14(a)2, as set forth above.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COGNOS INCORPORATED
(Registrant)
/s/ Donnie M. Moore May 25, 2000
- -----------------------------
Donnie M. Moore
Senior Vice President, Finance and Administration
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ Renato Zambonini President and Chief Executive Officer, and Director May 25, 2000
- -----------------------------
Renato Zambonini
/s/ Donnie M. Moore Senior Vice President, Finance and Administration May 25, 2000
- ----------------------------- and Chief Financial Officer
Donnie M. Moore (Principal Financial and Accounting Officer)
/s/ James M. Tory Chairman of the Board May 25, 2000
- -----------------------------
James M. Tory, Q.C.
/s/ John E. Caldwell Director May 25, 2000
- -----------------------------
John E. Caldwell
/s/ Douglas C. Cameron Director May 25, 2000
- -----------------------------
Douglas C. Cameron
/s/ Pierre Y. Ducros Director May 25, 2000
- -----------------------------
Pierre Y. Ducros
/s/ Douglas J. Erwin Director May 25, 2000
- -----------------------------
Douglas J. Erwin
/s/ Robert W. Korthals Director May 25, 2000
- -----------------------------
Robert W. Korthals
/s/ Candy M. Obourn Director May 25, 2000
- -----------------------------
Candy M. Obourn
</TABLE>
32
<PAGE>
Schedule II
COGNOS INCORPORATED
Valuation and Qualifying Accounts
(US$000s, U.S. GAAP)
<TABLE>
<CAPTION>
Balance, Additions Balance,
beginning charged end
of period to income Deductions (1) of period
---------------- -------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
Fiscal Year Ended
February 28, 1998........... $3,026 $1,052 $(371) $3,707
====== ====== ===== ======
February 28, 1999........... $3,707 $1,047 $(324) $4,430
====== ====== ===== ======
February 29, 2000........... $4,430 $1,092 $(788) $4,734
====== ====== ===== ======
Allowance for Inventory Obsolescence
Fiscal Year Ended
February 28, 1998........... $ 136 $ 159 $(170) $ 125
====== ====== ===== ======
February 28, 1999........... $ 125 $ 131 $ (92) $ 164
====== ====== ===== ======
February 29, 2000........... $ 164 $ 59 $ (64) $ 159
====== ====== ===== ======
</TABLE>
(1) Represents amounts written off against the reserve, net of recoveries.
33
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
----
<S> <C> <C>
3.0 Articles of Incorporation and Bylaws
3.1 --Articles of Incorporation and amendments thereto (filed as Exhibit 3.1 to
Form 10-K filed for the year ended February 28, 1997)
3.2 --By-laws of the Company (filed as Exhibit 3.2 to Form 10-K filed for the year
ended February 28, 1997)
4.0 Instruments defining the rights of security holders, including indentures
4.1 --Form of Share Certificate (filed as Exhibit 4.0 to Amendment No. 2 to
Registration Statement No. 33-14245 on Form S-1 filed on July 1, 1987)
4.2 --Description of Common Shares contained in the Articles of Incorporation
and amendments thereto, (filed as Exhibit 3.1 to Amendment No. 2 to
Registration Statement No. 33-14245 on Form S-1, filed on July 1, 1987)
10.0 Material Contracts
10.1 --Charge/Mortgage of Land between the Company and Campeau Corporation, as
tenants in common, and London Life Insurance Company dated September 16,
1985 (filed as Exhibit 10.16 to Registration Statement No. 33-14245 on Form
S-1, filed on May 13, 1987)
10.2 --1988-1993 Stock Option Plan (Incentive and Non-Qualified), as amended
(filed as Exhibit 10.2 on Form 10-K, filed for year ended February 28, 1989)
10.3 --Form of Incentive Stock Option Agreement under 1988-1993 Stock Option
Plan (Incentive and Non-Qualified) (filed as Exhibit 10.4 to Registration
Statement No. 33-39892 on Form S-2 filed on April 9, 1991)
10.4 --Form of Non-Qualified Stock Option Agreement under 1988-1993 Stock Option
Plan (Incentive and Non-Qualified) (filed as Exhibit 10.5 to Registration
Statement No. 33-39892 on Form S-2 filed on April 9, 1991)
10.5 --Letter Agreement between the Company and The Royal Bank of Canada, dated
July 5, 1990 (filed as Exhibit 10.8 to Registration Statement No. 33-39892
on Form S-2 filed on April 9, 1991)
10.6 --1993-1998 Employee Stock Purchase Plan
10.7 --1993-1998 Stock Option Plan (Incentive and Non-Qualified)
10.8 --Form of Incentive Stock Option Agreement under 1993-1998 Stock Option
Plan (Incentive and Non-Qualified)
10.9 --Form of Non-Qualified Stock Option Agreement under 1993-1998 Stock Option
Plan (Incentive and Non-Qualified)
10.10 --Amended and Restated 1988-1993 Stock Option Plan (Incentive and Non-
Qualified) (filed as Exhibit 10.12 of Form 10-Q filed for the quarter ended
August 31, 1996)
10.11 --Amended and Restated 1993-1998 Stock Option Plan (Incentive and Non-
Qualified) (filed as Exhibit 10.13 of Form 10-Q filed for the quarter ended
August 31, 1996)
</TABLE>
continued....
1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXHIBIT INDEX (continued)
NUMBER DESCRIPTION
<S> <C>
10.12 --1997-2002 Stock Option Plan (Incentive and Non-Qualified) (filed as Exhibit 4.1
to Registration Statement No. 333-8552 on Form S-8, filed on March 31, 1998)
10.13 --Form of Incentive Stock Option Agreement under 1997-2002 Stock Option Plan
(Incentive and Non-Qualified) (filed as Exhibit 4.2 to Registration Statement
No. 333-8552 on Form S-8, filed on March 31, 1998)
10.14 --Form of Non-Qualified Stock Option Agreement under 1997-2002 Stock Option Plan
(Incentive and Non-Qualified) (filed as Exhibit 4.3 to Registration Statement No.
333-8552 on Form S-8, filed on March 31, 1998)
10.15 --Amended and Restated 1993-1999 Employee Stock Purchase Plan (filed as Exhibit
10.17 of Form 10-K filed for the year ended February 28, 1998)
10.16 --Amended and Restated Cognos Employee Stock Purchase Plan (filed as Exhibit
10.16 of Form 10-Q filed for the quarter ended August 31, 1999)
11.0 Statements regarding Computation of Earnings Per Share
11.1 --Computation of Earnings Per Share in accordance with Canadian Generally Accepted
Accounting Principles
--Computation of Earnings Per Share in accordance with United States Generally
11.2 Accepted Accounting Principles
13.0 Selected Portions of the Annual Report to Shareholders for the fiscal year ended
February 29, 2000
13.1 Market for the Corporation's common shares and related shareholder matters
incorporated by reference to page 67 of the 2000 Annual Report to Shareholders.
13.2 Selected Financial Data, incorporated by reference to page 63 of the 2000 Annual
Report to Shareholders.
13.3 Management's Discussion and Analysis of the Corporation's Financial Condition and
Results of Operations incorporated by reference to pages 24 to 41 of the 2000
Annual Report to Shareholders.
13.4 Quantitative and qualitative disclosures about market risk incorporated by
reference to page 36 of the 2000 Annual Report to Shareholders.
13.5 Financial Statements and Supplementary Data incorporated by reference to pages 41
to 62 of the 2000 Annual Report to Shareholders.
21.0 Subsidiaries of the Company
23.0 Consent of Ernst & Young LLP, Independent Chartered Accountants
99.0 Consolidated Financial Information in accordance with Canadian Generally
Accepted Accounting Principles
</TABLE>
2
<PAGE>
Exhibit 10.6
COGNOS INCORPORATED
1993-1998 EMPLOYEE STOCK PURCHASE PLAN
TERMS AND CONDITIONS
--------------------
1. PURPOSE
-------
Participation in the 1993-1998 Employee Stock Purchase Plan (the "Plan") is
being extended to all full-time permanent employees of the Cognos group of
companies (the "Company"). An employee can enroll in the Plan at any time
between December 1, 1993 and December 15, 1998. The Plan is intended to
provide a further incentive for employees to promote the best interests of
the company and an additional opportunity to participate in its economic
progress.
2. PAYROLL DEDUCTION
-----------------
Under the Plan each participating employee (the "Employee") can elect to
have the Company deduct an amount per pay period not to exceed 5% of
his/her annual target salary divided by the number of pay periods per year
provided such amount is greater than $10.00 per month. Commencing on
December 1, 1993, the Company shall accumulate in its general fund on
behalf of each Employee the deductions made in each of the Company's fiscal
quarters (a "Purchase Period").
3. DATE OF ACQUISITION
-------------------
On the first trading day after the end of each Purchase Period (the "Date
of Acquisition") (ie. March 1, 1994, June 1, 1994, September 1, 1994 and
December 1, 1994 etc. through to December 1, 1998) each Employee's
cumulative deductions shall be applied towards the purchase of common
shares of Cognos Incorporated (the "Common Shares").
4. PRICE OF ACQUISITION
--------------------
The purchase price per share shall be at a 10% discount from the lesser of
the Toronto Stock Exchange (T.S.E.) average closing price on (a) the first
five trading days of the Purchase Period or (b) the last five trading days
of the Purchase Period.
5. RECORD OF ACQUISITION
---------------------
Within two months after each Date of Acquisition, each Employee shall be
furnished with a record of the shares purchased, the purchase price per
share, and the balance remaining in his/her account along with the stock
certificate covering the shares purchased. No partial shares shall be
issued. Amounts remaining in an Employee's account which are insufficient
to purchase a whole share shall form the opening balance for the subsequent
Purchase Period.
1
<PAGE>
6. TAX CONSEQUENCES
----------------
Because the Plan is available to employees of all of the Cognos group of
companies worldwide, no attempt has been made to determine the many special
provisions which could be applicable to a particular situation. Employees
should consult their own tax advisors to determine the specific tax
consequences to them.
7. TRANSFERABILITY OF SHARES
-------------------------
The Common Shares issued will be freely transferable on the T.S.E. and in
the over-the-counter market in the United States, subject to the
requirement that any resales by "affiliates" of the Company must be made
pursuant to Rule 144 of the United States Securities Act.
8. WITHDRAWAL AND TERMINATION
--------------------------
An employee may withdraw from the Plan at any time by providing written
notice to the attention of:
The Corporate Secretary
Cognos Incorporated
P.O. Box 9707
3755 Riverside Drive
Ottawa, Ontario
K1G 3Z4
Upon withdrawal all deducted amounts which have not been applied to the
purchase of shares shall be returned to the Employee. No interest will be
payable to any Employee in respect of deductions made under the Plan.
Termination of employment for whatever cause shall constitute withdrawal
from the Plan. On termination all outstanding deductions which have not
been applied to the purchase of shares shall be immediately returned to the
Employee.
9. ADMINISTRATION
--------------
Rights under the Plan are not transferable by an Employee to any other
person. All funds received by the Company under the Plan shall be included
in the general fund of the Company. This Plan will be administered by the
Corporate Secretary whose decisions with regard thereto shall be final and
conclusive. The Plan shall be governed by the laws of the Province of
Ontario.
10. ELECTION TO PARTICIPATE
-----------------------
In order to participate in the Plan an employee must complete the attached
Election to Participate form by filling in the date deductions are to
commence and the amount of money per pay period which he/she desires to
have withheld. The form must then be dated, signed and returned to the
Corporate Secretary.
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ELECTION TO PARTICIPATE
-----------------------
TO: COGNOS INCORPORATED and its subsidiaries and affiliates (the "Company")
I, the undersigned, acknowledge having received and read the Cognos Incorporated
1993-1998 Employee Stock Purchase Plan (the "Plan") and agree to the terms
contained therein. I hereby authorize the Company in accordance with the terms
of the Plan commencing _______________________, 199__ to withhold by way of
payroll deduction: __________________ per pay period
(NOTE: The amount indicated may not exceed 5% of your target salary divided by
the number of pay periods per year).
Unless given notice of any withdrawal from the Plan, I further authorize and
direct the Company on my behalf to apply the proceeds from such deductions
towards purchase of Common Shares of Cognos Incorporated on the first trading
day after the end of each Purchase Period.
I recognize and agree that purchase of such shares is conditional upon my being
a full-time employee of the Company at the time of purchase. I acknowledge and
agree that termination of employment for whatever cause shall render my
participation in the Plan null and void and all deductions made on my behalf
since the end of the fiscal quarter which preceded my termination shall be
returned to me in full.
Signature: _________________________________
Name: _________________________________
(Please Print)
Date: _________________________________
Branch: _________________________________
State of Residence: __________________________
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Exhibit 10.7
COGNOS INCORPORATED
1993-1998 STOCK OPTION PLAN
(INCENTIVE AND NON-QUALIFIED)
1. PURPOSE
This 1993-1998 Stock Option Plan (the "Plan") is intended to provide
incentives (a) to the officers and other employees of Cognos Incorporated
(the "Company") and any present or future subsidiary (as that term is
defined in Section 424 of the Code) of the Company wherever located (the
"Subsidiary(ies)") by providing them with opportunities to purchase stock
in the Company pursuant to options which qualify as "incentive stock
options" under Section 422(b) of the United States Internal Revenue Code of
1986, as amended (the "Code") granted hereunder, ("ISO(s)"); and (b) to
directors, employees and consultants of the Company and Subsidiaries by
providing them with opportunities to purchase stock in the Company pursuant
to options granted hereunder which do not qualify as ISOs ("Non-Qualified
Option(s)"). Both ISOs and Non-Qualified Options are referred to herein
individually as an "Option" and collectively as "Options".
2. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board of Directors of the Company
(the "Board"). The Board may appoint a Stock Option Plan Committee (the
"Committee") of three or more of its members to administer this Plan;
provided that, to the extent required by Rule 16b-3 promulgated under the
Securities Exchange Ace of 1934 or any successor provision ("Rule 16b-3"),
with respect to specific grants of Options, the Plan shall be administered
by a disinterested administrator or administrators within the meaning of
Rule 16b-3. Hereinafter, all references in this Plan to the "Committee"
shall mean the Board if no Committee has been appointed. Subject to the
terms of the Plan, the Committee, if so appointed, shall have the authority
to (i) determine the employees of the Company and subsidiaries (from among
the class of employees eligible under paragraph 3 to receive ISOs) to whom
ISOs may be granted, and to determine the individuals and entities (from
among the class of individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options) to whom Non-Qualified Options may be
granted; (ii) determine the time or times at which Options may be granted;
(iii) determine the option price of shares subject to each Option, which
price with respect to ISOs shall not be less than the minimum specified in
paragraph 6, (iv) determine whether each Option granted shall be an ISO or
a Non-Qualified Option; (v) determine (subject to paragraph 7) the time or
times when each Option shall become exercisable and the duration of the
exercise period; (vi) determine whether restrictions are to be imposed on
shares subject to Options, and the nature of such restrictions if any, and
(vii) interpret the Plan and prescribe and rescind rules and regulations
relating to it. If the Committee determines to issue a Non-Qualified
Option, it shall take whatever actions it deems necessary, under Section
422 of the Code and the regulations promulgated thereunder, to ensure that
such Option is not treated as an ISO. The interpretation and construction
by the Committee of any provisions of the Plan or of any Option granted
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under it shall be final unless otherwise determined by the Board. The
Committee may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem best. No member of the Board or the
Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any Option granted under it.
B. The Committee may select one of its members as its chairman, and shall
hold meetings at such time and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be valid acts of the
Committee. From time to time the Board may increase or decrease the size of
the Committee, appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
C. Options may be granted to members of the Board consistent with the
provisions of the first sentence of paragraph 2(A) above, if applicable.
All grants of Options to members of the Board shall in all other respects
be made in accordance with the provisions of this Plan applicable to other
eligible persons. Consistent with the provisions of the first sentence of
paragraph 2(A) above, members of the Board who either (i) are eligible to
receive grants of Options pursuant to the Plan or (ii) have been granted
Options may vote on any matters affecting the administration of the Plan or
the grant of any Options pursuant to the Plan, except that no such member
shall act upon the granting to himself of Options, but any such member may
be counted in determining the existence of a quorum at any meeting of the
Board during such action is taken with respect to the granting to such
member of Options.
3. ELIGIBLE EMPLOYEES AND OTHERS
ISOs may be granted only to employees of the Company or any Subsidiary Non-
Qualified Options may be granted to any officer, director (whether or not
an employee), employee or consultant of the Company or any Subsidiary. The
Committee may take into consideration an optionee's individual
circumstances in determining whether to grant an ISO or a Non-Qualified
Option. Granting of any Option to any individual or entity shall neither
entitle him to, nor disqualify him from, participation in any other grant
of Options.
4. STOCK
The stock subject to the Options shall be authorized but unissued shares of
common stock of the Company, no par value or shares re-acquired by the
Company in any manner (the "Common Shares"). The aggregate number of shares
which may be issued pursuant to the Plan is 2,500,000 subject to adjustment
as provided in paragraph 14. In the event any Option granted under the Plan
shall expire or terminate for any reason without having been exercised in
full or shall cease for any reason to be exercisable in whole or in part,
the unpurchased Common Shares subject thereto shall again be available for
grants of Options under the Plan. At no point in time shall any Option
granted under the Plan have the effect of increasing the aggregate number
of Common Shares subject to option under this Plan or any other stock plan
of the Company such that the aggregate
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would exceed 20% of the Company's outstanding issue of Common Shares (on a
non-diluted basis).
5. GRANTING OF OPTIONS
Options may be granted under the Plan at any time from and after January 1,
1993 and prior to January 1, 1998. Each such grant shall be subject to the
receipt within 12 months of January 1, 1993, of the approval of
shareholders of the Company as provided in paragraph 16. The date of grant
of an Option under the Plan will be the date specified by the Committee at
the time it awards the Option, provided, however, that such date shall not
be prior to the date the Committee acts to approve the award.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS
A. The price per Common Share specified in the agreement relating to each
Non-Qualified Option granted under the Plan shall not be lower than the
market price of the Common Shares on The Toronto Stock Exchange at the time
of grant, less any maximum discount allowable under Toronto Stock Exchange
regulations as amended (such discount not in any event to exceed 50% of
such fair market value).
B. The price per Common Share specified in the agreement relating to each
ISO granted under the Plan shall not be less than the fair market value per
Common Share on the date of such grant. In the case of an ISO to be granted
to an employee owning stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any
Subsidiary, the price per Common Share specified in the agreement relating
to each ISO shall not be less than one hundred and ten percent (110%) of
the fair market value of Common Shares on the date of grant. For purposes
of determining stock ownership under this paragraph, the rules of Section
424(d) of the Code shall apply.
C. Each eligible employee may be granted Options treated as ISOs only to
the extent that, in the aggregate under this Plan and all incentive stock
option plans of the Company and any Subsidiary, ISOs do not become
exercisable for the first time by such employee during any calendar year
with respect to stock having a fair market value (determined at the time
the ISOs were granted) in excess of $100,000. The Company intends to
designate any Options granted in excess of such limitation as Non-Qualified
Options. (To make this calculation the conversion rate used shall be the
purchase rate for U.S. dollars on the date of grant as published by the
Bank of Canada).
D. If, at the time an Option is granted under the Plan, the Common Shares
are publicly traded, "fair market value" shall be determined as of the last
business day for which the prices or quotes discussed in this sentence are
available prior to the date such Option is granted and shall mean (i) the
average of the bid and asked prices in the over-the-counter market as
reported by NASDAQ or, (ii) the average of the high and low prices on a
principal national securities exchange (including the Toronto Stock
Exchange) on which they are so traded. However, if the Common Shares are
not publicly traded at the time an Option is granted under the Plan, "fair
market value" shall be deemed to be the fair value of the Common Shares as
determined by the Board after taking into consideration
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<PAGE>
all factors which it deems appropriate, including, without limitation,
recent sale and offer prices of the Common Shares in private transactions
negotiated at arm's length.
7. OPTION DURATION
Subject to earlier termination as provided in paragraphs 9 and 10, each
Option shall expire on the date specified by the Committee, but not more
than (i) ten (10) years from the date of grant in the case of Options
generally and (ii) five (5) years from the date of grant in the case of
ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or any Subsidiary, as determined under paragraph 6(B). Subject to
earlier termination as provided in paragraphs 9 and 10, the term of each
ISO shall be the term set forth in the original instrument granting such
ISO, except with respect to any part of such ISO that is converted into a
Non-Qualified Option pursuant to paragraph 16.
8. WHEN OPTION BECOMES EXERCISABLE
Subject to the provisions of paragraphs 9 through 12, each Option granted
under the Plan shall be exercisable as follows:
A. The Option shall either be fully exercisable on the date of grant or
shall become exercisable thereafter in such installments as the Committee
may specify.
B. Once an installment becomes exercisable it shall remain exercisable
until expiration or termination of the Option, unless otherwise specified
by the Committee.
C. Each Option or installment may be exercised at any time or from time to
time, in whole or in part, for up to the total number of Common Shares with
respect to which it is then exercisable.
D. The Committee shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Committee shall not
accelerate the exercise date of any installment of any ISO (which has not
previously been converted to a Non-Qualified Option pursuant to paragraph
18) if such acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Code as described in paragraph 6(C).
9. TERMINATION OF EMPLOYMENT
If an ISO optionee ceases to be employed by the Company or any Subsidiary
other than by reason of death or disability or for "cause" as defined in
this paragraph 9, no further installments of his ISOs shall become
exercisable, and his ISOs shall terminate after the passage of 30 days from
the date of termination of his employment, but in no event later than on
the specified expiration date, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 17. Employment shall be considered as
continuing uninterrupted during any bona fide leave of absence (such as
governmental service) provided that the period of such leave does not
exceed 90 days or, if longer, any period during which such optionee's right
to re-employment is guaranteed by statute. A bona fide leave of absence
4
<PAGE>
with the written approval of the Committee shall not be considered an
interruption of employment under the Plan, provided that such written
approval contractually obligates the Company or any Subsidiary to continue
the employment of the optionee after the approved period of absence.
Nothing in the Plan shall be deemed to give any optionee the right to be
retained in employment by the Company or any Subsidiary for any period of
time. Options granted under the Plan shall not be affected by any change of
employment within or among the Company and its Subsidiaries, so long as the
optionee continues to be an employee of the Company or one of its
Subsidiaries. If the employment of an optionee is terminated for "cause",
his ISOs shall terminate upon receipt of written notice of such termination
and shall thereafter not be exercisable to any extent whatsoever. "Cause"
shall mean conduct involving one or more of the following: (i) the
substantial and continuing failure of an optionee, after notice thereof, to
render services to the Company or any Subsidiary in accordance with the
terms or requirements of his or her employment; (ii) disloyalty, gross
negligence, willful misconduct, dishonesty or breach of fiduciary duty to
the Company or any Subsidiary; (iii) the commission of an act of
embezzlement or fraud; (iv) deliberate disregard of the rules or policies
of the Company or any Subsidiary which results in direct or indirect loss,
damage or injury to the Company or any Subsidiary; (v) the unauthorized
disclosure of any trade secret or confidential information of the Company
or any Subsidiary; or (vi) the commission of an act which constitutes
unfair competition with the Company or any Subsidiary or which induces any
customer or supplier to breach a contract with the Company or any
Subsidiary.
10. DEATH
If an ISO optionee ceases to be employed by the Company or any Subsidiary
by reason of death, any ISO of his/her may be exercised, to the extent of
the number of Common Shares with respect to which he could have exercised
it on the date of his/her death, by his/her estate, personal representative
or beneficiary who has acquired the ISO by will or by the laws of the
descent and distribution, at any time prior to the earlier of 180 days from
the date of the optionee's death or the specified expiration date of the
ISO.
11. DISABILITY
If an ISO optionee ceases to be employed by the Company or its Subsidiaries
by reason of his or her disability, such optionee shall have the right to
exercise any ISO held by him or her on the date of termination of
employment, to the extent otherwise exercisable on that date, at any time
prior to the earlier of the specified expiration date of the ISO or 180
days from the date of the termination of the optionee's employment. For the
purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or any successor
statute.
12. ASSIGNABILITY
No Option shall be assignable or transferable by the optionee except by
will or by the laws of descent and distribution, and during the lifetime of
the optionee each Option shall be exercisable only by him.
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<PAGE>
13. TERMS AND CONDITIONS OF OPTIONS
Options shall be evidenced by instruments (which need not be identical) in
such forms as the Committee may from time to time approve. Such instruments
shall conform to the terms and conditions set forth in paragraphs 6 through
12 hereof and may contain such other provisions, as the Committee deems
advisable, which are not inconsistent with the Plan, including restrictions
applicable to Common Shares issuable upon exercise of Options. The
Committee may specify that any Non-qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other
termination and cancellation provisions as the Committee may determine.
The Committee may from time to time confer authority and responsibility on
one or more of its members and/or one or more officers of the Company to
execute and deliver such instruments. The proper officers of the Company
are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
14. ADJUSTMENTS
Upon the happening of any of the following described events, an optionee's
rights with respect to Options granted to him hereunder shall be adjusted
as hereinafter provided:
A. In the event of any subdivision or subdivisions of the Common Shares
into a greater number of shares at any time ,or in the case of the issue of
shares of the Company to the holders of its outstanding Common Shares by
way of stock dividend or stock dividends (other than an issue of shares to
shareholders pursuant to their exercise of options to receive dividends in
the form of shares of the Company in lieu of cash dividends declared
payable in the ordinary course by the Company on its Common Shares), the
number of Common Shares deliverable upon the exercise of Options shall be
appropriately increased proportionately, and appropriate adjustments shall
be made in the purchase price per share to reflect such subdivision or
stock dividend.
B. In the event of any consolidation or consolidations of the Common
Shares into a lesser number of shares at any time, the number of Common
Shares deliverable upon the exercise of Options shall be appropriately
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such consolidation.
C. In the event of any reclassification or reclassifications of the Common
Shares, at any time an optionee shall accept, at the time of purchase of
shares pursuant to the exercise of an Option, in lieu of the number of
Common Shares in respect of which the Option to purchase is being
exercised, the number of shares of the Company of the appropriate class or
classes as the optionee would have been entitled as a result of such
reclassification or reclassifications had the Option been exercised before
such reclassification or reclassifications.
D. If the Company is to be consolidated with or acquired by another entity
in a merger, sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee or the board of directors of
any entity assuming the obligations of the Company hereunder (the
"Successor Board"), shall, as to outstanding Options, either (i)
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<PAGE>
make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the shares then subject to such
Options the consideration payable with respect to the outstanding Common
Shares in connection with the Acquisition; or (ii) upon written notice to
the optionees, provide that all Options must be exercised, to the extent
then exercisable, within a specified number of days of the date of such
notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of
the fair market value of the shares subject to such Options (to the extent
then exercisable) over the exercise price thereof.
E. Notwithstanding the foregoing, any adjustments made pursuant to
subparagraphs A, B, C or D with respect to ISOs shall be made only after
the Committee, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs (as
that term is defined in Section 424 of the Code) or would cause any adverse
tax consequences for the holders of such ISOs. If the Committee determines
that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments.
F. In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation
of such proposed action or at such other time and subject to such other
conditions as shall be determined by the Committee.
G. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares subject to Options.
No adjustments shall be made for dividends paid in cash or in property
other than securities of the Company.
H. No fractional shares shall be issued under the Plan and the optionee
shall receive from the Company cash in lieu of such fractional shares.
I. Upon the happening of any of the foregoing events described in
subparagraphs A, B, C or D above, the class and aggregate number of shares
set forth in paragraph 4 hereof that are subject to Options which
previously have been or subsequently may be granted under the Plan shall
also be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this/her paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
15. EXERCISE OF OPTIONS
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal office address, or such
transfer agent as the Company shall designate. Such notice shall identify
the Option being exercised, specify the number of shares as to which such
Option is being exercised, and be accompanied by full payment of the
purchase price therefore either (a) in cash or by certified cheque, (b) at
the discretion of the Committee, through delivery of Common Shares having
fair market value equal as of the date of the exercise to the cash exercise
price of the Option, or (c) at the discretion of the Committee, by delivery
of the optionee's personal recourse note bearing interest payable not less
than annually and at no less than 100% of the
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lowest applicable Federal Rate, as defined in Section 1274(d) of the Code.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clause (b) or (c) of
the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall
not have the rights of a shareholder with respect to the Common Shares
covered by his/her Option until the date of issuance of a stock certificate
to him for such shares. Except as expressly provided above in paragraph 14
with respect to changes in capitalization and stock dividends, no
adjustment shall be made for dividends or similar rights for which the
record date is before the date such stock certificate is issued. In no
event shall a fraction of a Common Share be purchased or issued under the
Plan.
16. CONDITIONS OF EXERCISE
Each Option shall be subject to the requirement that, if at any time the
Committee or counsel for the Company shall determine, in its reasonable
discretion, that the listing, registration or qualification of the Common
Shares subject to such Option upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental body,
is necessary or desirable, as a condition of, or in connection with, the
granting of such Option or the issue or purchase of shares thereunder, no
such Option may be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected
or obtained free of any conditions not acceptable to the Committee and
counsel for the Company.
17. TERM AND AMENDMENT OF THE PLAN
This Plan was adopted by the Board on January 1, 1993, subject to its
becoming effective upon approval by the holders of a majority of the Common
Shares present and entitled to vote at a meeting of shareholders. If the
approval of shareholders is not obtained prior to January 1, 1994, any
grants of ISOs under the Plan made prior to that date will be rescinded.
The Plan shall expire on January 1, 1998 (except as to Options outstanding
on that date). Subject to the provisions of paragraph 5 above, Options may
be granted under the Plan prior to the date of shareholder approval of the
Plan. The Board may terminate or amend the Plan in any respect at any time,
except that, without the approval of such shareholders within 12 months
before or after the Board adopts a resolution authorizing any of the
following actions: (a) the total number of Common Shares that may be issued
under the Plan may not be increased (except by adjustment pursuant to
paragraph 14); (b) the provisions of paragraph 3, regarding eligibility for
grants of ISOs, may not be materially modified; (c) the provisions of
paragraph 6 B., regarding the exercise price at which Common Shares may be
offered pursuant to ISOs and the $100,000 per optionee annual limitations,
may not be modified (except by adjustment pursuant to paragraph 14); (d)
the expiration date of the Plan may not be extended; (e) the benefits
accruing to participants under the Plan may not be materially increased;
(f) the provisions of paragraph 3 regarding eligibility for grants of ISOs
may not be modified; and (g) the Committee may not take any action which
would cause the Plan to fail to comply with Rule 16b-3.. In no event may
action of the Board or shareholders alter or impair the rights of an
optionee, without his/her consent, under any Option previously granted to
him.
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18. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS
The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
ISOs (or any installments or portions of installments thereof) that have
not been exercised on the date of conversion into Non-Qualified Options at
any time prior to the expiration of such ISOs, regardless of whether the
optionee is an employee of the Company or a Subsidiary at the time of such
conversion. Such actions may include, but are not limited to, extending the
exercise period or reducing the exercise price of the appropriate
installments of such ISO. At the time of such conversion, the Committee
(with the consent of the Optionee) may impose such conditions on the
exercise of the resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in the Plan shall be deemed to give
any optionee the right to have such optionee's ISOs converted into Non-
Qualified Options, and no such conversion shall occur until and unless the
Committee takes appropriate action.
19. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Shares
pursuant to Options granted under the Plan shall be used for general
corporate purposes.
20. GOVERNMENTAL REGULATION
The Company's obligation to sell and deliver Common Shares under this Plan
is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required
to send tax information statements to employees and former employees that
exercise ISOs under the Plan, and the Company may be required to file tax
information returns reporting the income received by grantees of Stock
Rights in connection with the Plan.
21. WITHHOLDING OF ADDITIONAL INCOME TAXES
Upon the exercise of a Non-Qualified Option, the making of a Disqualifying
Disposition (as defined in paragraph 22 or the vesting or transfer of
restricted Common Shares acquired on the exercise of an Option, or the
making of a distribution or other payment with respect to such Common
Shares, the Company, may withhold taxes in respect of amounts that
constitute compensation includable in gross income. The Committee in its
discretion may condition (i) the exercise of an Option or (ii) the vesting
of restricted Common Shares acquired by exercising an Option, on the
optionee's making satisfactory arrangement for withholding. Such
arrangement may include payment by the optionee in cash or by certified
cheque of the amount of the withholding taxes or, at the discretion of the
Committee, by the optionee's delivery upon exercise of an Option having an
aggregate fair market value equal to the amount of such withholding taxes.
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22. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
By accepting an ISO granted under the Plan, each optionee agrees to notify
the Company in writing immediately after he/she makes a disqualifying
disposition of any Common Shares received pursuant to the exercise of an
ISO (a "Disqualifying Disposition"). Disqualifying Disposition means any
disposition (including any sale) of such stock on or before the later of
(a) two years after the employee was granted the ISO under which he
acquired such stock, or (b) one year after the employee acquired such stock
by exercising such ISO. If the employee has died before such stock is sold,
these holding period requirements do not apply and no Disqualifying
Disposition will thereafter occur.
23. GOVERNING LAW
The validity and construction of the Plan and the instruments evidencing
Options shall be governed by the laws of the Province of Ontario, and where
applicable, the federal laws of Canada.
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Exhibit 10.8
COGNOS INCORPORATED
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
THIS AGREEMENT is made as of the day of , 199 , by and between:
COGNOS INCORPORATED, a company NAME
incorporated under the laws of Canada - and -
(hereinafter called the "Company") (hereinafter called the
"Employee")
WHEREAS the Employee is an employee of the Company or a subsidiary of the
Company;
AND WHEREAS the Company has agreed to grant an incentive stock option to the
Employee pursuant to the Company's 1993-1998 Stock Option Plan (Incentive and
Non-Qualified) (the "Plan") upon the exercise of which the Employee may acquire
common shares (hereinafter called "Common Shares") in the capital stock of the
Company as constituted at the date hereof;
AND WHEREAS the purchase price per Optioned Share (as hereafter defined) is not
less than the fair market value of the Common Shares on the date hereof;
AND WHEREAS the stock option evidenced by this Agreement is subject to all of
the terms and conditions of the Plan which shall govern in the event of a
conflict with the terms and conditions of this Agreement.
NOW THEREFORE the parties agree as follows:
1. The Company hereby grants to the Employee, as of the date hereof, subject
to the terms and conditions set out herein, an option to purchase (number)
Common Shares (hereinafter called the "Optioned Shares") at a price of
$x.xx CDN per share, the said option to terminate at 5:00 p.m. Ottawa time
on the dates indicated below (hereinafter called the "Expiry Date(s)") and
in the meantime being exercisable on the dates indicated below (hereinafter
called the "Exercise Date(s)"):
OPTIONED EXERCISE EXPIRY
SHARES DATE(S) DATE(S)
------ ------- -------
If, at any time between the Exercise Date and the Expiry Date, the employee
does not exercise his/her option as to all of the Optioned Shares in
respect of which the option is exercisable on such date, then the Employee
will be entitled to any subsequent time or times up to the Expiry Date to
purchase such Optioned Shares in respect of which the option has not been
exercised.
1
<PAGE>
2. If before the Expiry Date, the Employee's employment with the Company or
one of its subsidiaries is terminated for just cause, the option hereby
granted to the Employee shall thereupon cease and terminate and be of no
further force or effect whatsoever. If before the Expiry date, the
Employee's employment with the Company or one of its subsidiaries is
terminated without just cause, or if before the Expiry Date the Employee
resigns from the Company or one of its subsidiaries, then the Employee,
within thirty (30) days after the date of such termination or resignation,
can exercise the option as if he had continued to be an employee of the
Company and to the extent that he had a right under Paragraph 1 of this
Agreement to exercise the option at the date of such termination or
resignation. At the end of such thirty (30) day period, this option shall
cease and terminate and be of no further force or effect whatsoever.
3. In the event of the death of the Employee, his personal legal
representative may within six (6) months after the date of such death,
exercise the option to the extent that the Employee had a right under
Paragraph 1 of this Agreement to exercise it at the date of such death. At
the end of such six (6) month period, the option hereby granted shall
forthwith cease and terminate and be of no further force or effect.
4. The option hereby granted is non-transferable and shall be exercisable only
by the Employee or his personal representative from time to time, by giving
notice in writing to the Company referring to this Agreement and setting
forth the number of Optioned Shares in respect of which the option is then
being exercised, and such notice shall be accompanied by cash or a
certified cheque payable to the Company in the full amount of the purchase
price for the Optioned Shares being purchased. Such notice shall specify
the address to which the share certificate or certificates shall be sent,
and any such share certificate or certificates shall be sufficiently sent
if mailed postage prepaid in an envelope addressed to the Employee at such
address.
5. In the event of any subdivision of the Common Shares of the Company, as
those shares are now constituted, into a greater number of shares at any
time while this option is outstanding and in the case of the issue of
shares of the Company to the holders of its outstanding Common Shares by
way of stock dividend or dividends (other than an issue of shares to
shareholders pursuant to their exercise of options to receive dividends in
the form of shares of the Company in lieu of cash dividends declared
payable in the ordinary course by the Company on its Common Shares), the
Company shall thereafter deliver at the time of purchase of shares pursuant
to the exercise of the option hereby granted, in lieu of the number of
Common Shares in respect of which the option to purchase is being exercised
as provided for herein, such greater number and such other class of shares
of the Company as the Employee would have been entitled as a result of such
subdivision, or such stock dividend had the option been exercised before
such subdivision or stock dividend.
6. In the event of any consolidation of the Common Shares of the Company into
a lesser number of shares at any time while this option is outstanding, the
Company shall thereafter deliver and the Employee shall accept, at the time
of any purchase of shares pursuant to the exercise of the option hereby
granted, in lieu of the number of Common Shares in respect of which the
option to purchase is being exercised as provided herein, such lesser
number of shares of the Company as the Employee would have been entitled as
a result of such consolidation had the option been exercised before such
consolidation.
7. In the event of any reclassification of the Common Shares of the Company at
any time while this option is outstanding, the Company shall thereafter
deliver and the Employee shall accept, at the time of purchase of shares
pursuant to the exercise of the option hereby granted, in lieu of the
2
<PAGE>
number of Common Shares in respect of which the option to purchase is being
exercised as provided for herein, the number of shares of the Company of
the appropriate class or classes as the Employee would have been entitled
as a result of such reclassification.
8. Other than the right to receive the Optioned Shares on the exercise of the
option in accordance herewith, the Employee shall have no rights as a
shareholder in respect of the Optioned Shares until after the exercise.
9. The Employee acknowledges that the Company's obligation to issue and
deliver Optioned Shares is subject to (a) completion of such registration
or other qualification of such shares or obtaining approval of such
government authority as the Company shall determine to be necessary or
advisable in connection with the authorization, issuance or sale thereof;
(b) the admission of such shares to listing on any stock exchange on which
the Company's Common Shares may then be listed; and (c) the receipt from
the Employee of such representations, agreements and undertakings as to
future dealings in such shares as the Company determines to be necessary or
advisable in order to safeguard against the violation of the securities
laws of any jurisdiction. In this connection, the Employee agrees that (a)
no sale or transfer of any or all of the Optioned Shares will be made
except pursuant to an opinion of counsel satisfactory to the Company to the
effect that such sale or transfer will not result in the violation of
applicable securities laws; and (b) the Company may cause the certificates
representing the Optioned Shares to bear a legend referring to the
foregoing restriction on transfer and that the Company may issue to its
transfer agent "stop transfer" instructions with respect to the Optioned
Shares.
10. The Employee acknowledges that all decisions and interpretations of the
Board of Directors respecting this stock option or the Plan shall be
conclusive and binding on all holders of options granted thereunder.
11. The Employee shall not be entitled to assign this Agreement nor any of the
rights or benefits provided for herein. Time shall be the essence of this
Agreement. This Agreement shall be binding upon any successor or successors
of the Company.
COGNOS INCORPORATED )
)
)
Per: ____________________ ) ______________________
)
R. Todd Plaskacz ) Employee
General Counsel and )
Corporate Secretary )
3
<PAGE>
Exhibit 10.9
COGNOS INCORPORATED
-------------------
STOCK OPTION AGREEMENT
----------------------
THIS AGREEMENT is made as of the day of , 199 , by and between:
COGNOS INCORPORATED, a company NAME
incorporated under the laws of Canada - and -
(hereinafter called the "Company") (hereinafter called the
"Employee")
WHEREAS the Employee is an employee of the Company or a subsidiary of the
Company;
AND WHEREAS the Company has agreed to grant a stock option to the Employee
pursuant to the Company's 1993-1998 Stock Option Plan (Incentive and Non-
Qualified) (the "Plan") upon the exercise of which the Employee may acquire
common shares (hereinafter called "Common Shares") in the capital stock of the
Company as constituted at the date hereof;
AND WHEREAS the purchase price per Optioned Share (as hereafter defined) is not
less than the fair market value of the Common Shares on the date hereof;
AND WHEREAS the stock option evidenced by this Agreement is subject to all of
the terms and conditions of the Plan which shall govern in the event of a
conflict with the terms and conditions of this Agreement.
NOW THEREFORE the parties agree as follows:
1. The Company hereby grants to the Employee, as of the date hereof, subject
to the terms and conditions set out herein, an option to purchase (number)
Common Shares (hereinafter called the "Optioned Shares") at a price of
$x.xx CDN per share, the said option to terminate at 5:00 p.m. Ottawa time
on the dates indicated below (hereinafter called the "Expiry Date(s)") and
in the meantime being exercisable on the dates indicated below (hereinafter
called the "Exercise Date(s)"):
OPTIONED EXERCISE EXPIRY
SHARES DATE(S) DATE(S)
------ ------- -------
If, at any time between the Exercise Date and the Expiry Date, the employee
does not exercise his/her option as to all of the Optioned Shares in
respect of which the option is exercisable on such date, then the Employee
will be entitled to any subsequent time or times up to the Expiry Date to
purchase such Optioned Shares in respect of which the option has not been
exercised.
1
<PAGE>
2. If before the Expiry Date, the Employee's employment with the Company or
one of its subsidiaries is terminated for just cause, the option hereby
granted to the Employee shall thereupon cease and terminate and be of no
further force or effect whatsoever. If before the Expiry date, the
Employee's employment with the Company or one of its subsidiaries is
terminated without just cause, or if before the Expiry Date the Employee
resigns from the Company or one of its subsidiaries, then the Employee,
within thirty (30) days after the date of such termination or resignation,
can exercise the option as if he had continued to be an employee of the
Company and to the extent that he had a right under Paragraph 1 of this
Agreement to exercise the option at the date of such termination or
resignation. At the end of such thirty (30) day period, this option shall
cease and terminate and be of no further force or effect whatsoever.
3. In the event of the death of the Employee, his personal legal
representative may within six (6) months after the date of such death,
exercise the option to the extent that the Employee had a right under
Paragraph 1 of this Agreement to exercise it at the date of such death. At
the end of such six (6) month period, the option hereby granted shall
forthwith cease and terminate and be of no further force or effect.
4. The option hereby granted is non-transferable and shall be exercisable only
by the Employee or his personal representative from time to time, by giving
notice in writing to the Company referring to this Agreement and setting
forth the number of Optioned Shares in respect of which the option is then
being exercised, and such notice shall be accompanied by cash or a
certified cheque payable to the Company in the full amount of the purchase
price for the Optioned Shares being purchased. Such notice shall specify
the address to which the share certificate or certificates shall be sent,
and any such share certificate or certificates shall be sufficiently sent
if mailed postage prepaid in an envelope addressed to the Employee at such
address.
5. In the event of any subdivision of the Common Shares of the Company, as
those shares are now constituted, into a greater number of shares at any
time while this option is outstanding and in the case of the issue of
shares of the Company to the holders of its outstanding Common Shares by
way of stock dividend or dividends (other than an issue of shares to
shareholders pursuant to their exercise of options to receive dividends in
the form of shares of the Company in lieu of cash dividends declared
payable in the ordinary course by the Company on its Common Shares), the
Company shall thereafter deliver at the time of purchase of shares pursuant
to the exercise of the option hereby granted, in lieu of the number of
Common Shares in respect of which the option to purchase is being exercised
as provided for herein, such greater number and such other class of shares
of the Company as the Employee would have been entitled as a result of such
subdivision, or such stock dividend had the option been exercised before
such subdivision or stock dividend.
6. In the event of any consolidation of the Common Shares of the Company into
a lesser number of shares at any time while this option is outstanding, the
Company shall thereafter deliver and the Employee shall accept, at the time
of any purchase of shares pursuant to the exercise of the option hereby
granted, in lieu of the number of Common Shares in respect of which the
option to purchase is being exercised as provided herein, such lesser
number of shares of the Company as the Employee would have been entitled as
a result of such consolidation had the option been exercised before such
consolidation.
2
<PAGE>
7. In the event of any reclassification of the Common Shares of the Company at
any time while this option is outstanding, the Company shall thereafter
deliver and the Employee shall accept, at the time of purchase of shares
pursuant to the exercise of the option hereby granted, in lieu of the
number of Common Shares in respect of which the option to purchase is being
exercised as provided for herein, the number of shares of the Company of
the appropriate class or classes as the Employee would have been entitled
as a result of such reclassification.
8. Other than the right to receive the Optioned Shares on the exercise of the
option in accordance herewith, the Employee shall have no rights as a
shareholder in respect of the Optioned Shares until after the exercise.
9. The Employee acknowledges that the Company's obligation to issue and
deliver Optioned Shares is subject to (a) completion of such registration
or other qualification of such shares or obtaining approval of such
government authority as the Company shall determine to be necessary or
advisable in connection with the authorization, issuance or sale thereof;
(b) the admission of such shares to listing on any stock exchange on which
the Company's Common Shares may then be listed; and (c) the receipt from
the Employee of such representations, agreements and undertakings as to
future dealings in such shares as the Company determines to be necessary or
advisable in order to safeguard against the violation of the securities
laws of any jurisdiction. In this connection, the Employee agrees that (a)
no sale or transfer of any or all of the Optioned Shares will be made
except pursuant to an opinion of counsel satisfactory to the Company to the
effect that such sale or transfer will not result in the violation of
applicable securities laws; and (b) the Company may cause the certificates
representing the Optioned Shares to bear a legend referring to the
foregoing restriction on transfer and that the Company may issue to its
transfer agent "stop transfer" instructions with respect to the Optioned
Shares.
10. The Employee acknowledges that all decisions and interpretations of the
Board of Directors respecting this stock option or the Plan shall be
conclusive and binding on all holders of options granted thereunder.
11. The Employee shall not be entitled to assign this Agreement nor any of the
rights or benefits provided for herein. Time shall be the essence of this
Agreement. This Agreement shall be binding upon any successor or successors
of the Company.
COGNOS INCORPORATED )
)
)
Per: ____________________ ) ______________________
)
R. Todd Plaskacz ) Employee
General Counsel and )
Corporate Secretary )
3
<PAGE>
Exhibit 11.1
COGNOS INCORPORATED
Computation of Earnings Per Share
in accordance with Canadian Generally Accepted Accounting Principles
(US$000s, except share amounts)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------
February 29, February 28, February 28,
2000 1999 1998
--------------- --------------- --------------
<S> <C> <C> <C>
Basic
Net income........................................... $54,542 $58,122 $48,942
======= ======= =======
Weighted average number of shares
outstanding(1)................................... 85,972 87,416 88,414
======= ======= =======
Net income per share(1)............................ $0.63 $0.66 $0.55
======= ======= =======
Fully diluted
Net income........................................... $54,542 $58,122 $48,942
Add imputed interest on options (net of tax)......... 2,941 2,571 2,719
------- ------- -------
Adjusted net income.................................. $57,483 $60,693 $51,661
======= ======= =======
Weighted average number of shares(1)............... 85,972 87,416 88,414
Add share options(1)............................... 6,110 5,988 7,668
------- ------- -------
Fully diluted weighted average number
of shares(1)..................................... 92,082 93,404 96,082
======= ======= =======
Fully diluted net income per share(1).............. $0.62 $0.65 $0.54
======= ======= =======
</TABLE>
/(1)/Reflects the two-for-one stock split authorized April 6, 2000, subsequent
to the fiscal 2000 year-end.
1
<PAGE>
Exhibit 11.2
COGNOS INCORPORATED
Computation of Earnings Per Share
in accordance with United States Generally Accepted Accounting Principles
(US$000s, except share amounts)
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------
February 29, February 28, February 28,
2000 1999 1998
---------------- -------------- ----------------
<S> <C> <C> <C>
Basic
Net income.......................................... $58,815 $58,434 $32,642
======= ======= =======
Weighted average number of shares
outstanding/(1) (2)/............................... 85,972 87,416 88,414
======= ======= =======
Net income per share/(1) (2)/....................... $ 0.68 $ 0.67 $ 0.37
======= ======= =======
Diluted Net Income per Share
Net income.......................................... $58,815 $58,434 $32,642
======= ======= =======
Weighted average number of shares/(1) (2)/.......... 85,972 87,416 88,414
Dilutive effect of stock options/(1) (2)/........... 2,128 1,524 3,130
------- ------- -------
Adjusted weighted average number
of shares/(1) (2)/................................. 88,100 88,940 91,544
======= ======= =======
Diluted net income per share/(1) (2)/............... $ 0.67 $ 0.66 $ 0.36
======= ======= =======
</TABLE>
/(1)/ Reflects the adoption of FASB Statement No. 128, Earnings per Share in
fiscal 1998.
/(2)/ Reflects the two-for-one stock split authorized April 6, 2000, subsequent
to the fiscal 2000 year-end.
1
<PAGE>
Exhibit 13.1
COGNOS INCORPORATED
Common Share Information
PRINCIPAL MARKETS
The Toronto Stock Exchange and the Nasdaq National Market are the principal
markets on which the Corporation's shares are traded.
The Corporation's common shares were first listed on The Toronto Stock Exchange
on August 21, 1986, on The Nasdaq Stock Market on July 1, 1987, and on Nasdaq's
National Market on September 15, 1987. The stock symbol of the Corporation's
common shares on The Toronto Stock Exchange is CSN and on Nasdaq is COGN.
On April 6, 2000, subsequent to year-end, the Board of Directors of the
Corporation authorized a two-for-one stock split, effected in the form of a
stock dividend, payable on or about April 27, 2000 to shareholders of record at
the close of business on April 20, 2000. All historic information has been
adjusted for the split.
The following table sets forth the high and low sale prices, as well as the
trading volume, for the common shares for the fiscal periods shown below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
NASDAQ NATIONAL MARKET THE TORONTO STOCK EXCHANGE
- -------------------------------------------------------------------------------------------
High Low Volume High Low Volume
- -------------------------------------------------------------------------------------------
(US$) (US$) (000s) (Cdn$) (Cdn$) (000s)
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1999
First Quarter 15.250 12.438 21,274 21.63 17.55 11,652
Second Quarter 13.625 8.594 19,230 20.13 13.40 7,258
Third Quarter 10.625 7.375 24,352 16.25 11.38 9,802
Fourth Quarter 14.063 8.563 23,826 21.28 13.35 9,614
Fiscal 2000
First Quarter 12.938 9.750 13,625 18.88 14.88 9,465
Second Quarter 12.063 9.844 14,415 17.80 14.63 12,054
Third Quarter 19.188 9.688 19,314 28.00 14.30 13,575
Fourth Quarter 37.125 16.688 29,621 54.00 24.73 16,386
Fiscal 2001
First Quarter 41.125 23.313 22,518 60.50 34.00 10,025
(through April 20, 2000)
- -------------------------------------------------------------------------------------------
</TABLE>
SHAREHOLDERS
As of April 20, 2000, there were approximately 86,990,752 registered
shareholders.
DIVIDEND POLICY
The Corporation has never declared or paid any cash dividends on its common
shares. The Corporation's current policy is to retain its earnings to finance
expansion and to develop, license, and acquire new software products, and to
otherwise reinvest in the Corporation.
1
<PAGE>
Exhibit 13.2
COGNOS INCORPORATED
Selected Consolidated Financial Data
FIVE-YEAR SUMMARY
The following Selected Consolidated Financial Data has been derived from the
Corporation's consolidated financial statements that have been audited by Ernst
& Young LLP, independent chartered accountants. The Selected Consolidated
Financial Data should be read in conjunction with the Consolidated Financial
Statements and related Notes, and with Management's Discussion and Analysis of
Financial Condition and Results of Operations.
On April 6, 2000, subsequent to year-end, the Board of Directors of the
Corporation authorized a two-for-one stock split, effected in the form of a
stock dividend, payable on or about April 27, 2000 to shareholders of record at
the close of business on April 20, 2000. All historic consolidated results have
been restated for the split.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED THE LAST DAY OF FEBRUARY
- ------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
(US$000s except share amounts, U.S. GAAP)
<S> <C> <C> <C> <C> <C>
Statement of Income Data
Revenue $ 385,640 $ 301,125 $ 244,834 $ 198,185 $ 152,186
- ------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Cost of product license 5,235 5,738 3,828 3,266 3,433
Cost of product support 13,758 11,166 9,694 9,634 7,488
Selling,general,and administrative 238,147 172,482 140,882 114,617 98,908
Research and development 53,548 42,274 33,530 28,951 22,382
Acquired in-process technology -- 3,800 18,000 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 310,688 235,460 205,934 156,468 132,211
- ------------------------------------------------------------------------------------------------------------------------------
Operating income 74,952 65,665 38,900 41,717 19,975
Interest expense (718) (527) (481) (427) (468)
Interest income 7,454 6,430 5,340 4,524 4,019
- ------------------------------------------------------------------------------------------------------------------------------
Income before taxes 81,688 71,568 43,759 45,814 23,526
Income tax provision 22,873 13,134 11,117 9,025 5,996
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 58,815 $ 58,434 $ 32,642 $ 36,789 $ 17,530
==============================================================================================================================
Net income per share
Basic $ 0.68 $ 0.67 $ 0.37 $ 0.43 $ 0.21
Diluted $ 0.67 $ 0.66 $ 0.36 $ 0.40 $ 0.20
Net income per share, excluding the effect of the write-off of in-process technology
Basic $ 0.68 $ 0.71 $ 0.57 $ 0.43 $ 0.21
Diluted $ 0.67 $ 0.69 $ 0.55 $ 0.40 $ 0.20
Weighted average number of shares (000s)
Basic 85,972 87,416 88,414 86,298 82,578
Diluted 88,100 88,940 91,544 92,104 88,602
Balance Sheet Data (at end of period)
Working capital $ 166,455 $ 123,343 $ 112,846 $ 103,727 $ 66,149
Total assets 379,886 289,129 219,663 189,152 140,010
Total debt 2,176 2,612 2,457 2,655 2,744
Stockholders' equity 215,304 162,614 131,005 115,912 78,297
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
Exhibit 13.3
COGNOS INCORPORATED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(in United States dollars, unless otherwise indicated, and in accordance with
U.S. GAAP)
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes included in this Annual Report. The
Corporation prepares and files its consolidated financial statements and the
Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) in United States (U.S.) dollars and in accordance with U.S.
Generally Accepted Accounting Principles (GAAP). The consolidated financial
statements and MD&A in accordance with Canadian GAAP, in U.S. dollars, are made
available to all shareholders and filed with various regulatory authorities.
On April 6, 2000, subsequent to the year-end, the Board of Directors of the
Corporation authorized a two-for-one stock split, effected in the form of a
stock dividend, payable on or about April 27, 2000 to shareholders of record at
the close of business on April 20, 2000. Share and per-share amounts in this
MD&A, and the audited consolidated financial statements and notes thereto
included in this Annual Report, have been adjusted retroactively for this split.
OVERVIEW
The Corporation develops, markets, and supports complementary lines of software
tools that are designed to satisfy business-critical needs for the extended
enterprise within traditional and e-business markets. The Corporation's business
intelligence products are designed to give individual users the ability to
independently access, explore, analyze, and report corporate data. The
Corporation's client/server application development tools are designed to
increase the productivity of system analysts and developers. Cognos products are
distributed both directly and through resellers worldwide.
Revenue is derived from the licensing of software and the provision of related
services, which include product support and education, consulting, and other
services. The Corporation generally licenses software and provides services
subject to terms and conditions consistent with industry standards. Customers
may elect to contract with the Corporation for product support, which includes
product and documentation enhancements, as well as telephone support, by paying
either an annual fee or fees based on usage of support services.
The Corporation operates internationally, with a substantial portion of its
business conducted in foreign currencies. Accordingly, the Corporation's results
are affected by year-over-year exchange rate fluctuations of the United States
dollar relative to the Canadian dollar, to various European currencies, and to a
lesser extent, other foreign currencies.
RESULTS OF OPERATIONS
Net Income
[GRAPH]
Total revenue for the year ended February 29, 2000 (fiscal 2000) was $385.6
million, which was 28% more than the fiscal 1999 revenue of $301.1 million
which, in turn, was 23% more than the fiscal 1998 revenue of $244.8 million. Net
income for fiscal 2000 was $58.8 million and diluted net income per share was
$0.67, compared to fiscal 1999 net income of $58.4 million and diluted net
income per share of $0.66, and net income of $32.6 million and diluted net
income per share of $0.36 for fiscal 1998.
The results for the prior fiscal year, fiscal 1999 include the write-off of $3.8
million of acquired in-process technology as a result of the acquisitions of
Relational Matters and LEX2000 Inc., both of which occurred in the last fiscal
quarter of fiscal 1999. The results for fiscal 1998 include the write-off of
$18.0 million of acquired in-process technology as a result of the acquisitions
of Right Information Systems Limited and Interweave Software, Inc. during the
year. Excluding the effect of these write-offs, net income and diluted net
income per share for fiscal 1999 would have been $61.8 million and $0.69,
respectively, and net income and diluted net income per share for fiscal 1998
would have been $50.6 million and $0.55, respectively.
1
<PAGE>
Income Before taxes
[GRAPH]
Basic net income per share was $0.68, $0.67, and $0.37 in fiscal 2000, 1999, and
1998, respectively. Excluding the effect of the write-offs in fiscal 1999 and
fiscal 1998, basic net income per share would have been $0.71 and $0.57,
respectively.
The Corporation experienced a decrease in net income as a percentage of revenue
in fiscal 2000 as a result of increases in selling, general, and administrative
expenses and an increase in the provision for income taxes. During fiscal 2000
the Corporation increased its investment in its sales channels to focus on
revenue growth and expand global market coverage. The provision for income taxes
increased in fiscal 2000 from the prior fiscal years as the Corporation
recognized the benefits of previously unrecorded tax benefits during fiscal 1999
and 1998.
The following table sets out, for each fiscal year indicated, the percentage
that each income and expense item bears to revenue, and the percentage change in
the dollar amount of each item as compared to the prior fiscal year.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE PERCENTAGE CHANGE FROM FISCAL
- ---------------------------------------------------------------------------------------------------------------
2000 1999 1998 1999 to 2000 1998 to 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 28.1% 23.0%
- --------------------------------------------------------------------------------
Operating expenses
Cost of product license 1.3 1.9 1.5 (8.8) 49.9
Cost of product support 3.5 3.7 4.0 23.2 15.2
Selling, general, and administrative 61.8 57.3 57.5 38.1 22.4
Research and development 13.9 14.0 13.7 26.7 26.1
Acquired in-process technology 0.0 1.3 7.4 (100.0) (78.9)
- --------------------------------------------------------------------------------
Total operating expenses 80.5 78.2 84.1 31.9 14.3
- --------------------------------------------------------------------------------
Operating income 19.5 21.8 15.9 14.1 68.8
Interest expense (0.2) (0.2) (0.2) 36.2 9.6
Interest income 1.9 2.2 2.2 15.9 20.4
- --------------------------------------------------------------------------------
Income before taxes 21.2 23.8 17.9 14.1 63.6
Income tax provision 5.9 4.4 4.6 74.2 18.1
- --------------------------------------------------------------------------------
Net income 15.3% 19.4% 13.3% 0.7% 79.0%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
The following table sets out, for each fiscal year indicated, the percentage
that specific items bear to revenue, and the percentage change in the dollar
amount of each item as compared to the prior fiscal year, when the effect of the
write-offs of acquired in-process technology is excluded.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
PERCENTAGE OF REVENUE PERCENTAGE CHANGE FROM FISCAL
- -----------------------------------------------------------------------------------------------
2000 1999 1998 1999 to 2000 1998 to 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 28.1% 23.0%
Total operating expenses 80.5 76.9 76.8 34.1 23.3
Operating income 19.5 23.1 23.2 7.9 22.1
Net income 15.3% 20.5% 20.7% (4.8)% 22.0%
- -----------------------------------------------------------------------------------------------
</TABLE>
REVENUE
The Corporation's total revenue (consisting of product license, product support,
and services revenue) was $385.6 million in fiscal 2000, compared to $301.1
million in fiscal 1999 and $244.8 million in fiscal 1998. The Corporation
operates internationally, with a substantial portion of its business conducted
in foreign currencies. Accordingly, the Corporation's results are affected by
year-over-year exchange rate fluctuations of the United States dollar relative
to the Canadian dollar, to various European currencies, and to a lesser extent,
other foreign currencies. The effect of foreign exchange rate fluctuations
decreased the overall revenue growth by two percentage points in fiscal 2000
from fiscal 1999 and by one percentage point in fiscal 1999 from fiscal 1998.
Total Revenue
[GRAPH]
The Corporation's growth in total revenue was derived primarily from the
increase in revenue from the Corporation's business intelligence products,
principally Web versions of PowerPlay((r)), Impromptu((r))and to a lesser
extent, the addition of revenue from Cognos Visualizer and DecisionStream((tm)),
which were released during fiscal 2000. The bundling of these products for
facilitated and flexible deployment contributed to the growth of Web versions of
the Corporation's business intelligence products. Total revenue for all business
intelligence products was $328.0 million, $230.9 million, and $176.2 million in
fiscal 2000, 1999, and 1998, respectively, which resulted in year-over-year
increases of 42% and 31%, respectively. Total revenue from the Corporation's
business intelligence products represented 85%, 77%, and 72% of total revenue in
fiscal 2000, 1999, and 1998, respectively. As described in the following section
on Product License Revenue, the Corporation believes that its business
intelligence products address the current market need for distributing
corporate information to the end user's desktop in an extended enterprise
environment of corporate intranets, extranets and client/server networks.
Total revenue from the Corporation's application development tools,
PowerHouse((r))and Axiant((r)), was $57.6 million in fiscal 2000, compared to
$70.2 million in fiscal 1999, and $68.6 million in fiscal 1998, which resulted
in year-over-year changes of (18)% and 2%, respectively. While the Corporation
experienced an increase in total revenue from these products during fiscal 1999,
as described in the following section on Product License Revenue, the
Corporation believes that, in the long term, revenues from these products will
continue to decline.
The growth in total revenue from the three revenue categories in fiscal 2000
from fiscal 1999 was as follows: a 28% increase in product license revenue, a
27% increase in product support revenue, and a 30% increase in services revenue.
This compares to an increase for the same categories for fiscal 1999 from fiscal
1998 as follows: 25%, 28%, and 9%, respectively.
3
<PAGE>
Fiscal 2000 Total Revenue
by geography
[GRAPH]
The Corporation's operations are divided into three main geographic regions:(1)
North America (includes Latin America), (2) Europe (consists of the U.K. and
Continental Europe), and (3) Asia/Pacific (consists of Australia and countries
in the Far East). In fiscal 2000, the percentage of total revenue from North
America, Europe, and Asia/Pacific was 61%, 32%, and 7%, respectively, compared
to 59%, 34%, and 7%, respectively, in fiscal 1999, and 60%, 33%, and 7%,
respectively, in fiscal 1998. In fiscal 2000, total revenue from North America,
Europe, and Asia/Pacific increased from fiscal 1999 by 32%, 20%, and 32%,
respectively, compared to increases of 22%, 25%, and 23%, respectively, in
fiscal 1999 from fiscal 1998. The increase in growth for fiscal 2000 compared to
growth in fiscal 1999 in North America and Asia/Pacific is attributable to the
increase in revenue from the business intelligence products. The decrease in
growth for Europe was attributable to slower growth in the U.K. where the
Corporation experienced a relatively larger decline in revenue from application
development tools and relatively less growth in business intelligence products.
Product License Revenue
Total product license revenue was $203.3 million, $158.4 million, and $126.8
million in fiscal 2000, 1999, and 1998, respectively, and accounted for 53%,
53%, and 52% of the Corporation's revenue for the respective time periods.
Business Intelligence
[GRAPH]
The increase in all periods occurred predominantly as a result of the
performance of the Corporation's business intelligence products. Product license
revenue from these products was $186.6 million, $131.9 million, and $102.3
million in fiscal 2000, 1999, and 1998, respectively. The Corporation derived
approximately 92% of its product license revenue in fiscal 2000 from these
products, compared to 83% in fiscal 1999, and 81% in fiscal 1998.
The Corporation believes that its business intelligence products address the
current market need for distributing corporate information to the end user's
desktop in an extended enterprise environment of corporate intranets, extranets
and client/server networks. The Corporation continues to address the emerging
market for Web or intranet-based products with the release in the current fiscal
year of PowerPlay 6.6, and the launch of the Cognos enterprise BI Platform and
in fiscal 1999, the release of Impromptu Web Reports. While the Corporation
believes that there is a market opportunity for Web-based decision support
solutions, there can be no assurance of the rate or extent of growth of this
market, or that the Corporation will be successful in continuing to develop
products that will effectively address this market.
Application Development
[GRAPH]
Product license revenue from the Corporation's application development tools,
PowerHouse and Axiant, was $16.7 million, $26.5 million, and $24.5 million in
fiscal 2000, 1999, and 1998, respectively. Over several of the past fiscal
years, the Corporation has experienced a decline in product license revenue in
this market which is consistent, in the Corporation's view, with the market
trend away from proprietary systems and host-based computing toward
industry-standard systems, corporate intranets, extranets, client/server
technology, and packaged application products. The Corporation believes the
increase during fiscal 1999 was partially the result of expanded use of
PowerHouse applications or upgrades to customer computers, and testing of legacy
systems to ensure Year 2000 compliance. The Corporation believes that the
maximum revenue potential from the activity around Year 2000 compliance occurred
during fiscal 1999 and expects that, in the long term, the trend of decreasing
product license revenue from these products will continue.
4
<PAGE>
The Corporation's sales and marketing strategy includes multi-tiered channels
ranging from a direct sales force to various forms of third-party distributors,
resellers, and original equipment manufacturers. In fiscal 2000, the Corporation
increased product license revenue derived from third-party channels to $62.2
million from $49.2 million in fiscal 1999, and from $39.6 million in fiscal
1998. The majority of the increase in product license revenue derived from third
parties in fiscal 2000 from fiscal 1999 was attributable to the activity in
Asia/Pacific and Europe and to a lesser extent activity in North America. The
increase in product license revenue derived from third parties in fiscal 1999
from fiscal 1998 was mainly attributable to an increase in activity in North
America.
Total product license revenue from third-party channels represented 31% of total
product license revenue in each of fiscal 2000, 1999 and 1998.
Within the Corporation's business intelligence market, product license revenue
from third-party channels was $57.3 million in fiscal 2000, compared to $42.3
million in fiscal 1999, and $33.0 million in fiscal 1998. Product license
revenue within this market, from third-party channels represented 31% of the
Corporation's product license revenue in fiscal 2000, compared to 32% in fiscal
1999 and 1998.
The Corporation expects to continue to enhance its combined sales and marketing
strategies to further develop the potential within the business intelligence
products market. The Corporation expects to continue to utilize a multi-tiered
channel strategy, as outlined above. With respect to the marketing strategy, the
Corporation intends to continue to form alliances with system integrators, the
larger accounting and consulting firms, packaged application providers, and
various other strategic partners. In addition, the Corporation plans to continue
to utilize marketing and promotional programs to generate awareness of extended
enterprise business intelligence solutions and interest in the Corporation's
products.
There can be no assurance that increases in total product license revenue will
continue to occur, or occur to the same extent to which they have historically
occurred.
Product Support Revenue
Product support revenue was $118.1 million, $93.3 million, and $72.8 million in
fiscal 2000, 1999, and 1998, respectively. Product support revenue accounted for
31% of the Corporation's total revenue for fiscal 2000 and 1999 and 30% for
fiscal 1998. The increase in the dollar amounts was the result of new support
contracts from the expansion of the Corporation's customer base, as well as the
renewal of existing support contracts. The rate of growth in product support
revenue associated with the expansion of the Corporation's customer base exceeds
the rate of non-renewals of support contracts.
Total product support revenue from the business intelligence products was $78.8
million, $52.0 million, and $31.9 million in fiscal 2000, 1999, and 1998,
respectively and comprised 67%, 56%, and 44% of the total product support
revenue in fiscal 2000, 1999, and 1998, respectively. In fiscal 2000, total
product support revenue from the business intelligence products increased by 52%
from fiscal 1999, and total product support revenue from the application
development tools decreased by 5% over the same period. In fiscal 1999, total
product support revenue from the business intelligence products increased by 63%
from fiscal 1998, and total product support revenue from the application
development tools increased by 1% over the same period. Consistent with the
discussion in product license revenue, the Corporation believes that, despite
the product support revenue growth from the application development tools in
fiscal 1999, in the long term, the trend of decreasing revenue from these
products will continue.
5
<PAGE>
There can be no assurance that increases in total product support revenue will
continue to occur, or occur to the same extent to which they have historically
occurred.
Services Revenue
Revenue from education, consulting, and other services was $64.3 million, $49.4
million, and $45.2 million in fiscal 2000, 1999, and 1998, respectively.
Services revenue accounted for 17%, 16%, and 18% of the Corporation's total
revenue for the same time periods. During fiscal 2000 the Corporation began to
offer a broader range of consulting and education services in line with the
shift in the demand for Web-based products. As a result, during fiscal 2000 the
Corporation experienced both an increase in growth of services revenue, and an
increase in the percentage of total revenue generated by services. The decline
in fiscal 1999 services revenue as a percentage of total revenue was the result
of relatively larger increases in both product support and product license
revenue.
The increase in services revenue was predominantly the result of an increase in
consulting revenue and to a lesser extent, increases in education revenue
associated with the business intelligence products, consistent with the trend in
product license revenue in this market. Services revenue associated with the
business intelligence products contributed approximately 97%, 95%, and 93% to
this revenue category in fiscal 2000, 1999, and 1998, respectively.
There can be no assurance that increases in total services revenue will continue
to occur, or occur to the same extent to which they have historically occurred.
Cost of Product License
[GRAPH]
COST OF PRODUCT LICENSE
The cost of product license consists primarily of royalties for technology
licensed from third parties and the costs of materials and distribution related
to licensed software.
Product license costs in fiscal 2000 were $5.2 million compared to $5.7 million
in fiscal 1999, and $3.8 million in fiscal 1998. Product license costs
represented 3% of product license revenue for fiscal 2000, compared to 4% and 3%
of product license revenue for fiscal 1999 and 1998, respectively.
The decrease, in dollar terms in fiscal 2000 from fiscal 1999 is principally due
to decreases in both royalty costs and materials and distribution costs
associated with product offerings. The increase in fiscal 1999 from fiscal 1998
was predominantly the result of a relatively larger increase in royalties;
manufacturing and distribution costs remained constant between the two years.
6
<PAGE>
Cost of
Product Support
[GRAPH]
COST OF PRODUCT SUPPORT
The cost of product support includes the costs associated with resolving
customer telephone inquiries and other telesupport activities, royalties in
respect of technological support received from third parties, and the cost of
materials delivered in connection with enhancement releases.
The cost of product support was $13.8 million, $11.2 million, and $9.7 million
in fiscal 2000, 1999, and 1998, respectively. These costs represented 12% of
product support revenue for fiscal 2000 and 1999, and 13% for fiscal 1998.
The increase in fiscal 2000 from fiscal 1999 was associated predominantly with
increases in customer telesupport costs; enhancement release costs contributed
to a lesser extent to the increase. The increase in fiscal 1999 from fiscal 1998
was primarily associated with increases in telesupport costs.
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general, and administrative expenses were $238.1 million, $172.5
million, and $140.9 million in fiscal 2000, 1999, and 1998, respectively. These
costs were 62% of revenue in fiscal 2000 compared to 57% and 58% in fiscal 1999
and 1998.
Selling, General, and
Administrative Expenses
[GRAPH]
The increase in the selling, general, and administrative expenses in fiscal 2000
was substantially the result of increases in staffing and related compensation
expenses, and to a lesser extent increases in subcontracting, facilities and
marketing costs. During fiscal 2000 the Corporation increased its investment in
its sales channels to focus on revenue growth and expand global market coverage.
The average number of employees within the selling, general, and administrative
areas grew by 30% in fiscal 2000 predominantly as the result of additions to
sales staff. The increase in the selling, general, and administrative expenses
in fiscal 1999 was mainly the result of increased staffing and related
compensation expense as the average number of employees within this area grew by
approximately 15%.The costs per employee increased 6% in both fiscal 2000 and
fiscal 1999.
Foreign exchange rate fluctuations reduced the overall percentage increase in
fiscal 2000 over 1999 by approximately one percentage point, whereas they
reduced the overall percentage increase in fiscal 1999 over 1998 by
approximately three percentage points.
7
<PAGE>
RESEARCH AND DEVELOPMENT
The following table sets out the components of the Corporation's research and
development, as well as the percentages of revenue for the periods indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------------------
($000s) ($000s) ($000s)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross research and development costs $54,244 $42,746 $33,997
Government allowances (696) (527) (897)
Amortization of previously capitalized amounts -- 55 430
- --------------------------------------------------------------------------------------------
Research and development $53,548 $42,274 $33,530
- --------------------------------------------------------------------------------------------
Percentage of total revenue
Gross research and development 14% 14% 14%
Research and development 14% 14% 14%
- --------------------------------------------------------------------------------------------
</TABLE>
Gross research and development costs have continued to increase, in dollar
terms, over the last several fiscal years but have remained relatively constant
as a percentage of total revenue. The growth in both fiscal 2000 and fiscal 1999
was predominantly the result of increases associated with higher staffing levels
in this area. The increase in the average number of employees in this area was
26% in fiscal 2000 from fiscal 1999, and was 27% in fiscal 1999 from fiscal
1998.Foreign exchange rate fluctuations improved the overall percentage increase
in fiscal 2000 by approximately one percentage point whereas it reduced the
overall increase by eight percentage points for fiscal 1999.
Software development costs are expensed as incurred unless they meet generally
accepted accounting criteria for deferral and amortization. Software development
costs incurred prior to the establishment of technological feasibility do not
meet these criteria, and are expensed as incurred. Capitalized costs are
amortized over a period not exceeding 36 months. Costs were not deferred in any
of fiscal 2000, 1999, or 1998 because either no projects met the criteria for
deferral or the period between (i) achieving technological feasibility and (ii)
the general availability of the product was short, and the associated costs were
immaterial.
The Corporation believes there is a business opportunity for distributing
corporate information to the end user's desktop in an extended enterprise
environment of corporate intranets, extranets and client/server networks. In
earlier years the Corporation addressed this opportunity with the release of
Web-based products: PowerPlay Web, Impromptu Web Reports, and Cognos Query
(formerly Impromptu Web Query).
Gross Research
and Development
[GRAPH]
During fiscal 2000 the Corporation launched a platform for Enterprise Business
Intelligence. This plat-form, which includes DecisionStream, provides a single
user interface or portal to support access to all Cognos business intelligence
products in an extended enterprise environment. During fiscal 2000 the
Corporation released PowerPlay 6.6, which provides Web managed reporting and
analysis functions for intranet, extranet and Internet access to OLAP (online
analytical processing) data. Also, during fiscal 2000 the Corporation released
Cognos Visualizer, a business management and measurement product that extends
the capabilities of PowerPlay and Impromptu with advanced visual reporting and
analysis. The Corporation also released new versions of Impromptu Web Reports,
DataMerchant((tm)), and Cognos Finance (formerly LEX2000).
The Corporation continues to support its application development tools and to
that end released a new version of PowerHouse during fiscal 2000 which enables
Web deployment of PowerHouse applications.
8
<PAGE>
During fiscal 2001 the Corporation will invest in research and development of
business intelligence solutions, particularly those solutions that support the
Corporation's strategy to meet the needs of the extended enterprise customers
within the e-business economy. These investments will include the development of
e-application packages which include pre-defined data marts, key reports and
analysis solutions. The Corporation will continue the development of
business-to-business solutions using BI which extend the enterprise to
incorporate the supply chain, and the relationship with an enterprise's
customers.
ACQUIRED IN-PROCESS TECHNOLOGY
Fiscal 2000
During fiscal 2000 the Corporation completed two acquisitions. Neither the
acquisition of Information Tools AG, nor the acquisition of the minority
interest in Cognos Far East Pte Limited involved the purchase of acquired
in-process technology.
The Corporation acquired Information Tools AG, the Corporation's distributor in
Switzerland. The shareholders of Information Tools AG are to receive total
consideration of approximately $657,000, of which $458,000 was received in cash
during fiscal 2000.The remainder of the consideration ($199,000) is payable
equally on the first and second anniversaries of the closing of the transaction.
An amount, not to exceed $500,000 could also be paid in contingent
consideration. Of that amount, approximately $120,000 will be paid in fiscal
2001 relating to fiscal 2000 results. This amount has been recorded as
additional purchase price.
The Corporation purchased the entire outstanding minority interest in the
Corporation's subsidiary in Singapore, Cognos Far East Pte Limited. The former
minority shareholders of Cognos Far East Pte Limited received approximately
$1,688,000 in cash upon completion of the purchase. No further consideration is
due to the former minority shareholders of the subsidiary.
Fiscal 1999
The Corporation acquired substantially all the assets of Relational Matters
including DecisionStream software. DecisionStream aggregates and integrates
large volumes of transaction data with multidimensional data structures.
Relational Matters will receive approximately $7,550,000 over three years and
250,980 shares of the Corporation's common stock valued at $1,823,000 over the
same time period. The shares, all of which were issued, are being held in escrow
by the Corporation and will be released on the second (40%) and third (60%)
anniversaries of the closing of the transaction. For valuation purposes, the
deferred payments and shares were appropriately discounted. An independent
appraisal valued the in-process research and development at $2,400,000. In the
opinion of management and the appraiser, the acquired in-process research and
development had not yet reached technological feasibility and had no alternative
future uses. Accordingly, the Corporation recorded a special charge of
$2,400,000 ($0.02 per share on a diluted basis) in the fourth quarter ended
February 28, 1999, to write off the acquired in-process technology.
The Corporation acquired LEX2000 Inc., a developer of financial data mart and
reporting software, for a combination of cash and the Corporation's common
stock. The shareholders of LEX2000 Inc. will receive approximately $7,444,000
over three years and 252,118 shares of the Corporation's common stock valued at
$1,940,000 over the same time period. Approximately 14,200 shares were issued at
closing; the remainder, all of which were issued, are being held in escrow by
the Corporation and will be released equally on the second (50%) and third (50%)
anniversaries of the closing of the transaction. For valuation purposes, the
deferred payments and shares were appropriately discounted. An independent
appraisal valued the in-process research and development at $1,400,000. In the
opinion of management and the appraiser, the acquired in-process research and
development had not yet reached technological feasibility and had no alternative
future uses. Accordingly, the Corporation recorded a special charge of
$1,400,000 ($0.02 per share on a diluted basis) in the fourth quarter ended
February 28, 1999, to write off the acquired in-process technology.
9
<PAGE>
Fiscal 1998
During the first quarter ended May 31, 1997, the Corporation completed the
acquisition of Right Information Systems Limited (RIS) of London, England. RIS
was the provider of 4Thought((tm)), business modeling and forecasting software.
The shareholders of RIS received $4,500,000 and 180,000 shares of the
Corporation's common stock, valued at $1,607,000. These shares are being held in
escrow by the Corporation until April 9,2000. An independent appraisal valued
the in-process research and development at $5,000,000. In the opinion of
management and the appraiser, the acquired in-process research and development
had not yet reached technological feasibility and had no alternative future
uses. Accordingly, the Corporation recorded a special charge of $5,000,000
($0.05 per share on a diluted basis) in the first quarter ended May 31, 1997, to
write off the acquired in-process technology.
During the third quarter ended November 30, 1997, the Corporation completed the
acquisition of Interweave Software, Inc.(Interweave) of Santa Clara, California,
U.S.A. Interweave was the developer and marketer of the Interweave software
product line, which allows information technology organizations to deploy
intranet- and extranet-based business intelligence applications more broadly
within and across enterprises. The acquisition agreement called for the
Corporation to pay approximately $12,415,000 cash to the shareholders of
Interweave, most of which was paid upon completion of the acquisition. An
independent appraisal valued the in-process research and development at
$13,000,000. In the opinion of management and the appraiser, the acquired in-
process research and development had not yet reached technological feasibility
and had no alternative future uses. Accordingly, the Corporation recorded a
special charge of $13,000,000 ($0.14 per share on a diluted basis) in the third
quarter ended November 30, 1997, to write off the acquired in-process
technology.
The acquisitions in fiscal 2000, 1999 and 1998 have been accounted for using the
purchase method. The results of operations of all acquired companies prior to
their respective dates of acquisition were not material. The results of all
acquired companies have been combined with those of the Corporation since their
respective dates of acquisition.(See Note 5 of the Notes to the Consolidated
Financial Statements.)
INTEREST INCOME AND EXPENSE
Interest income is earned on the Corporation's cash, cash equivalents, and
short-term investments, and interest expense relates primarily to the interest
on the Corporation's mortgage and capital leases.
Net interest income was $6.7 million, $5.9 million, and $4.9 million in fiscal
2000, 1999, and 1998, respectively. The increase during fiscal 2000 was the
result of a significant increase in the average size of the investment
portfolio, and to a lesser extent the impact of favorable exchange rate
fluctuations. This increase was offset by a slight decrease in the average
effective interest rates during fiscal 2000. The increase in fiscal 1999 was
primarily attributable to higher average effective interest rates, and to a
lesser extent, a larger average port-folio, which was partially offset by the
impact of adverse exchange rate fluctuations.
TAX EXPENSE
The Corporation's tax rate is affected by the relative profitability of its
operations in various geographic regions. In fiscal 2000 the Corporation
recorded an income tax provision of $22.9 million on $81.7 million of pre-tax
income. This tax expense represents an effective income tax rate of 28% for the
year as compared to 18% for 1999. In fiscal 1999 the Corporation recorded an
income tax provision of $13.1 million on $75.4 million of pre-tax income,
excluding the $3.8 million write-off of acquired in-process technology, some of
which was not tax deductible. This tax expense represented an effective income
tax rate of 18% for the year, excluding the aforementioned non-deductible items,
which was consistent with the effective tax rate for fiscal 1998. The rate for
fiscal 2000 has increased from the prior year as the Corporation recognized the
benefits of previously unrecorded tax benefits during fiscal 1999 and 1998.(See
Note 9 of the Notes to the Consolidated Financial Statements.)
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of February 29, 2000, the Corporation held $196.7 million in cash, cash
equivalents, and short-term investments, an increase of $47.0 million from
February 28, 1999. In addition, the Corporation has arranged an unsecured credit
facility that includes an operating line and foreign exchange conversion
facilities. The operating line permits the Corporation to borrow funds or issue
letters of credit or guarantee up to Cdn$15.0 (US$10.4) million, subject to
certain covenants. As of February 29, 2000, there were no direct borrowings
under this operating line. As discussed further below, the Corporation has
foreign exchange conversion facilities that allow it to hold foreign exchange
contracts of approximately Cdn$130.0 (US$89.7) million outstanding at any one
time.
Working Capital and
Cash Flow from Operations
[GRAPH]
As of February 29, 2000, the Corporation had a total of $4.9 million of
long-term liabilities (including the current portion of long-term debt),
consisting of a mortgage, other long-term liabilities, and certain capital
leases. As of February 29, 2000, working capital was $166.5 million, an increase
of $43.1 million from February 28, 1999, primarily because of higher levels of
cash, accounts receivable, and short-term investments, which were partially
offset by increases in deferred revenue and other current liabilities. Working
capital increased in fiscal 2000 even though the Corporation used $26.0 million
for share repurchases and $2.1 million for acquisitions during the year.
Cash provided by operating activities (after changes in non-cash working capital
items) for fiscal 2000 was $83.2 million, a decrease of $1.4 million compared to
the prior fiscal year. This fluctuation was due to a net increase in non-cash
working capital as compared to a net decrease in non-cash working capital during
fiscal 1999, which was offset by an increase in net income after adjustments for
depreciation, amortization and other non-cash items.
Cash used in investing activities was $37.7 million for fiscal 2000, a decrease
in investment of $11.9 million compared to the prior fiscal year. The majority
of the fluctuation stems from a decrease in net investment in short-term
investments and decreases in acquisition costs; these decreases were offset by
an increase in fixed asset additions. The increase in fixed asset additions was
primarily the result of computer equipment and software purchases. Further,
during fiscal 2000 the Corporation began the construction of a second building
on the site of its corporate headquarters in Ottawa. The Corporation has
invested approximately $3.4 million in the current year and it is anticipated
that costs will total $21 million when the construction is substantially
complete in fiscal 2001.(See Note 7 of the Notes to the Consolidated Financial
Statements.) During fiscal 1999, the Corporation purchased the remaining
interest in its head office building in Ottawa, Canada for approximately $4.8
million. In fiscal 2000, the Corporation spent $7.4 million related to the
activity in short-term investments compared to $19.2 million (both net of
maturities) in fiscal 1999. In addition, the Corporation spent $2.1 million in
fiscal 2000 on acquisitions, compared to $9.2 million in fiscal 1999.(See Note 5
of the Notes to the Consolidated Financial Statements.)
Cash used in financing activities was $9.1 million for fiscal 2000, compared to
$28.7 million in fiscal 1999. The Corporation's financing activities for both
fiscal years were centered around the repurchase of its own shares in the open
market, and the issuance of shares pursuant to the Corporation's stock purchase
plan and the exercise of stock options. During fiscal 2000, the Corporation
repurchased 2,286,000 shares at a cost of $26.0 million, compared to 3,006,000
shares repurchased at a cost of $34.1 million in fiscal 1999. Offsetting this
activity, the Corporation issued 2,093,000 common shares for consideration of
$16.5 million during fiscal 2000, compared to 1,146,000 shares for consideration
of $5.0 million in fiscal 1999. The issuance of shares in both periods was
pursuant to the Corporation's stock purchase plan and the exercise of stock
options by employees, officers, and directors. In fiscal 1999, the Corporation
also issued 503,000 shares for a value of $3.8 million in conjunction with the
acquisition of Relational Matters and LEX2000 Inc. In fiscal 1998 the
Corporation issued 180,000 shares for a value of $1.6 million in conjunction
with the acquisition of RIS.(See Note 5 of the Notes to the Consolidated
Financial Statements.)
The share repurchases made in the past three fiscal years were part of distinct
open market share repurchase programs through the Nasdaq National Market. The
share repurchases made in fiscal 2000 were part of two open market share
repurchase programs. The program adopted
11
<PAGE>
in October 1998 expired on October 8, 1999. Under this program the Corporation
repurchased 3,161,800 of its shares for $35.4 million; all repurchased shares
were cancelled. In October 1999, the Corporation adopted a new program that will
enable it to purchase up to 4,200,000 common shares (not more than 5% of those
issued and outstanding) between October 9, 1999 and October 8, 2000. Under the
current program the Corporation has repurchased 100,000 shares for $1.3 million
during fiscal 2000; all repurchased shares were cancelled. This program does not
commit the Corporation to make any share repurchases. Purchases will be made on
The Nasdaq Stock Market at prevailing open market prices and paid out of general
corporate funds. All repurchased shares will be cancelled. A copy of the Notice
of Intention to Make an Issuer Bid is available from the Corporate Secretary.
(See Note 10 of the Notes to the Consolidated Financial Statements.)
The Corporation's policy with respect to foreign currency exposure is to manage
its financial exposure to certain foreign exchange fluctuations with the
objective of neutralizing some of the impact of foreign currency exchange
movements. To achieve this objective, the Corporation enters into foreign
exchange forward contracts to hedge portions of the net investment in its
various subsidiaries. The Corporation enters into these foreign exchange forward
contracts with major Canadian chartered banks, and therefore does not anticipate
non-performance by these counterparties. The amount of the exposure on account
of any non-performance is restricted to the unrealized gains in such contracts.
As of February 29, 2000, the Corporation had foreign exchange forward contracts,
with maturity dates ranging from March 30, 2000 to May 25, 2000, to exchange
various foreign currencies in the amount of $6.2 million.
The Corporation has never declared or paid any cash dividends on its common
shares. The Corporation's current policy is to retain its earnings to finance
expansion and to develop, license, and acquire new software products, and to
otherwise reinvest in the Corporation.
The Corporation anticipates that through fiscal 2001 its operations will be
financed by current cash balances and funds from operations. If the Corporation
were to require funds in excess of its current cash position to finance its
longer-term operations, the Corporation would expect to obtain such funds from,
one or a combination of, the expansion of its existing credit facilities, or
from public or private sales of equity or debt securities.
Inflation has not had a significant impact on the Corporation's results of
operations.
YEAR 2000 PROJECT
Beginning in fiscal 1998 the Corporation commenced an intensive effort to
identify and categorize potential problem areas and develop action plans with
respect to the Year 2000. This process involved an examination of its products,
and its internal systems, hardware and software, as well as contacting its
suppliers to obtain assurances regarding their Year 2000 readiness. The total
project costs for both the Corporation's software products and its internal
systems and processes were $2.4 million, of which approximately $0.1 million
were capitalized. Of the total project costs, $0.7 million, were incurred during
fiscal 2000, and $1.7 million during fiscal 1999.
EUROPEAN ECONOMIC AND MONETARY UNION
The introduction of the euro currency on January 1, 1999 has associated with it
many potential implications for businesses operating in Europe including, but
not limited to, products, information technology, pricing, currency exchange
rate risk and derivatives exposure, continuity of material contracts, and
potential tax consequences.
The Corporation is preparing for this new euro currency, which is scheduled to
be introduced in stages over the course of a 3 1/2 year transition period. The
Corporation believes the introduction of the euro will have limited longer-term
implications on the Corporation's business. The Corporation is preparing for the
introduction of the euro in the area of its internal processes and systems
through identifying, modifying, and testing these processes and systems to
handle transactions involving the euro in accordance with the regulations. The
Corporation's financial application systems represent the most significant
internal systems that will be affected by the introduction of the euro. The
Corporation upgraded these systems to a version that enables it, together with
certain process changes and modifications provided by the application vendor to
its supported customers, to handle the initial requirements for transactions
involving the euro. The Corporation
12
<PAGE>
continues to identify and, where necessary, modify its systems and processes in
order to handle the various stages of the euro implementation. The Corporation
is continuing to monitor its pricing in Europe, giving consideration to the
introduction of the euro.
The Corporation believes that the costs relating to the conversion of its
internal systems and processes will not have a material adverse effect on its
business, results of operations, or financial condition.
MARKET RISK
Market risk represents the risk of loss that may impact our financial position
due to adverse changes in financial market prices and rates. Our market risk
exposure is primarily a result of fluctuations in interest rates and foreign
currency exchange rates. We do not hold or issue financial instruments for
trading purposes.
Further discussion of our investment and foreign exchange policies can be found
in Notes 1 and 8 of the Notes to the Consolidated Financial Statements.
INTEREST RATE RISK
Our exposure to market rate risk for changes in interest rates relates primarily
to our investment portfolio. The investment of cash is regulated by our
investment policy of which the primary objective is security of principal. Among
other selection criteria, the investment policy states that the term to maturity
of investments cannot exceed one year in length. We do not use derivative
financial instruments in our investment portfolio.
Interest income on our cash, cash equivalents, and short-term investments is
subject to interest rate fluctuations, but we believe that the impact of these
fluctuations does not have a material effect on our financial position due to
the short-term nature of these financial instruments. The amount of our
long-term debt is immaterial. Our interest income and interest expense are most
sensitive to the general level of interest rates in Canada and the United
States. Sensitivity analysis is used to measure our interest rate risk. For the
fiscal year ending February 29, 2000, a 100 basis-point adverse change in
interest rates would not have had a material effect on our consolidated
financial position, earnings, or cash flows.
FOREIGN CURRENCY RISK
We operate internationally; accordingly, a substantial portion of our financial
instruments are held in currencies other than the United States dollar. Our
policy with respect to foreign currency exposure is to manage financial exposure
to certain foreign exchange fluctuations with the objective of neutralizing some
of the impact of foreign currency exchange movements. To achieve this objective,
we enter into foreign exchange forward contracts to hedge portions of the net
investment in various subsidiaries. The forward contracts are typically between
the United States dollar and the British pound, the German mark, and the
Australian dollar. Sensitivity analysis is used to measure our foreign currency
exchange rate risk. As of February 29, 2000, a 10% adverse change in foreign
exchange rates versus the U.S. dollar would not have had a material effect on
our reported cash, cash equivalents, and short-term investments.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
We make certain statements in this report that constitute forward-looking
statements. These statements include, but are not limited to, statements
relating to our expectations concerning future revenues and earnings, including
future rates of growth, from the licensing of our business intelligence and
application development products and related product support and services, and
relating to the sufficiency of capital to meet our working capital and capital
expenditure requirements. Forward-looking statements are subject to risks and
uncertainties that may cause future results to differ materially from those
expected. There can be no guarantee that future results will turn out as
expected. Factors that may cause such differences include, but are not limited
to, the factors discussed below. Additional risks and uncertainties that we are
unaware of or currently deem immaterial may also adversely affect our business
operations.
13
<PAGE>
OUR GROWTH MAY NOT CONTINUE AT HISTORICAL GROWTH RATES.
Although we have experienced significant license revenue growth with respect to
our business intelligence products over the past few fiscal years, we cannot
assure you that we will continue to grow. If we do grow, we cannot assure you
that we will be able to maintain the historical rate or extent of such growth in
the future. Despite product license revenue growth from our application
development tools during fiscal 1999, we have been experiencing a decline in
product license revenue from our application development tools over the past
several years. In the long term, we expect declining revenues in these more
established proprietary markets for our application development tools.
OUR QUARTERLY AND ANNUAL OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS, WHICH
MAY CAUSE OUR STOCK PRICE TO FLUCTUATE OR DECLINE.
Historically, our quarterly operating results have varied from quarter to
quarter, and we anticipate this pattern to continue. We typically realize a
larger percentage of our annual revenue and earnings in the fourth quarter of
each fiscal year, and lower revenue and earnings in the first quarter of the
next fiscal year. Our quarterly operating results may be adversely affected by a
wide variety of factors, including:
. our ability to maintain revenue growth at current levels or anticipate
a decline in revenue from any of our products;
. changes in product mix and our ability to anticipate changes in
shipment patterns;
. our ability to identify and develop new technologies and to
commercialize those technologies into new products;
. our ability to accurately select appropriate business models and
strategies;
. our ability to make appropriate decisions which will position us to
achieve further growth;
. our ability to identify, hire, train, motivate, and retain highly
qualified personnel, and to achieve targeted productivity levels;
. our ability to identify, develop, deliver, and introduce in a timely
manner new and enhanced versions of our products which anticipate
market demand and address customer needs;
. market acceptance of business intelligence software generally and of
new and enhanced versions of our products in particular;
. timing of new product announcements;
. our ability to establish and maintain a competitive advantage;
. changes in our pricing policies or those of our competitors and other
competitive pressures on selling prices;
. size, timing, and execution of customer orders and shipments,
including delays, deferrals, or cancellations of customer orders;
. number and significance of product enhancements and new product and
technology announcements by our competitors;
. our reliance on third party distribution channels as part of our sales
and marketing strategy;
. the timing and provision of pricing protections and exchanges from
certain distributors;
. changes in foreign currency exchange rates and issues relating to the
conversion to the euro; and
. our ability to enforce our intellectual property rights.
As a result of the foregoing and other factors, we may experience material
fluctuations in future quarterly and annual operating results. These
fluctuations could materially and adversely affect our stock price, as well as,
our business, results of operations, and financial condition.
THE SOFTWARE MARKETS THAT WE TARGET ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE
AND NEW PRODUCT INTRODUCTIONS AND ENHANCEMENTS.
The markets for our products are characterized by:
. rapid and significant technological change;
. frequent new product introductions and enhancements;
. changing customer demands; and
. evolving industry standards.
14
<PAGE>
We believe that our future success depends principally on our ability to
continue to support a number of popular operating systems and databases; our
ability to maintain and improve our product line; and our ability to rapidly
develop new products that achieve market acceptance, maintain technological
competitiveness, and meet an expanding range of customer requirements. If we are
unable to achieve these factors, we may lose our competitive position.
Successful product development and introduction depend upon a number of factors,
including new product selection, timely and efficient completion of product
design, product performance at customer locations, and whether our competitors
develop similar products. In addition, the introduction of products embodying
new technologies can quickly make existing products obsolete and unmarketable.
We cannot assure you that our products will remain competitive, respond to
market demands and developments and new industry standards, and not become
obsolete. In particular, we cannot assure you that we have developed the
appropriate products to respond effectively to the growing market interest in
Web-based software, or if so, whether we can continue to bring those products to
market in a timely and cost-effective basis and distribute those products in the
face of competition from similar products developed by existing or new
competitors. We cannot assure you that market interest in Web-based software
will continue at the same rate, or that alternative methods of deploying
software will not become more popular. If we are unable to identify a shift in
the market demand quickly enough, we may not be able to develop products to meet
those new demands, or bring them to market in a timely way.
WE RELY ON PARTNERS AND OTHER DISTRIBUTION CHANNELS TO MARKET AND DISTRIBUTE OUR
PRODUCTS AND ANY FAILURE OF THESE PARTIES TO DO SO, COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
Our sales and marketing strategy includes multi-tiered channels ranging from a
direct sales force to various forms of third-party distributors, resellers, and
original equipment manufacturers. We have developed a number of these
relationships and intend to continue to develop new channel partner
relationships. Our inability to attract important and effective channel
partners, or these partners' inability to penetrate their respective market
segments, or the loss of any of our channel partners as a result of competitive
products offered by other companies or products developed internally by these
channel partners or otherwise, could materially adversely affect our business,
results of operations, and financial condition.
UNAUTHORIZED USED OF OUR INTELLECTUAL PROPERTY COULD DAMAGE OUR BUSINESS.
Our success depends in part on our ability to protect our proprietary rights in
our intellectual property. We rely on certain intellectual property protections,
including contractual provisions, patents, copyright, trademark and trade secret
laws, to preserve our intellectual property rights. Despite our precautions, it
may be possible for third parties to obtain and use our intellectual property
without our authorization. Policing unauthorized use of software is difficult
and some foreign laws do not protect proprietary rights to the same extent as
Canada or the United States.
To protect our intellectual property, we may become involved in litigation,
which could result in substantial expenses and materially disrupt the conduct of
our business. Third parties could assert that our technology infringes their
proprietary rights, which could adversely affect our ability to distribute our
products and result in substantial litigation expenses and monetary liability.
Any invalidation of our intellectual property rights or lengthy and expensive
defense of those rights could have a material adverse affect on our business,
results of operations, and financial condition.
THE LOSS OF OUR RIGHTS TO USE SOFTWARE LICENSED TO US BY THIRD PARTIES COULD
HARM OUR BUSINESS.
In order to provide a complete solution, we license certain technologies used in
our products from third parties, generally on a non-exclusive basis. The
termination of such licenses, or the failure of the third-party licensors to
adequately maintain or update their products, could delay our ability to ship
certain of our products while we seek to implement alternative technology
offered by other sources. In
15
<PAGE>
addition, alternative technology may not be available on commercially reasonable
terms. In the future, it may be necessary or desirable to obtain other
third-party technology licenses relating to one or more of our products or
relating to current or future technologies to enhance our product offerings. We
cannot assure you that we will be able to obtain licensing rights to the needed
technology on commercially reasonable terms, if at all.
WE FACE INTENSE COMPETITION AND COULD BE AFFECTED BY THE ACTIONS OF OUR
COMPETITORS.
We face substantial competition throughout the world, primarily from software
companies located in the United States, Europe, and Canada. Some of our
competitors have been in business longer than us and have substantially greater
financial and other resources with which to pursue research and development,
manufacturing, marketing, and distribution of their products. We expect our
current competitors and potentially new competitors to continue to improve the
performance of their current products and to introduce new products or new
technologies that provide improved cost of ownership and performance
characteristics. New product introductions by our competitors could cause a
decline in sales, a reduction in the sales price, or a loss of market acceptance
of our existing products. To the extent that we are unable to effectively
compete against our current and future competitors, our ability to sell products
could be harmed and our market share reduced. Any erosion of our competitiveness
could have a material adverse effect on our business, results of operations,
and financial condition.
WE HAVE MULTINATIONAL OPERATIONS THAT ARE SUBJECT TO RISKS INHERENT IN
INTERNATIONAL OPERATIONS.
We derive a significant portion of our total revenues from international sales.
International sales are subject to significant risks, including:
. unexpected changes in legal and regulatory requirements and policy
changes affecting our markets;
. changes in tariffs and other trade barriers;
. fluctuations in currency exchange rates;
. political and economic instability;
. longer payment cycles and other difficulties in accounts receivable
collection;
. difficulties in managing distributors and representatives;
. difficulties in staffing and managing foreign operations;
. difficulties in protecting our intellectual property; and
. potentially adverse tax consequences.
Each of these factors could adversely affect our business, results of
operations, and financial condition.
OUR EXECUTIVE MANAGEMENT AND OTHER KEY PERSONNEL ARE ESSENTIAL TO OUR BUSINESS;
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO SUCCEED.
Our performance is substantially dependent on the performance of our key
technical and management personnel. The loss of the services of any of these
persons could have a material adverse effect on our business, results of
operations, and financial condition. Our success is highly dependent on our
continuing ability to identify, hire, train, motivate, and retain highly
qualified management, technical, sales, and marketing personnel. Competition for
such personnel is intense, and we cannot assure you that we will be able to
attract, assimilate, or retain highly qualified technical and managerial
personnel in the future. Our inability to attract and retain the necessary
management, technical, sales, and marketing personnel could have a material
adverse effect on our business, results of operations, and financial condition.
16
<PAGE>
PURSUING AND COMPLETING RECENT AND POTENTIAL ACQUISITIONS COULD DIVERT
MANAGEMENT ATTENTION AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED
BUSINESS RESULTS.
We completed the acquisitions of Information Tools AG, and the outstanding
minority interest in Cognos Far East Pte Limited during fiscal 2000.In fiscal
1999, we acquired Relational Matters and LEX2000 Inc., and in fiscal 1998, Right
Information Systems Limited and Interweave Software, Inc. We may in turn engage
in additional selective acquisitions of other products or businesses that we
believe are complementary to ours. We cannot assure you that we will be able to
identify additional suitable acquisition candidates available for sale at
reasonable prices, consummate any acquisition, or successfully integrate any
acquired product or business into our operations. Further, acquisitions may
involve a number of special risks, including:
. diversion of management's attention;
. disruption to our ongoing business;
. failure to retain key acquired personnel;
. difficulties in assimilating acquired operations, technologies,
products, and personnel;
. unanticipated expenses, events, or circumstances;
. assumption of legal and other undisclosed liabilities; and
. the ability to appropriately value the acquired in-process research
and development.
If we do not successfully address these risks or any other problems encountered
in connection with an acquisition, the acquisition could have a material adverse
effect on our business, results of operations, and financial condition. Problems
with an acquired business could have a material adverse effect on our
performance as a whole. In addition, if we proceed with an acquisition, our
available cash may be used to complete the transaction, or shares may be issued
which could cause a dilution to existing shareholders.
OUR STOCK PRICE WILL FLUCTUATE.
The market price of our common shares may be volatile and could be subject to
wide fluctuations due to a number of factors, including:
. actual or anticipated fluctuations in our results of operations;
. announcements of technological innovations or new products by us or
our competitors;
. changes in estimates of our future results of operations by securities
analysts;
. general industry changes in the business intelligence tools or
client/server development tools markets; or
. other events or factors.
In addition, the financial markets have experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
to the operating performance of these companies. Broad market fluctuations, as
well as economic conditions generally and in the software industry specifically,
may adversely affect the market price of our common shares. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
that company. Similar litigation may occur in the future with respect to us,
which could result in substantial costs, divert management's attention and other
company resources, and have a material adverse effect upon our business, results
of operations, and financial condition.
17
<PAGE>
Quarterly Results
The following table sets out selected unaudited consolidated financial
information for each quarter in fiscal 1999 and fiscal 2000.
On April 6, 2000, subsequent to year-end, the Board of Directors of the
Corporation authorized a two-for-one stock split, effected in the form of a
stock dividend, payable on or about April 27, 2000 to shareholders of record at
the close of business on April 20, 2000. All historic consolidated results have
been restated for the split.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL 1999 FISCAL 2000
----------------------------------------- -----------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------------
($000s, except per share amounts, U.S. GAAP)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $67,309 $70,583 $76,308 $86,925 $81,645 $88,128 $97,753 $118,114
- -------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Cost of product license 942 1,137 1,354 2,305 1,054 1,001 1,456 1,724
Cost of product support 2,408 2,793 2,968 2,997 3,095 3,336 3,608 3,719
Selling, general, and administrative 41,706 40,708 43,355 46,713 51,808 54,593 61,513 70,233
Research and development 9,946 10,235 10,863 11,230 12,197 12,845 13,574 14,932
Acquired in-process technology -- -- -- 3,800 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 55,002 54,873 58,540 67,045 68,154 71,775 80,151 90,608
- -------------------------------------------------------------------------------------------------------------------------------
Operating income $12,307 $15,710 $17,768 $19,880 $13,491 $16,353 $17,602 $ 27,506
- -------------------------------------------------------------------------------------------------------------------------------
Net income $11,276 $14,122 $15,855 $17,181 $10,865 $12,835 $13,851 $ 21,264
- -------------------------------------------------------------------------------------------------------------------------------
Net income per share
Basic $0.13 $0.16 $0.18 $0.20 $0.13 $0.15 $0.16 $0.25
- -------------------------------------------------------------------------------------------------------------------------------
Diluted $0.12 $0.16 $0.18 $0.19 $0.12 $0.15 $0.16 $0.24
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's sales cycle typically ranges from a few days up to twelve
months, depending on factors such as the size of the transaction, the product
involved, the length of the customer relationship, the timing of new product
introductions by the Corporation and others, the level of sales management
activity, and general economic conditions. Delays in closing product licensing
transactions at or near the end of any quarter may have a materially adverse
effect on the financial results for that quarter. While the Corporation takes
steps to minimize the impact of such delays, there can be no assurance that such
delays will not occur. See Certain Factors That May Affect Future Results.
18
<PAGE>
Exhibit 13.4
COGNOS INCORPORATED
Market Risk
Market risk represents the risk of loss that may impact our financial position
due to adverse changes in financial market prices and rates. Our market risk
exposure is primarily a result of fluctuations in interest rates and foreign
currency exchange rates. We do not hold or issue financial instruments for
trading purposes.
Further discussion of our investment and foreign exchange policies can be found
in Notes 1 and 8 of the Notes to the Consolidated Financial Statements.
Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates primarily
to our investment portfolio. The investment of cash is regulated by our
investment policy of which the primary objective is security of principal. Among
other selection criteria, the investment policy states that the term to maturity
of investments cannot exceed one year in length. We do not use derivative
financial instruments in our investment portfolio.
Interest income on our cash, cash equivalents, and short-term investments is
subject to interest rate fluctuations, but we believe that the impact of these
fluctuations does not have a material effect on our financial position due to
the short-term nature of these financial instruments. The amount of our long-
term debt is immaterial. Our interest income and interest expense are most
sensitive to the general level of interest rates in Canada and the United
States. Sensitivity analysis is used to measure our interest rate risk. For the
fiscal year ending February 29, 2000, a 100 basis-point adverse change in
interest rates would not have had a material effect on our consolidated
financial position, earnings, or cash flows.
Foreign Currency Risk
We operate internationally; accordingly, a substantial portion of our financial
instruments are held in currencies other than the United States dollar. Our
policy with respect to foreign currency exposure is to manage financial exposure
to certain foreign exchange fluctuations with the objective of neutralizing some
of the impact of foreign currency exchange movements. To achieve this objective,
we enter into foreign exchange forward contracts to hedge portions of the net
investment in various subsidiaries. The forward contracts are typically between
the United States dollar and the British pound, the German mark, and the
Australian dollar. Sensitivity analysis is used to measure our foreign currency
exchange rate risk. As of February 29, 2000, a 10% adverse change in foreign
exchange rates versus the U.S. dollar would not have had a material effect on
our reported cash, cash equivalents, and short-term investments.
1
<PAGE>
Exhibit 13.5
COGNOS INCORPORATED
Quarterly Results
The following table sets out selected unaudited consolidated financial
information for each quarter in fiscal 1999 and fiscal 2000.
On April 6, 2000, subsequent to year-end, the Board of Directors of the
Corporation authorized a two-for-one stock split, effected in the form of a
stock dividend, payable on or about April 27, 2000 to shareholders of record at
the close of business on April 20, 2000. All historic consolidated results have
been restated for the split.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
FISCAL 1999 FISCAL 2000
----------------------------------------- -----------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------------
($000s, except per share amounts, U.S. GAAP)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 67,309 $ 70,583 $ 76,308 $ 86,925 $ 81,645 $ 88,128 $ 97,753 $118,114
- -------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Cost of product license 942 1,137 1,354 2,305 1,054 1,001 1,456 1,724
Cost of product support 2,408 2,793 2,968 2,997 3,095 3,336 3,608 3,719
Selling, general, and administrative 41,706 40,708 43,355 46,713 51,808 54,593 61,513 70,233
Research and development 9,946 10,235 10,863 11,230 12,197 12,845 13,574 14,932
Acquired in-process technology -- -- -- 3,800 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 55,002 54,873 58,540 67,045 68,154 71,775 80,151 90,608
- -------------------------------------------------------------------------------------------------------------------------------
Operating income $ 12,307 $ 15,710 $ 17,768 $ 19,880 $ 13,491 $ 16,353 $ 17,602 $ 27,506
- -------------------------------------------------------------------------------------------------------------------------------
Net income $ 11,276 $ 14,122 $ 15,855 $ 17,181 $ 10,865 $ 12,835 $ 13,851 $ 21,264
- -------------------------------------------------------------------------------------------------------------------------------
Net income per share
Basic $ 0.13 $ 0.16 $ 0.18 $ 0.20 $ 0.13 $ 0.15 $ 0.16 $ 0.25
- -------------------------------------------------------------------------------------------------------------------------------
Diluted $ 0.12 $ 0.16 $ 0.18 $ 0.19 $ 0.12 $ 0.15 $ 0.16 $ 0.24
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's sales cycle typically ranges from a few days up to twelve
months, depending on factors such as the size of the transaction, the product
involved, the length of the customer relationship, the timing of new product
introductions by the Corporation and others, the level of sales management
activity, and general economic conditions. Delays in closing product licensing
transactions at or near the end of any quarter may have a materially adverse
effect on the financial results for that quarter. While the Corporation takes
steps to minimize the impact of such delays, there can be no assurance that such
delays will not occur. See Certain Factors That May Affect Future Results.
1
<PAGE>
Report of Management
The Corporation's management is responsible for preparing the accompanying
consolidated financial statements in conformity with accounting principles
generally accepted in the United States. In preparing these consolidated
financial statements, management selects appropriate accounting policies and
uses its judgment and best estimates to report events and transactions as they
occur. Management has determined such amounts on a reasonable basis in order to
ensure that the financial statements are presented fairly, in all material
respects. Financial data included throughout this Annual Report is prepared on a
basis consistent with that of the financial statements.
The Corporation maintains a system of internal accounting controls designed to
provide reasonable assurance, at a reasonable cost, that assets are safeguarded
and that transactions are executed and recorded in accordance with the
Corporation's policies for doing business. This system is supported by written
policies and procedures for key business activities; the hiring of qualified,
competent staff; and by a continuous planning and monitoring program.
Ernst & Young LLP, the independent auditors appointed by the shareholders, have
been engaged to conduct an examination of the consolidated financial statements
in accordance with generally accepted auditing standards, and have expressed
their opinion on these statements. During the course of their audit, Ernst &
Young LLP reviewed the Corporation's system of internal controls to the extent
necessary to render their opinion on the consolidated financial statements.
The Board of Directors is responsible for ensuring that management fulfills its
responsibility for financial reporting and internal control, and is ultimately
responsible for reviewing and approving the consolidated financial statements.
The Board carries out this responsibility principally through its Audit
Committee; all members are outside Directors. The Committee meets four times
annually to review audited and unaudited financial information prior to its
public release. The Committee also considers, for review by the Board of
Directors and approval by the shareholders, the engagement or reappointment of
the external auditors. Ernst & Young LLP has full and free access to the Audit
Committee.
Management acknowledges its responsibility to provide financial information that
is representative of the Corporation's operations, is consistent and reliable,
and is relevant for the informed evaluation of the Corporation's activities.
/S/ James M. Tory /S/ Ron Zambonini /S/ Donnie M. Moore
James M. Tory Ron Zambonini Donnie M. Moore
Chairman President and Senior Vice President,
Chief Executive Officer Finance & Administration,
and Chief Financial Officer
March 30, 2000
[except Note 15, as to which
the date is April 6, 2000]
2
<PAGE>
Auditors' Report
To the Board of Directors and Shareholders of Cognos Incorporated:
We have audited the consolidated balance sheets of Cognos Incorporated as at
February 29, 2000 and February 28, 1999 and the consolidated statements of
income, stockholders' equity, and cash flows for each of the years in the
three-year period ended February 29, 2000. These financial statements are the
responsibility of the Corporation'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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at February 29,
2000 and February 28, 1999, and the results of its operations and its cash flows
for each of the years in the three-year period ended February 29, 2000, in
accordance with accounting principles generally accepted in the United States of
America.
On March 30, 2000, we reported separately to the Board of Directors and
Shareholders of Cognos Incorporated on financial statements for the same
periods, prepared in accordance with accounting principles generally accepted in
Canada.
/S/ Ernst & Young LLP
Ottawa, Canada Ernst & Young LLP
March 30, 2000 Chartered Accountants
[except Note 15, as to which
the date is April 6, 2000]
3
<PAGE>
Consolidated Statements of Income
(US$000s except share amounts, U.S. GAAP)
- --------------------------------------------------------------------------------
YEARS ENDED THE LAST DAY OF FEBRUARY
- --------------------------------------------------------------------------------
Note 2000 1999 1998
- --------------------------------------------------------------------------------
Revenue
Product license $ 203,299 $ 158,393 $ 126,820
Product support 118,061 93,311 72,832
Services 64,280 49,421 45,182
- --------------------------------------------------------------------------------
Total revenue 385,640 301,125 244,834
- --------------------------------------------------------------------------------
Operating expenses
Cost of product license 5,235 5,738 3,828
Cost of product support 13,758 11,166 9,694
Selling, general, and administrative 238,147 172,482 140,882
Research and development 53,548 42,274 33,530
Acquired in-process technology 5 -- 3,800 18,000
- --------------------------------------------------------------------------------
Total operating expenses 310,688 235,460 205,934
- --------------------------------------------------------------------------------
Operating income 74,952 65,665 38,900
Interest expense 6 (718) (527) (481)
Interest income 7,454 6,430 5,340
- --------------------------------------------------------------------------------
Income before taxes 81,688 71,568 43,759
Income tax provision 9 22,873 13,134 11,117
- --------------------------------------------------------------------------------
Net income $ 58,815 $ 58,434 $ 32,642
================================================================================
Net income per share 10, 15
Basic $ 0.68 $ 0.67 $ 0.37
================================================================================
Diluted $ 0.67 $ 0.66 $ 0.36
================================================================================
Weighted average number of
shares (000s) 10, 15
Basic 85,972 87,416 88,414
================================================================================
Diluted 88,100 88,940 91,544
================================================================================
(see accompanying notes)
4
<PAGE>
Consolidated Balance Sheets
(US$000s, U.S. GAAP)
- --------------------------------------------------------------------------------
Note FEBRUARY 29, FEBRUARY 28,
2000 1999
- --------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 8 $ 132,435 $ 93,617
Short-term investments 8 64,284 56,074
Accounts receivable 2 107,823 76,876
Inventories 806 807
Prepaid expenses 7,840 6,388
- --------------------------------------------------------------------------------
313,188 233,762
Fixed assets 3 44,835 30,164
Intangible assets 4 21,863 25,203
- --------------------------------------------------------------------------------
$ 379,886 $ 289,129
================================================================================
Liabilities
Current liabilities
Accounts payable $ 22,908 $ 18,960
Accrued charges 17,540 13,148
Salaries, commissions, and related items 24,024 19,656
Income taxes payable 3,548 7,290
Current portion of long-term debt 6 2,176 123
Deferred revenue 76,537 51,242
- --------------------------------------------------------------------------------
146,733 110,419
Long-term debt 6 -- 2,489
Long-term liabilities 5 2,699 5,820
Deferred income taxes 9 15,150 7,787
- --------------------------------------------------------------------------------
164,582 126,515
- --------------------------------------------------------------------------------
Commitments and Contingencies 7
Stockholders' Equity
Capital stock
Common shares (2000 - 86,657,578; 1999 -
86,850,568) 10, 15 106,936 91,985
Retained earnings 114,601 79,341
Other accumulated comprehensive items (6,233) (8,712)
- --------------------------------------------------------------------------------
215,304 162,614
- --------------------------------------------------------------------------------
$ 379,886 $ 289,129
================================================================================
(see accompanying notes)
On behalf of the Board:
/s/ Douglas C. Cameron /s/ James M. Tory
Douglas C. Cameron James M. Tory
Director Chairman
5
<PAGE>
Consolidated Statements of Stockholders' Equity
(US$000s except share amounts, U.S. GAAP)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Common Stock
------------------- Retained Other Accumulated
Shares Amount Earnings Comprehensive Items Total
(000s)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Balances, February 28, 1997 87,178 $ 74,739 $ 46,122 $ (4,949) $ 115,912
- -------------------------------------------------------------------------------------------------------------------
Issuance of stock
Stock option plans 3,316 8,557 8,557
Stock purchase plans 74 776 776
Business acquisitions 180 1,607 1,607
Repurchase of shares (2,540) (2,386) (26,725) (29,111)
Income tax effect related to stock options 2,425 2,425
- -------------------------------------------------------------------------------------------------------------------
88,208 85,718 19,397 (4,949) 100,166
- -------------------------------------------------------------------------------------------------------------------
Net income 32,642 32,642
Other comprehensive items
Foreign currency translation adjustments (1,803) (1,803)
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income 32,642 (1,803) 30,839
- -------------------------------------------------------------------------------------------------------------------
Balances, February 28, 1998 88,208 $ 85,718 $ 52,039 $(6,752) $131,005
- -------------------------------------------------------------------------------------------------------------------
Issuance of stock
Stock option plans 1,054 4,141 4,141
Stock purchase plans 92 846 846
Business acquisitions 503 3,763 3,763
Repurchase of shares (3,006) (3,005) (31,132) (34,137)
Income tax effect related to stock options 522 522
- -------------------------------------------------------------------------------------------------------------------
86,851 91,985 20,907 (6,752) 106,140
- -------------------------------------------------------------------------------------------------------------------
Net income 58,434 58,434
Other comprehensive items
Foreign currency translation adjustments (1,960) (1,960)
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income 58,434 (1,960) 56,474
- -------------------------------------------------------------------------------------------------------------------
Balances, February 28, 1999 86,851 $ 91,985 $ 79,341 $(8,712) $162,614
- -------------------------------------------------------------------------------------------------------------------
Issuance of stock
Stock option plans 1,973 15,420 15,420
Stock purchase plans 120 1,095 1,095
Repurchase of shares (2,286) (2,458) (23,555) (26,013)
Income tax effect related to stock options -- 894 894
- -------------------------------------------------------------------------------------------------------------------
86,658 106,936 55,786 (8,712) 154,010
- -------------------------------------------------------------------------------------------------------------------
Net income 58,815 58,815
Other comprehensive items
Foreign currency translation adjustments 2,479 2,479
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income 58,815 2,479 61,294
- -------------------------------------------------------------------------------------------------------------------
Balances, February 29, 2000 86,658 $106,936 $114,601 $(6,233) $215,304
===================================================================================================================
</TABLE>
(see accompanying notes)
6
<PAGE>
Consolidated Statements of Cash Flows
(US$000s, U.S. GAAP)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
YEARS ENDED THE LAST DAY OF FEBRUARY
- ----------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in) operating activities
Net income $ 58,815 $ 58,434 $ 32,642
Non-cash items
Depreciation and amortization 19,590 12,145 9,754
Write-off of acquired in-process technology -- 3,800 18,000
Deferred income taxes 7,165 (1,984) 543
Loss on disposal of fixed assets 148 185 403
- ----------------------------------------------------------------------------------------------------------------------------
85,718 72,580 61,342
Change in non-cash working capital
Increase in accounts receivable (32,818) (12,805) (17,135)
Decrease (increase) in inventories 31 (267) 91
Increase in prepaid expenses (1,328) (2,852) (837)
Increase in accounts payable 3,930 3,526 3,571
Increase in accrued charges 1,004 2,568 300
Increase in salaries,commissions,and related items 4,394 5,806 2,948
Increase (decrease) in income taxes payable (3,993) 5,624 (2,603)
Increase in deferred revenue 26,280 10,438 8,208
- ----------------------------------------------------------------------------------------------------------------------------
83,218 84,618 55,885
- ----------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities
Maturity of short-term investments 138,796 96,860 131,340
Purchase of short-term investments (146,238) (116,093) (151,141)
Acquisition costs (2,146) (9,174) (16,915)
Additions to fixed assets (28,096) (21,147) (12,068)
Proceeds from the sale of fixed assets 24 12 45
- -----------------------------------------------------------------------------------------------------------------------------
(37,660) (49,542) (48,739)
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities
Issue of common shares 17,409 5,509 11,758
Repurchase of shares (26,013) (34,137) (29,111)
Repayment of long-term debt (467) (107) (92)
- ----------------------------------------------------------------------------------------------------------------------------
(9,071) (28,735) (17,445)
- ----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 2,331 (2,338) (1,240)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 38,818 4,003 (11,539)
Cash and cash equivalents, beginning of period 93,617 89,614 101,153
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 132,435 93,617 89,614
Short-term investments, end of period 64,284 56,074 36,712
- ----------------------------------------------------------------------------------------------------------------------------
Cash, cash equivalents, and short-term investments, end of period $ 196,719 $ 149,691 $ 126,326
============================================================================================================================
</TABLE>
(see accompanying notes)
7
<PAGE>
Notes to the Consolidated Financial Statements
1_SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Corporation develops, markets, and supports computer software products for
data access, exploring, reporting, and analysis, and for application development
on a wide range of open and proprietary platforms. The Corporation markets and
supports these products both directly and through resellers worldwide.
BASIS OF PRESENTATION
These consolidated financial statements have been prepared by the Corporation in
United States (U.S.) dollars and in accordance with generally accepted
accounting principles (GAAP) in the U.S., applied on a consistent basis.
Consolidated financial statements prepared in accordance with Canadian GAAP, in
U.S. dollars, are made available to all shareholders, and filed with various
regulatory authorities.
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of the Corporation
and its subsidiaries. All but one of the subsidiaries are wholly owned.
Intercompany transactions and balances have been eliminated.
ESTIMATES
The preparation of these consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and the accompanying
notes. In the opinion of management, these consolidated financial statements
reflect all adjustments necessary to present fairly the results for the periods
presented. Actual results could differ from these estimates.
COMPREHENSIVE INCOME
Comprehensive income includes net income and "other comprehensive income." Other
comprehensive income refers to changes in the balances of revenues, expenses,
gains, and losses that are recorded directly as a separate component of
Stockholders' Equity and excluded from net income. The only comprehensive item
for the Corporation relates to foreign currency translation adjustments
pertaining to those subsidiaries not using the U.S. dollar as their functional
currency.
FOREIGN CURRENCY TRANSLATION
The financial statements of the parent company and its non-U.S. subsidiaries
have been translated into U.S. dollars in accordance with the FASB Statement
No.52, Foreign Currency Translation. All balance sheet amounts have been
translated using the exchange rates in effect at the applicable year end. Income
statement amounts have been translated using the weighted average exchange rate
for the applicable year. The gains and losses resulting from the changes in
exchange rates from year to year have been reported as a separate component of
Stockholders' Equity. Currency transaction gains and losses are immaterial for
all periods presented.
REVENUE
The Corporation recognizes revenue in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition, issued by the American Institute of
Certified Public Accountants.
Substantially all of the Corporation's product license revenue is earned from
licenses of off-the-shelf software requiring no customization. Revenue from
these licenses is recognized when all of the following criteria are met:
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable, and collectibility is probable. If a license includes the
right to return the product
8
<PAGE>
for refund or credit, revenue is recognized net of an allowance for estimated
returns provided all the requirements of SOP 97-2 have been met.
Revenue from product support contracts is recognized ratably over the life of
the contract. Incremental costs directly attributable to the acquisition of
product support contracts are deferred and expensed in the period the related
revenue is recognized.
Revenue from education, consulting, and other services is recognized at the time
such services are rendered.
For contracts with multiple obligations (e.g. deliverable and undeliverable
products, support obligations, education, consulting and other services), the
Corporation allocates revenue to each element of the contract based on objective
evidence, specific to the Corporation, of the fair value of the element.
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Cash includes cash equivalents, which are investments that are generally held to
maturity and have terms to maturity of three months or less at the time of
acquisition. Cash equivalents typically consist of commercial paper, term
deposits, banker's acceptances and bearer deposit notes issued by major North
American banks, and corporate debt. Cash and cash equivalents are carried at
cost, which approximates their fair value.
Short-term investments are investments that are generally held to maturity and
have terms greater than three months at the time of acquisition. Short-term
investments typically consist of commercial paper, Government of Canada Treasury
Bills, and banker's acceptances. Short-term investments are carried at cost,
which approximates their fair value.
INVENTORIES
Inventories are comprised principally of finished goods and are stated at the
lower of cost, on an average cost basis, and net realizable value.
FIXED ASSETS
Fixed assets are recorded at cost. Computer equipment and software, and the
building, are depreciated using the straight line method. Office furniture is
depreciated using the diminishing balance method. Leasehold improvements are
amortized using the straight line method over either the life of the improvement
or the term of the lease, whichever is shorter.
Assets leased on terms that transfer substantially all of the benefits and risks
of ownership to the Corporation are accounted for as capital leases, as though
the asset had been purchased and a liability incurred. All other leases are
accounted for as operating leases.
INTANGIBLE ASSETS
This category includes acquired technology and goodwill associated with various
acquisitions, and deferred software development costs.
Acquired technology represents the discounted fair value of the estimated net
future income-producing capabilities of software products acquired on
acquisitions. Acquired technology is amortized over five years on a straight
line basis. The Corporation evaluates the expected future net cash flows of the
acquired technology at each reporting date, and adjusts to net realizable value
if necessary.
Goodwill represents the excess of the purchase price of acquired companies over
the estimated fair value of the tangible and intangible net assets acquired.
Goodwill is amortized over five years on a straight line basis. The Corporation
evaluates the expected future net cash flows of the acquired businesses at each
reporting date, and adjusts goodwill for any impairment.
Software development costs are expensed as incurred unless they meet generally
accepted accounting criteria for deferral and amortization. Software development
costs incurred prior to the establishment of technological feasibility do not
meet these criteria, and are expensed as incurred. Research costs are expensed
as incurred. For costs that are capitalized, the amortization is the greater of
the amount calcu-
9
<PAGE>
lated using either (i) the ratio that the appropriate product's current gross
revenues bear to the total of current and anticipated future gross revenues for
that product, or (ii) the straight line method over the remaining economic life
of the product. Such amortization is recorded over a period not exceeding three
years. The Corporation reassesses whether it has met the relevant criteria for
continued deferral and amortization at each reporting date.
Income Taxes
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws.
2_ACCOUNTS RECEIVABLE
Accounts receivable include an allowance for doubtful accounts of $4,734,000
and $4,430,000 as of February 29, 2000 and February 28, 1999, respectively.
3_FIXED ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
2000 1999
-------------------------- --------------------------
Accumulated Accumulated Depreciation/
Depreciation Depreciation Amortization
Cost and Amortization Cost and Amortization Rate
- -------------------------------------------------------------------------------------------------------------
($000s) ($000s)
<S> <C> <C> <C> <C> <C>
Computer equipment and software $ 63,334 $43,370 $46,795 $32,665 33%
Office furniture 21,602 11,317 15,877 9,230 20%
Leasehold improvements 8,160 3,726 5,404 2,754 Lease Term
Land 820 -- 788 -- --
Building 7,198 1,243 6,916 967 2.5%
Construction in progress* 3,377 -- -- -- --
- -------------------------------------------------------------------------------------------------------------
104,491 $ 59,656 75,780 $45,616
======== =======
(59,656) (45,616)
------- -------
Net book value $ 44,835 $ 30,164
=============================================================================================================
</TABLE>
* See Note 7
Depreciation and amortization of fixed assets was $13,898,000, $10,760,000,
and $8,766,000 in each of fiscal 2000, 1999, and 1998, respectively.
4_INTANGIBLE ASSETS
Intangible assets as at February 29, 2000, and February 28, 1999, include
acquired technology and goodwill, and are disclosed net of amortization.
10
<PAGE>
The Corporation recorded $2,352,000 of goodwill in fiscal 2000 and $21,604,000
of acquired technology and goodwill in fiscal 1999. Amortization of intangible
assets was $5,692,000, $1,330,000, and $558,000 in each of fiscal 2000, 1999,
and 1998, respectively (see Note 5).
The Corporation did not capitalize any costs of internally-developed computer
software to be sold, licensed, or otherwise marketed in each of fiscal 2000,
1999, and 1998, and recorded $0, $55,000, and $430,000 of corresponding
amortization, respectively.
5_ACQUISITIONS
FISCAL 2000 ACQUISITIONS
On May 28, 1999, the Corporation completed the acquisition of Information Tools
AG, the Corporation's distributor in Switzerland. The shareholders of
Information Tools AG are to receive total consideration of approximately
$657,000 of which $458,000 was received in cash during fiscal 2000. The
remainder of the consideration ($199,000) is payable equally on the first and
second anniversaries of the closing of the transaction. An amount not to exceed
$500,000 could also be paid in contingent consideration. Of that amount,
approximately $120,000 will be paid in fiscal 2001 relating to fiscal 2000
results and has been recorded as additional purchase price.
On July 15, 1999, the Corporation completed the purchase of the entire
outstanding minority interest in the Corporation's subsidiary in Singapore,
Cognos Far East Pte Limited. The former minority shareholders of Cognos Far East
Pte Limited received approximately $1,688,000 in cash upon completion of the
purchase. No further consideration is due to the former minority shareholders of
the subsidiary.
Both acquisitions have been accounted for using the purchase method. The results
of operations of both acquired companies prior to the acquisition were not
material, and thus pro forma information has not been provided. The results of
both acquired companies have been combined with those of the Corporation since
their respective dates of acquisition.
Total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date:($000s)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Information Tools AG Cognos Far East Pte Limited Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets acquired $ 683 $ -- $ 683
Liabilities assumed (570) -- (570)
- ----------------------------------------------------------------------------------------------------------------
Net assets acquired 113 -- 113
Goodwill 664 1,688 2,352
- ----------------------------------------------------------------------------------------------------------------
Purchase price $ 777 $ 1,688 $ 2,465
================================================================================================================
Consideration
Cash 458 1,688 2,146
Deferred payment 319 -- 319
- ----------------------------------------------------------------------------------------------------------------
$ 777 $ 1,688 $ 2,465
================================================================================================================
</TABLE>
FISCAL 1999 ACQUISITIONS
On December 3, 1998, the Corporation completed the acquisition of substantially
all the assets of Relational Matters including DecisionStream software.
DecisionStream aggregates and integrates large volumes of transaction data with
multidimensional data structures. Relational Matters will receive approximately
$7,555,000 over three years and 250,980 shares of the Corporation's common
stock valued at $1,823,000 over the same time period. The shares, all of which
were issued, are being held in escrow by the Corporation and will be released on
the second (40%) and third (60%) anniversaries of the closing of the
transaction. For valuation purposes, the deferred payments and shares were
appropriately discounted. An independent appraisal valued the in-process
research and development at $2,400,000. In the opinion
11
<PAGE>
of management and the appraiser, the acquired in-process research and
development had not yet reached technological feasibility and had no alternative
future uses. Accordingly, the Corporation recorded a special charge of
$2,400,000 ($0.02 per share on a diluted basis) in the fourth quarter ended
February 28, 1999, to write off the acquired in-process technology.
On February 24, 1999, the Corporation completed the acquisition of LEX2000 Inc.,
a developer of financial data mart and reporting software, for a combination of
cash and the Corporation's common stock. The shareholders of LEX2000 Inc. will
receive approximately $7,444,000 over three years and 252,118 shares of the
Corporation's common stock valued at $1,940,000 over the same time period.
Approximately 14,200 shares were issued at closing; the remainder, all of which
were issued, are being held in escrow by the Corporation and will be released
equally on the second (50%) and third (50%) anniversaries of the closing of the
transaction. For valuation purposes, the deferred payments and remaining shares
were appropriately discounted. An independent appraisal valued the in-process
research and development at $1,400,000. In the opinion of management and the
appraiser, the acquired in-process research and development had not yet reached
technological feasibility and had no alternative future uses. Accordingly, the
Corporation recorded a special charge of $1,400,000 ($0.02 per share on a
diluted basis) in the fourth quarter ended February 28, 1999, to write off the
acquired in-process technology.
The scheduled aggregate annual payments for the long-term liabilities related to
these two acquisitions are $3,501,000 and $2,599,000 in fiscal 2001 and 2002
respectively. Amounts due within twelve months are included in accrued charges.
Both acquisitions have been accounted for using the purchase method. The results
of operations of both acquired companies prior to the acquisitions were not
material, and thus pro forma information has not been provided. The results of
both acquired companies have been combined with those of the Corporation since
their respective dates of acquisition.
Total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date:($000s)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Relational Matters LEX2000 Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets acquired
In-process technology $ 2,400 $ 1,400 $ 3,800
Acquired technology 3,600 13,165 16,765
Other assets 25 1,501 1,526
- -------------------------------------------------------------------------------------------
6,025 16,066 22,091
Liabilities assumed (37) (2,869) (2,906)
Deferred tax credits -- (5,267) (5,267)
- -------------------------------------------------------------------------------------------
Net assets acquired 5,988 7,930 13,918
Goodwill 3,385 1,454 4,839
- -------------------------------------------------------------------------------------------
Purchase price $ 9,373 $ 9,384 $ 18,757
===========================================================================================
Consideration
Cash $ 4,419 $ 4,755 $ 9,174
Deferred payment 3,131 2,689 5,820
Shares 1,823 1,940 3,763
- -------------------------------------------------------------------------------------------
$ 9,373 $ 9,384 $ 18,757
===========================================================================================
</TABLE>
FISCAL 1998 ACQUISITIONS
On April 9, 1997, the Corporation completed the acquisition of Right Information
Systems Limited (RIS) of London, England. RIS was the provider of
4Thought((tm)), business modeling and forecasting software. The shareholders of
RIS received $4,500,000 and 180,000 shares of the Corporation's common stock,
valued at $1,607,000. These shares, all of which were issued, are being held in
escrow by the Corporation until April 9, 2000. An independent appraisal valued
the in-process research and development at $5,000,000. In the opinion of
management and the appraiser, the acquired in-process research and development
had not yet reached technological feasibility and had no alternative
12
<PAGE>
future uses. Accordingly, the Corporation recorded a special charge of
$5,000,000 ($0.05 per share on a diluted basis) in the first quarter ended May
31, 1997, to write off the acquired in-process technology.
On October 24, 1997, the Corporation completed the acquisition of Interweave
Software, Inc. (Interweave) of Santa Clara, California, U.S.A. Interweave was
the developer and marketer of the Interweave software product line, which allows
information technology organizations to deploy intranet- and extranet-based
business intelligence applications more broadly within and across enterprises.
The acquisition agreement called for the Corporation to pay $12,415,000 to the
shareholders of Interweave, the majority of which was paid upon completion of
the acquisition. An independent appraisal valued the in-process research and
development at $13,000,000. In the opinion of management and the appraiser, the
acquired in-process research and development had not yet reached technological
feasibility and had no alternative future uses. Accordingly, the Corporation
recorded a special charge of $13,000,000 ($0.14 per share on a diluted basis) in
the third quarter ended November 30, 1997, to write off the acquired in-process
technology.
Both acquisitions have been accounted for using the purchase method. The results
of operations of both acquired companies prior to the acquisitions were not
material, and thus pro forma information has not been provided. The results of
both acquired companies have been combined with those of the Corporation since
their respective dates of acquisition.
Total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date:($000s)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
RIS Interweave Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets acquired
In-process technology $ 5,000 $ 13,000 $ 18,000
Other assets 239 390 629
- -----------------------------------------------------------------------------------
5,239 13,390 18,629
Liabilities assumed (1,050) (4,544) (5,594)
- -----------------------------------------------------------------------------------
Net assets acquired 4,189 8,846 13,035
Goodwill 1,918 3,569 5,487
- -----------------------------------------------------------------------------------
Purchase price $ 6,107 $ 12,415 $ 18,522
===================================================================================
Consideration
Cash $ 4,500 $ 12,415 $ 16,915
Shares 1,607 -- 1,607
- -----------------------------------------------------------------------------------
$ 6,107 $ 12,415 $ 18,522
===================================================================================
</TABLE>
6_LONG-TERM DEBT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------
($000s)
<S> <C> <C>
Mortgage at 12.5% per annum,repayable in blended
monthly installments of principal and interest
of Cdn $45,200 to October 2000 $ 2,142 $ 2,160
Other 34 452
- ------------------------------------------------------------------------------------
2,176 2,612
Less current portion (2,176) (123)
- ------------------------------------------------------------------------------------
$ -- $ 2,489
====================================================================================
</TABLE>
Interest expense on long-term debt was $264,000, $271,000, and $301,000 in
fiscal 2000, 1999, and 1998, respectively.
13
<PAGE>
7_COMMITMENTS
Certain of the Corporation's offices, computer equipment, and vehicles are
leased under various terms. The annual aggregate lease expense in each of fiscal
2000, 1999, and 1998 was $12,205,000, $9,219,000, and $8,599,000, respectively.
The aggregate amount of payments for these operating leases, in each of the next
five fiscal years and thereafter, is approximately as follows:($000s)
2001 $12,939
2002 10,261
2003 7,501
2004 4,915
2005 4,200
Thereafter 8,770
In August 1999, the Corporation announced plans for the construction of a second
building on the site of its corporate headquarters on Riverside Drive in Ottawa
- - Riverside II. The total cost of Riverside II and related improvements is
estimated to be $21 million. The Corporation is currently committed to
approximately $15 million of the total cost and as at February 29, 2000, had
incurred capital expenditures of approximately $3.4 million. Construction is
expected to be substantially complete before the end of fiscal 2001.
8_FINANCIAL INSTRUMENTS
OFF-BALANCE-SHEET RISK
The Corporation's policy with respect to foreign currency exposure is to manage
its financial exposure to certain foreign exchange fluctuations with the
objective of neutralizing some of the impact of foreign currency exchange
movements. To achieve this objective, the Corporation enters into foreign
exchange forward contracts to hedge portions of the net investment in its
various subsidiaries. As a result, the exchange gains and losses recorded on
translation of the subsidiaries' financial statements are partially offset by
the gains and losses attributable to the applicable foreign exchange forward
contracts. Realized and unrealized gains and losses from the applicable foreign
exchange forward contracts are recorded as part of the foreign currency
translation adjustments included in the Consolidated Statements of Stockholders'
Equity. The Corporation has foreign exchange conversion facilities that allow it
to hold foreign exchange contracts of Cdn $130,000,000 (US $89,730,000)
outstanding at any one time. The Corporation enters into foreign exchange
forward contracts with major Canadian chartered banks, and therefore does not
anticipate non-performance by these counterparties. The amount of the exposure
on account of any non-performance is restricted to the unrealized gains in such
contracts. As of February 29, 2000, the Corporation had foreign exchange forward
contracts, with maturity dates ranging from March 30, 2000 to May 25, 2000, to
exchange various foreign currencies in the amount of $6,239,000. As of February
28, 1999, the Corporation had foreign exchange forward contracts, with maturity
dates ranging from March 25, 1999 to May 27, 1999, to exchange various foreign
currencies in the amount of $3,862,000.
14
<PAGE>
CONCENTRATION OF CREDIT RISK
The investment of cash is regulated by the Corporation's investment policy,
which is periodically reviewed and approved by the Audit Committee of the Board
of Directors. The primary objective of the Corporation's investment policy is
security of principal. The Corporation manages its investment credit risk
through a combination of (i) a selection of securities with an acceptable credit
rating; (ii) selection of term to maturity, which in no event exceeds one year
in length; and (iii) diversification of debt issuers, both individually and by
industry grouping.
Included in cash, cash equivalents, and short-term investments as of February
29, 2000 and February 28, 1999 were corporate debt amounts of $73,805,000 and
$46,941,000, respectively. The corporate debt amounts as of February 29, 2000
and February 28, 1999 were with two distinct issuers. These amounts were repaid,
in full, at maturity in March of their respective years. All the Corporation's
short-term investments as of February 29, 2000 and February 28, 1999 had
maturity dates before the end of June of their respective years. The
Corporation's cash, cash equivalents, and short-term investments are denominated
predominantly in Canadian and U.S. dollars.
The Corporation has an unsecured credit facility, subject to annual renewal,
that includes an operating line and foreign exchange conversion facilities. The
operating line permits the Corporation to borrow funds or issue letters of
credit or guarantee up to an aggregate of Cdn $15,000,000 (US $10,353,000),
subject to certain covenants. As of February 29, 2000 and February 28, 1999,
there were no direct borrowings under this operating line.
There is no concentration of credit risk related to the Corporation's position
in trade accounts receivable. Credit risk, with respect to trade receivables, is
minimized because of the Corporation's large customer base and its geographical
dispersion (see Note 12).
FAIR VALUE OF FINANCIAL INSTRUMENTS
For certain of the Corporation's financial instruments, including accounts
receivable, accounts payable, and other accrued charges, the carrying amounts
approximate the fair value due to their short maturities. Cash and cash
equivalents, short-term investments, long-term debt, and long-term liabilities
are carried at cost, which approximates their fair value.
9_INCOME TAXES
Details of the income tax provision (recovery) are as follows:($000s)
- ------------------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------
Current
Canadian $ 4,909 $ 5,313 $ 1,360
Foreign 9,943 9,228 8,550
- ------------------------------------------------------------------------------
14,852 14,541 9,910
- ------------------------------------------------------------------------------
Deferred
Canadian 8,201 (1,370) 2,459
Foreign (180) (37) (1,252)
- ------------------------------------------------------------------------------
8,021 (1,407) 1,207
- ------------------------------------------------------------------------------
Income tax provision $22,873 $13,134 $11,117
==============================================================================
15
<PAGE>
The reported income tax provision differs from the amount computed by applying
the Canadian rate to income before income taxes. The reasons for this difference
and the related tax effects are as follows:($000s)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Expected Canadian tax rate 44.0% 44.0% 44.0%
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected tax provision $ 35,943 $ 31,490 $ 19,254
Foreign tax rate differences (10,422) (10,906) (8,740)
Net change in valuation allowance and other income tax benefits earned (6,688) (9,142) (10,759)
Non-deductible expenses and non-taxable income 2,876 193 643
Non-deductible in-process R&D write-off -- 560 7,400
Withholding tax on foreign income 1,179 987 822
Reorganization costs -- -- 2,426
Other (15) (48) 71
- ------------------------------------------------------------------------------------------------------------------
Reported income tax provision $ 22,873 $ 13,134 $ 11,117
==================================================================================================================
</TABLE>
Deferred income taxes result principally from temporary differences in the
recognition of certain revenue and expense items for financial and tax reporting
purposes. Significant components of the Corporation's deferred tax assets and
liabilities as of February 29, 2000 and February 28, 1999 are as follows:
($000s)
- -------------------------------------------------------------------
2000 1999
- -------------------------------------------------------------------
Deferred tax assets
Net operating tax loss carryforwards $ 4,460 $ 5,507
Investment tax credits 1,404 4,499
Deferred revenue 2,490 2,702
Other 2,186 1,912
- -------------------------------------------------------------------
Total deferred tax assets 10,540 14,620
Valuation allowance for deferred tax assets (4,460) (5,507)
- -------------------------------------------------------------------
Net deferred tax assets 6,080 9,113
- -------------------------------------------------------------------
Deferred tax liabilities
Book and tax differences on assets 9,489 6,969
Reserves and allowances 7,484 5,415
Income tax credits 5,346 4,502
Other (1,089) 14
- -------------------------------------------------------------------
Total deferred tax liabilities 21,230 16,900
- -------------------------------------------------------------------
Net deferred income tax liability $ 15,150 $ 7,787
===================================================================
The net change in the total valuation allowance for the years ended February 29,
2000 and February 28, 1999 was a decrease of $1,047,000 and $7,309,000,
respectively.
Realization of the net deferred tax assets is dependent on generating sufficient
taxable income in certain legal entities. Although realization is not assured,
management believes it is more likely than not that the net amount of the
deferred tax asset will be realized. However, this estimate could change in the
near term as future taxable income in these certain legal entities changes.
16
<PAGE>
As of February 29, 2000, the Corporation had tax loss carryforwards of
approximately $10,027,000 available to reduce future years' income for tax
purposes. These losses expire as follows:($000s)
- ------------------------
2002 $ 294
2003-2010 425
Indefinitely 9,308
- ------------------------
Total $10,027
========================
Income before taxes attributable to all foreign operations was $41,548,000,
$42,152,000, and $23,546,000 in each of fiscal 2000, 1999, and 1998,
respectively.
The Corporation has provided for foreign withholding taxes on the portion of the
undistributed earnings of foreign subsidiaries expected to be remitted.
Income taxes paid were $18,658,000, $8,201,000, and $11,273,000 in each of
fiscal 2000, 1999, and 1998, respectively.
10_STOCKHOLDERS' EQUITY
CAPITAL STOCK
The authorized capital of the Corporation consists of an unlimited number of
common shares, without nominal or par value, and an unlimited number of
preferred shares, issuable in series. No series of preferred shares has been
created or issued.
Share Repurchase Programs
The share repurchases made in the past three fiscal years were part of distinct
open market share repurchase programs through the Nasdaq National Market. The
share repurchases made in fiscal 2000 were part of two open market share
repurchase programs. The program adopted in October 1998 expired on October 8,
1999. Under this program the Corporation repurchased 3,161,800 of its
shares; all repurchased shares were cancelled. In October 1999, the Corporation
adopted a new program that will enable it to purchase up to 4,200,000 common
shares (not more than 5% of those issued and outstanding) between October 9,
1999 and October 8, 2000. This program does not commit the Corporation to make
any share repurchases. Purchases will be made on The Nasdaq Stock Market at
prevailing open market prices and paid out of general corporate funds. All
repurchased shares will be cancelled.
The details of the share repurchases were as follows:
- --------------------------------------------------------------------------------
2000 1999 1998
--------------- ----------------- ------------------
Shares Cost Shares Cost Shares Cost
- --------------------------------------------------------------------------------
(000s) ($000s) (000s) ($000s) (000s) ($000s)
July 1996 program -- $ -- -- $ -- 170 $ 1,931
October 1997 program -- -- 2,030 23,463 2,370 27,180
October 1998 program 2,186 24,689 976 10,674 -- --
October 1999 program 100 1,324 -- -- -- --
- --------------------------------------------------------------------------------
2,286 $26,013 3,006 $34,137 2,540 $29,111
================================================================================
The amount paid to acquire the shares over and above the average carrying value
has been charged to retained earnings.
17
<PAGE>
Stock Option Plans
As of February 29, 2000, the Corporation had stock options outstanding under two
plans: 4,421,000 pertain to the 1997-2002 Stock Option Plan and 2,849,000
pertain to the 1993-1998 Stock Option Plan.
There were 14,000,000 shares of common stock originally reserved by the Board
of Directors for issuance under the Corporation's 1997-2002 Stock Option Plan
("the Plan"), which was approved by the Corporation's shareholders in June 1997
and replaced the 1993-1998 Stock Option Plan. Options may be granted to
directors, officers, employees, and consultants at such times and under such
terms as established by the Plan. Options may be fully exercisable on the date
of grant or may be exercisable in installments. Options will expire not later
than 10 years from the date of grant or any shorter period as may be determined.
All options are priced at the market price of the Corporation's shares on The
Toronto Stock Exchange on the trading day preceding the date of grant. In June
1999, options were awarded to employees, executive officers, and directors.
These options vest equally in April 2000, April 2001, April 2002, and April
2003, and expire in April 2007. There were 9,381,000 options available for
grant under the Plan as of February 29, 2000.
Under the 1993-1998 Stock Option Plan, options were awarded to directors,
officers, and employees. For the options outstanding as of February 29, 2000,
the vesting dates extend to September 2001 and the expiry dates range from April
2000 to September 2005. In April 1996, options were awarded to certain key
officers under an executive option award. These options vest equally in April
1999, April 2000, and April 2001, and expire in April 2003. All options were
priced at the market price of the Corporation's shares on The Toronto Stock
Exchange on the trading day preceding the date of grant. The 1993-1998 Stock
Option Plan expired on January 1, 1998.
Employee Stock Purchase Plan
This plan was approved by the Corporation's shareholders in July 1993 and was
amended on May 19, 1999. The amended plan was approved by the Corporation's
shareholders on June 22, 1999, and will terminate on November 30, 2002. Under
the plan, 3,000,000 common shares were reserved for issuance. A participant in
the Employee Stock Purchase Plan authorizes the Corporation to deduct an amount
per pay period that cannot exceed five (5) percent of annual target salary
divided by the number of pay periods per year. Deductions are accumulated during
each of the Corporation's fiscal quarters ("Purchase Period") and on the first
trading day following the end of any Purchase Period these deductions are
applied toward the purchase of common shares. The purchase price per share is
ninety (90) percent of the lesser of The Toronto Stock Exchange average closing
price on (a) the first five trading days of the Purchase Period or (b) the last
five trading days of the Purchase Period. All full-time and part-time permanent
employees may participate in the plan.
Accounting for Stock-Based Compensation
The Corporation applies APB Opinion 25 in accounting for its stock option and
purchase plans. The exercise price of all stock options is equal to the market
price of the stock on the trading day preceding the date of grant. Accordingly,
no compensation cost has been recognized in the financial statements for its
stock option and stock purchase plans.
If the fair values of the options granted since fiscal 1996 had been recognized
as compensation expense on a straight line basis over the vesting period of the
grant (consistent with the method prescribed by FASB Statement No. 123),
stock-based compensation costs would have reduced net income by $9,096,000,
$8,239,000, and $6,824,000; reduced basic net income per share by $0.11,
$0.09, and $0.08, and reduced diluted net income per share by $0.10, $0.09, and
$0.07 in fiscal 2000, 1999, and 1998, respectively.
Because Statement No. 123 is applicable only to options granted subsequent to
February 28, 1995 and the Corporation's amortization period for compensation
expense approximates four years, the above pro forma disclosure for fiscal 1998
is not indicative of pro forma amounts that will be reported in future years.
The pro forma disclosure for fiscal 2000 and 1999 includes the full extent of
amortization expense for four years of option grants.
18
<PAGE>
The fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for fiscal 2000, 1999, and 1998, respectively: risk-free interest
rates of 5.8%, 5.5%, and 6.5%, expected life of the options of 2.8 years, 2.9
years, and 3.0 years, expected volatility of 55%, 56%, and 56%, and for all
years, a dividend yield of zero.
Activity in the stock option plans for fiscal 2000, 1999, and 1998 was as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
------------------------- ------------------------ -------------------------
Weighted Average Weighted Average Weighted Average
Options Exercise Price Options Exercise Price Options Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
(000s) (000s) (000s)
<S> <C> <C> <C> <C> <C> <C>
Outstanding,beginning of year 6,769 $ 9.72 6,571 $ 8.29 7,940 $ 5.33
Granted 2,772 11.18 1,935 13.33 2,190 11.48
Exercised (1,973) 7.81 (1,054) 3.94 (3,316) 2.60
Cancelled (298) 11.73 (683) 9.52 (243) 9.54
- -------------------------------------------------------------------------------------------------------------------------
Outstanding,end of year 7,270 11.17 6,769 9.72 6,571 8.29
=========================================================================================================================
Options exercisable at year end 1,234 1,460 1,077
===== ===== =====
Weighted average per share fair value
of options granted during the year
calculated using the Black-Scholes
option pricing model $ 4.59 $ 5.54 $ 4.84
=========================================================================================================================
</TABLE>
The following table summarizes significant ranges of outstanding and exercisable
options held by directors, officers, and employees as of February 29, 2000:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------
Weighted Average Weighted Average Weighted Average
Range of Exercise Prices Options Remaining Life Exercise Price Options Exercise Price
- -------------------------------------------------------------------------------------------------------------------
(000s) (000s)
<S> <C> <C> <C> <C> <C>
$ 3.55-$ 5.52 26 0.4 year $ 4.22 25 $ 4.22
$ 8.76-$10.69 1,801 4.2 8.95 407 8.96
$10.70-$11.04 3,612 6.5 10.93 449 10.94
$11.05-$13.86 1,660 6.2 13.37 353 13.17
$17.58-$23.56 158 7.8 18.65 -- --
$27.95-$28.06 13 7.9 28.03 -- --
----- -----
7,270 5.9 11.17 1,234 10.78
===================================================================================================================
</TABLE>
NET INCOME PER SHARE
The dilutive effect of stock options is excluded under the requirements of FASB
Statement No. 128 for calculating net income per share, but is included in the
calculation of diluted net income per share.
19
<PAGE>
The reconciliation of the numerator and denominator for the calculation of net
income per share and diluted net income per share is as follows:(000s, except
per-share amounts)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income per Share
Net income $58,815 $58,434 $32,642
=====================================================================================
Weighted average number of shares outstanding 85,972 87,416 88,414
=====================================================================================
Net income per share $0.68 $0.67 $0.37
=====================================================================================
Diluted Net Income per Share
Net income $58,815 $58,434 $32,642
=====================================================================================
Weighted average number of shares outstanding 85,972 87,416 88,414
Dilutive effect of stock options * 2,128 1,524 3,130
- -------------------------------------------------------------------------------------
Adjusted weighted average number of shares outstanding 88,100 88,940 91,544
=====================================================================================
Diluted net income per share $0.67 $0.66 $0.36
=====================================================================================
</TABLE>
* All anti-dilutive options have been excluded. The average number of
anti-dilutive options was 1,580,000, 1,980,000, and 542,000 for fiscal
2000, 1999, and 1998, respectively.
11_PENSION PLANS
The Corporation operates a Retirement Savings Plan for the parent company and
also operates various other defined contribution pension plans for its
subsidiaries. The Corporation contributes amounts related to the level of
employee contributions for both types of plans.
The pension costs in fiscal 2000, 1999, and 1998 were $3,839,000, $2,744,000,
and $2,327,000, respectively.
12_SEGMENTED INFORMATION
The Corporation operates in one business segment-computer software tools. This
segment engages in business activities from which it earns license, support, and
services revenue, and incurs expenses. Within this business segment, the
Corporation develops, markets, and supports two complementary lines of software
products that are designed to satisfy enterprise-wide business-critical needs.
The Corporation's business intelligence products give individual users the
ability to independently access, explore, analyze, and report corporate data.
The Corporation's client/server application development tools are designed to
increase the productivity of system analysts and developers. Cognos products are
distributed both directly and through resellers worldwide.
Revenue is derived from the licensing of software and the provision of related
services, which include product support and education, consulting, and other
services. The Corporation generally licenses software and provides services
subject to terms and conditions consistent with industry standards. Customers
may elect to contract with the Corporation for product support, which includes
product and documentation enhancements, as well as telephone support, by paying
either an annual fee or fees based on usage of support services.
20
<PAGE>
The Corporation operates internationally, with a substantial portion of its
business conducted in foreign currencies. Accordingly, the Corporation's results
are affected by year-over-year exchange rate fluctuations of the United States
dollar relative to the Canadian dollar, to various European currencies, and to a
lesser extent, other foreign currencies.
No single customer accounted for 10% or more of the Corporation's revenue during
any of the last three fiscal years. In addition, the Corporation is not
dependent on any single customer or group of customers, or supplier.
The accounting policies for the segment are the same as those described in the
Summary of Significant Accounting Policies. The required financial information
for segment profit and segment assets is the same as that presented in the
Consolidated Financial Statements.
Geographic information is as follows: ($000s)
- ----------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------
Revenue to external customers*
U.S.A $204,730 $153,827 $123,774
Canada 30,120 24,040 22,328
United Kingdom 44,972 41,563 38,257
Europe 77,778 60,502 43,189
Asia/Pacific 28,040 21,193 17,286
- ----------------------------------------------------------------
$385,640 $301,125 $244,834
================================================================
* Revenues are attributed to countries based on location of customer
- ----------------------------------------------------
2000 1999
- ----------------------------------------------------
Fixed assets
Canada $31,055 $20,148
U.S.A 8,659 6,078
Other countries 5,121 3,938
- ----------------------------------------------------
$44,835 $30,164
====================================================
Intangible assets
Canada $ 8,264 $ 7,966
U.S.A 13,599 17,237
- ----------------------------------------------------
$21,863 $25,203
====================================================
13_NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities which establishes standards for derivative
instruments and hedging activities. It requires that all derivatives be
recognized as either assets or liabilities on the Balance Sheet and be measured
at fair value. This Statement is effective for fiscal years beginning after June
15, 2000, which is the fiscal year beginning March 1, 2001 for the Corporation.
Prior periods should not be restated. The Corporation has not yet quantified the
impact, if any, of this pronouncement on its consolidated financial statements.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements,
which was amended in March 2000 by SAB 101A. The SAB summarizes certain of the
SEC staff views in applying generally accepted accounting principles to revenue
recognition in financial statements. This SAB is effective beginning the
Corporation's second quarter of fiscal 2001. The Corporation does not expect the
adoption of this SAB to have a material impact on its results of operations or
financial position.
21
<PAGE>
14_COMPARATIVE RESULTS
Certain of the prior years' figures have been reclassified in order to conform
to the presentation adopted in the current year.
15_SUBSEQUENT EVENT
On April 6, 2000, the Board of Directors of the Corporation authorized a
two-for-one stock split, effected in the form of a stock dividend, payable on or
about April 27, 2000, to shareholders of record at the close of business on
April 20, 2000.
All share and per-share amounts in the accompanying financial statements, and
notes thereto, have been adjusted for the split.
22
<PAGE>
Exhibit 21
COGNOS INCORPORATED
JURISDICTION OF
SUBSIDIARIES INCORPORATION
- ------------ -------------
Cognos AB Sweden
Cognos A/S Denmark
Cognos Austria GmbH Austria
Cognos (Barbados) Limited Barbados
Cognos B.V. The Netherlands
Cognos Corporation United States
Cognos Far East Pte Limited Singapore
Cognos France S.A. France
Cognos GmbH Germany
Cognos Limited United Kingdom
Cognos N.V./S.A. Belgium
Cognos PTY Limited Australia
Cognos South Africa (PTY) Limited South Africa
Cognos S.p.A. Italy
Cognos (Switzerland) Ltd. Switzerland
APL2000 Inc. United States
Interweave Software, Inc. United States
LEX2000 Inc. United States
Right Information Systems Limited England and Wales
Teijin Cognos Incorporated Japan
All subsidiaries are 100% owned by Cognos Incorporated except Teijin Cognos
Incorporated (50% owned), and APL2000 Inc. which is wholly-owned by LEX2000 Inc.
1
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Cognos Incorporated of our report dated March 30, 2000 [except Note 15, as to
which the date is April 6, 2000] with respect to the consolidated financial
statements included in the 2000 Annual Report to Shareholders of Cognos
Incorporated.
Our audits also included the financial statement schedule of Cognos Incorporated
listed in Item 14(a)2. This schedule is the responsibility of the Corporation's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 33-39562, 33-72402, 33-72404 and 333-8552) pertaining to the
1988-1993 Stock Option Plan, the 1993-1998 Cognos Employee Stock Purchase Plan
(now the 1993-1999 Cognos Employee Stock Purchase Plan), the 1993-1998 Stock
Option Plan, and the 1997-2002 Stock Option Plan, respectively, of our report
dated March 30, 2000 [except Note 15, as to which the date is April 6, 2000]
with respect to the consolidated financial statements of Cognos Incorporated
incorporated by reference in the Annual Report (Form 10-K) for the year ended
February 29, 2000.
/s/ Ernst & Young LLP
Ottawa, Canada ERNST & YOUNG LLP
May 25, 2000 Chartered Accountants
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 132,435
<SECURITIES> 64,284
<RECEIVABLES> 112,557
<ALLOWANCES> 4,734
<INVENTORY> 806
<CURRENT-ASSETS> 313,188
<PP&E> 104,491
<DEPRECIATION> 59,656
<TOTAL-ASSETS> 379,886
<CURRENT-LIABILITIES> 146,733
<BONDS> 0
0
0
<COMMON> 106,936
<OTHER-SE> 108,368
<TOTAL-LIABILITY-AND-EQUITY> 379,886
<SALES> 385,640
<TOTAL-REVENUES> 385,640
<CGS> 18,993
<TOTAL-COSTS> 18,993
<OTHER-EXPENSES> 291,695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,736)
<INCOME-PRETAX> 81,688
<INCOME-TAX> 22,873
<INCOME-CONTINUING> 58,815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,815
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.67
</TABLE>
<PAGE>
Exhibit 99
COGNOS INCORPORATED
FINANCIAL INFORMATION IN ACCORDANCE WITH
CANADIAN GAAP FOR THE CORPORATION
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 2000
The consolidated financial information as set out in the Corporation's 2000
Annual Report is in United States (U.S.) dollars and in accordance with U.S.
generally accepted accounting principles (GAAP). In keeping with the
requirements of Canadian legislation, the Corporation is also providing its
shareholders with consolidated financial information in accordance with Canadian
GAAP (in United States dollars).
The generally accepted accounting principles in Canada differ in some respects
from those applicable in the U.S. The most significant difference in fiscal 2000
arises from the accounting for acquisitions (see Note 5 of the Notes to the
Consolidated Financial Statements). All consolidated financial statements were
affected by this difference.
1
<PAGE>
COGNOS INCORPORATED
CANADIAN GAAP FINANCIAL INFORMATION
Table of Contents
The information appearing in this document consists of the following information
for the fiscal year ended February 29, 2000:
<TABLE>
<CAPTION>
PAGE
---------------
<S> <C>
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................. 3 - 21
Report of Management..................................................................... 22
Auditors' Report......................................................................... 23
Consolidated Financial Statements and Notes.............................................. 24 - 44
Five-Year Summary........................................................................ 45
</TABLE>
2
<PAGE>
COGNOS INCORPORATED
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(in United States dollars, unless otherwise indicated, and in accordance with
Canadian GAAP)
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes for the fiscal year ended February
29, 2000, beginning on page 22. The Corporation prepares and files its
consolidated financial statements and the Management's Discussion and Analysis
of Financial Condition and Results of Operations (MD&A) in United States (U.S.)
dollars and in accordance with Generally Accepted Accounting Principles (GAAP)
in Canada. The consolidated financial statements and MD&A in accordance with
U.S. GAAP, in U.S. dollars, are also made available to all shareholders and
filed with various regulatory authorities.
On April 6, 2000, subsequent to the year-end, the Board of Directors of the
Corporation authorized a two-for-one stock split, effected in the form of a
stock dividend, payable on or about April 27, 2000 to shareholders of record at
the close of business on April 20, 2000. Share and per-share amounts in this
MD&A, and the audited consolidated financial statements and notes thereto, have
been adjusted retroactively for this split.
Overview
The Corporation develops, markets, and supports complementary lines of software
tools that are designed to satisfy business-critical needs for the extended
enterprise within traditional and e-business markets. The Corporation's business
intelligence products are designed to give individual users the ability to
independently access, explore, analyze, and report corporate data. The
Corporation's client/server application development tools are designed to
increase the productivity of system analysts and developers. Cognos products are
distributed both directly and through resellers worldwide.
Revenue is derived from the licensing of software and the provision of related
services, which include product support and education, consulting, and other
services. The Corporation generally licenses software and provides services
subject to terms and conditions consistent with industry standards. Customers
may elect to contract with the Corporation for product support, which includes
product and documentation enhancements, as well as telephone support, by paying
either an annual fee or fees based on usage of support services.
The Corporation operates internationally, with a substantial portion of its
business conducted in foreign currencies. Accordingly, the Corporation's results
are affected by year-over-year exchange rate fluctuations of the United States
dollar relative to the Canadian dollar, to various European currencies, and to a
lesser extent, other foreign currencies.
3
<PAGE>
Results of Operations
Total revenue for the year ended February 29, 2000 (fiscal 2000) was $385.6
million, which was 28% more than the fiscal 1999 revenue of $301.1 million
which, in turn, was 23% more than the fiscal 1998 revenue of $244.8 million. Net
income for fiscal 2000 was $54.5 million and basic net income per share was
$0.63, compared to fiscal 1999 net income of $58.1 million and basic net income
per share of $0.66, and net income of $48.9 million and basic net income per
share of $0.55 for fiscal 1998.
The Corporation experienced a decrease in net income as a percentage of revenue
in fiscal 2000 as a result of increases in selling, general and administrative
expenses and decreases in the level of investment tax credits from prior years.
During fiscal 2000 the Corporation increased its investment in its sales
channels to focus on revenue growth and expand global market coverage. The
decrease in the level of investment tax credits (ITCs) was the result of the
Corporation recognizing the benefits of previously unrecorded ITCs during fiscal
1999 and 1998.
The following table sets out, for each fiscal year indicated, the percentage
that each income and expense item bears to revenue, and the percentage change in
the dollar amount of each item as compared to the prior fiscal year.
<TABLE>
<CAPTION>
Percentage Change
Percentage of Revenue from Fiscal
-------------------------------------------------- -----------------------------------
1999 to 1998 to
2000 1999 1998 2000 1999
----------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 28.1% 23.0%
-----------------------------------------------
Operating expenses
Cost of product license 1.3 1.9 1.5 (8.8) 49.9
Cost of product support 3.6 3.7 4.0 23.2 15.2
Selling, general, and administrative 63.5 59.2 58.6 37.3 24.3
Research and development 13.9 14.0 13.7 26.7 26.1
Investment tax credits (1.6) (4.9) (3.8) (58.3) 57.8
-----------------------------------------------
Total operating expenses 80.7 73.9 74.0 39.8 22.9
-----------------------------------------------
Operating income 19.3 26.1 26.0 (5.2) 23.2
Interest expense (0.2) (0.2) (0.2) 36.2 9.6
Interest income 1.9 2.2 2.2 15.9 20.4
-----------------------------------------------
Income before taxes 21.0 28.1 28.0 (3.8) 23.1
Income tax provision 6.9 8.8 8.0 1.4 34.0
-----------------------------------------------
Net income 14.1% 19.3% 20.0% (6.2)% 18.8%
===============================================
</TABLE>
4
<PAGE>
Revenue
The Corporation's total revenue (consisting of product license, product support,
and services revenue) was $385.6 million in fiscal 2000, compared to $301.1
million in fiscal 1999 and $244.8 million in fiscal 1998. The Corporation
operates internationally, with a substantial portion of its business conducted
in foreign currencies. Accordingly, the Corporation's results are affected by
year-over-year exchange rate fluctuations of the United States dollar relative
to the Canadian dollar, to various European currencies, and to a lesser extent,
other foreign currencies. The effect of foreign exchange rate fluctuations
decreased the overall revenue growth by two percentage points in fiscal 2000
from fiscal 1999 and by one percentage point in fiscal 1999 from fiscal 1998.
The Corporation's growth in total revenue was derived primarily from the
increase in revenue from the Corporation's business intelligence products,
principally Web versions of PowerPlay(R), Impromptu(R) and to a lesser extent,
the addition of revenue from Cognos Visualizer and DecisionStream(TM), which
were released during fiscal 2000. The bundling of these products for facilitated
and flexible deployment contributed to the growth of Web versions of the
Corporation's business intelligence products. Total revenue for all business
intelligence products was $328.0 million, $230.9 million, and $176.2 million in
fiscal 2000, 1999, and 1998, respectively, which resulted in year-over-year
increases of 42% and 31%, respectively. Total revenue from the Corporation's
business intelligence products represented 85%, 77%, and 72% of total revenue in
fiscal 2000, 1999, and 1998, respectively. As described in the following section
on Product License Revenue, the Corporation believes that its business
intelligence products address the current market need for distributing corporate
information to the end user's desktop in an extended enterprise environment of
corporate intranets, extranets and client/server networks.
Total revenue from the Corporation's application development tools,
PowerHouse(R) and Axiant(R), was $57.6 million in fiscal 2000, compared to $70.2
million in fiscal 1999, and $68.6 million in fiscal 1998, which resulted in
year-over-year changes of (18)% and 2%, respectively. While the Corporation
experienced an increase in total revenue from these products during fiscal 1999,
as described in the following section on Product License Revenue, the
Corporation believes that, in the long term, revenues from these products will
continue to decline.
The growth in total revenue from the three revenue categories in fiscal 2000
from fiscal 1999 was as follows: a 28% increase in product license revenue, a
27% increase in product support revenue, and a 30% increase in services revenue.
This compares to an increase for the same categories for fiscal 1999 from fiscal
1998 as follows: 25%, 28%, and 9%, respectively.
The Corporation's operations are divided into three main geographic regions: (1)
North America (includes Latin America), (2) Europe (consists of the U.K. and
Continental Europe), and (3) Asia/Pacific (consists of Australia and countries
in the Far East). In fiscal 2000, the percentage of total revenue from North
America, Europe, and Asia/Pacific was 61%, 32%, and 7%, respectively, compared
to 59%, 34%, and 7%, respectively, in fiscal 1999, and 60%, 33%, and 7%,
respectively, in fiscal 1998. In fiscal 2000, total revenue from North America,
Europe, and Asia/Pacific increased from fiscal 1999 by 32%, 20%, and 32%,
respectively, compared to increases of 22%, 25%, and 23%, respectively, in
fiscal 1999 from fiscal 1998. The increase in growth for fiscal 2000 compared to
growth in fiscal 1999 in North America and Asia/Pacific is attributable to the
increase in revenue from the business intelligence products. The decrease in
growth for Europe was attributable to slower growth in the U.K. where the
Corporation experienced a relatively larger decline in revenue from application
development tools and relatively less growth in business intelligence products.
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Product License Revenue
Total product license revenue was $203.3 million, $158.4 million, and $126.8
million in fiscal 2000, 1999, and 1998, respectively, and accounted for 53%,
53%, and 52% of the Corporation's revenue for the respective time periods.
The increase in all periods occurred predominantly as a result of the
performance of the Corporation's business intelligence products. Product license
revenue from these products was $186.6 million, $131.9 million, and $102.3
million in fiscal 2000, 1999, and 1998, respectively. The Corporation derived
approximately 92% of its product license revenue in fiscal 2000 from these
products, compared to 83% in fiscal 1999, and 81% in fiscal 1998.
The Corporation believes that its business intelligence products address the
current market need for distributing corporate information to the end user's
desktop in an extended enterprise environment of corporate intranets, extranets
and client/server networks. The Corporation continues to address the emerging
market for Web or intranet-based products with the release in the current fiscal
year of PowerPlay 6.6, and the launch of the Cognos enterprise BI Platform and
in fiscal 1999, the release of Impromptu Web Reports. While the Corporation
believes that there is a market opportunity for Web-based decision support
solutions, there can be no assurance of the rate or extent of growth of this
market, or that the Corporation will be successful in continuing to develop
products that will effectively address this market.
Product license revenue from the Corporation's application development tools,
PowerHouse and Axiant, was $16.7 million, $26.5 million, and $24.5 million in
fiscal 2000, 1999, and 1998, respectively. Over several of the past fiscal
years, the Corporation has experienced a decline in product license revenue in
this market which is consistent, in the Corporation's view, with the market
trend away from proprietary systems and host-based computing toward industry-
standard systems, corporate intranets, extranets, client/server technology, and
packaged application products. The Corporation believes the increase during
fiscal 1999 was partially the result of expanded use of PowerHouse applications
or upgrades to customer computers, and testing of legacy systems to ensure Year
2000 compliance. The Corporation believes that the maximum revenue potential
from the activity around Year 2000 compliance occurred during fiscal 1999 and
expects that, in the long term, the trend of decreasing product license revenue
from these products will continue.
The Corporation's sales and marketing strategy includes multi-tiered channels
ranging from a direct sales force to various forms of third-party distributors,
resellers, and original equipment manufacturers. In fiscal 2000, the Corporation
increased product license revenue derived from third-party channels to $62.2
million from $49.2 million in fiscal 1999, and from $39.6 million in fiscal
1998. The majority of the increase in product license revenue derived from third
parties in fiscal 2000 from fiscal 1999 was attributable to the activity in
Asia/Pacific and Europe and to a lesser extent activity in North America. The
increase in product license revenue derived from third parties in fiscal 1999
from fiscal 1998 was mainly attributable to an increase in activity in North
America.
Total product license revenue from third-party channels represented 31% of total
product license revenue in each of fiscal 2000, 1999 and 1998.
Within the Corporation's business intelligence market, product license revenue
from third-party channels was $57.3 million in fiscal 2000, compared to $42.3
million in fiscal 1999, and $33.0 million in fiscal 1998. Product license
revenue within this market, from third-party channels represented 31% of the
Corporation's product license revenue in fiscal 2000, compared to 32% in fiscal
1999 and 1998.
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The Corporation expects to continue to enhance its combined sales and marketing
strategies to further develop the potential within the business intelligence
products market. The Corporation expects to continue to utilize a multi-tiered
channel strategy, as outlined above. With respect to the marketing strategy, the
Corporation intends to continue to form alliances with system integrators, the
larger accounting and consulting firms, packaged application providers, and
various other strategic partners. In addition, the Corporation plans to continue
to utilize marketing and promotional programs to generate awareness of extended
enterprise business intelligence solutions and interest in the Corporation's
products.
There can be no assurance that increases in total product license revenue will
continue to occur, or occur to the same extent to which they have historically
occurred.
Product Support Revenue
Product support revenue was $118.1 million, $93.3 million, and $72.8 million in
fiscal 2000, 1999, and 1998, respectively. Product support revenue accounted for
31% of the Corporation's total revenue for fiscal 2000 and 1999 and 30% for
fiscal 1998. The increase in the dollar amounts was the result of new support
contracts from the expansion of the Corporation's customer base, as well as the
renewal of existing support contracts. The rate of growth in product support
revenue associated with the expansion of the Corporation's customer base exceeds
the rate of non-renewals of support contracts.
Total product support revenue from the business intelligence products was $78.8
million, $52.0 million, and $31.9 million in fiscal 2000, 1999, and 1998,
respectively and comprised 67%, 56%, and 44% of the total product support
revenue in fiscal 2000, 1999, and 1998, respectively. In fiscal 2000, total
product support revenue from the business intelligence products increased by 52%
from fiscal 1999, and total product support revenue from the application
development tools decreased by 5% over the same period. In fiscal 1999, total
product support revenue from the business intelligence products increased by 63%
from fiscal 1998, and total product support revenue from the application
development tools increased by 1% over the same period. Consistent with the
discussion in product license revenue, the Corporation believes that, despite
the product support revenue growth from the application development tools in
fiscal 1999, in the long term, the trend of decreasing revenue from these
products will continue.
There can be no assurance that increases in total product support revenue will
continue to occur, or occur to the same extent to which they have historically
occurred.
Services Revenue
Revenue from education, consulting, and other services was $64.3 million, $49.4
million, and $45.2 million in fiscal 2000, 1999, and 1998, respectively.
Services revenue accounted for 17%, 16%, and 18% of the Corporation's total
revenue for the same time periods. During fiscal 2000 the Corporation began to
offer a broader range of consulting and education services in line with the
shift in the demand for Web-based products. As a result, during fiscal 2000 the
Corporation experienced both an increase in growth of services revenue, and an
increase in the percentage of total revenue generated by services. The decline
in fiscal 1999 services revenue as a percentage of total revenue was the result
of relatively larger increases in both product support and product license
revenue.
The increase in services revenue was predominantly the result of an increase in
consulting revenue and to a lesser extent, increases in education revenue
associated with the business intelligence products, consistent with the trend in
product license revenue in this market. Services revenue associated with the
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business intelligence products contributed approximately 97%, 95%, and 93% to
this revenue category in fiscal 2000, 1999, and 1998, respectively.
There can be no assurance that increases in total services revenue will continue
to occur, or occur to the same extent to which they have historically occurred.
Cost of Product License
The cost of product license consists primarily of royalties for technology
licensed from third parties and the costs of materials and distribution related
to licensed software.
Product license costs in fiscal 2000 were $5.2 million compared to $5.7 million
in fiscal 1999, and $3.8 million in fiscal 1998. Product license costs
represented 3% of product license revenue for fiscal 2000, compared to 4% and 3%
of product license revenue for fiscal 1999 and 1998, respectively.
The decrease, in dollar terms in fiscal 2000 from fiscal 1999 is principally due
to decreases in both royalty costs and materials and distribution costs
associated with product offerings. The increase in fiscal 1999 from fiscal 1998
was predominantly the result of a relatively larger increase in royalties;
manufacturing and distribution costs remained constant between the two years.
Cost of Product Support
The cost of product support includes the costs associated with resolving
customer telephone inquiries and other telesupport activities, royalties in
respect of technological support received from third parties, and the cost of
materials delivered in connection with enhancement releases.
The cost of product support was $13.8 million, $11.2 million, and $9.7 million
in fiscal 2000, 1999, and 1998, respectively. These costs represented 12% of
product support revenue for fiscal 2000 and 1999, and 13% for fiscal 1998.
The increase in fiscal 2000 from fiscal 1999 was associated predominantly with
increases in customer telesupport costs; enhancement releases costs contributed
to a lesser extent to the increase. The increase in fiscal 1999 from fiscal 1998
was primarily associated with increases in telesupport costs.
Selling, General, and Administrative
Selling, general, and administrative expenses were $244.8 million, $178.3
million, and $143.5 million in fiscal 2000, 1999, and 1998, respectively. These
costs were 64% of revenue in fiscal 2000 compared to 59% in both fiscal 1999 and
1998.
The increase in the selling, general, and administrative expenses in fiscal 2000
was substantially the result of increases in staffing and related compensation
expenses, and to a lesser extent increases in subcontracting, facilities and
marketing costs. During fiscal 2000 the Corporation increased its investment in
its sales channels to focus on revenue growth and to expand global market
coverage. The average number of employees within the selling, general, and
administrative areas grew by 30% in fiscal 2000 predominantly as the result of
additions to sales staff. The increase in the selling, general, and
administrative expenses in fiscal 1999 was mainly the result of increased
staffing and related
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compensation expenses as the average number of employees within this area grew
by approximately 15%. The costs per employee increased 6% in both fiscal 2000
and fiscal 1999.
Foreign exchange rate fluctuations reduced the overall percentage increase in
fiscal 2000 over 1999 by approximately one percentage point, whereas they
reduced the overall percentage increase in fiscal 1999 over 1998 by
approximately three percentage points.
Research and Development
The following table sets out the components of the Corporation's research and
development, as well as the percentages of revenue for the periods indicated.
<TABLE>
<CAPTION>
2000 1999 1998
----------------------------------------------------
($000s)
<S> <C> <C> <C>
Gross research and development costs $54,244 $42,746 $33,997
Government allowances (696) (527) (897)
Amortization of previously capitalized amounts - 55 430
----------------------------------------------------
Research and development $53,548 $42,274 $33,530
====================================================
Percentage of total revenue
Gross research and development 14% 14% 14%
Research and development 14% 14% 14%
</TABLE>
Gross research and development costs have continued to increase, in dollar
terms, over the last several fiscal years but have remained relatively constant
as a percentage of total revenue. The growth in both fiscal 2000 and fiscal 1999
was predominantly the result of increases associated with higher staffing levels
in this area. The increase in the average number of employees in this area was
26% in fiscal 2000 from fiscal 1999, and was 27% in fiscal 1999 from fiscal
1998. Foreign exchange rate fluctuations improved the overall percentage
increase in fiscal 2000 by approximately one percentage point whereas it reduced
the overall increase by eight percentage points for fiscal 1999.
Software development costs are expensed as incurred unless they meet generally
accepted accounting criteria for deferral and amortization. Software development
costs incurred prior to the establishment of technological feasibility do not
meet these criteria, and are expensed as incurred. Capitalized costs are
amortized over a period not exceeding 36 months. Costs were not deferred in any
of fiscal 2000, 1999, or 1998 because either no projects met the criteria for
deferral or the period between (i) achieving technological feasibility and (ii)
the general availability of the product was short, and the associated costs were
immaterial.
The Corporation believes there is a business opportunity for distributing
corporate information to the end user's desktop in an extended enterprise
environment of corporate intranets, extranets and client/server networks. In
earlier years the Corporation addressed this opportunity with the release of
Web-based products: PowerPlay Web, Impromptu Web Reports, and Cognos Query
(formerly Impromptu Web Query).
During fiscal 2000 the Corporation launched a platform for Enterprise Business
Intelligence. This platform, which includes DecisionStream, provides a single
user interface or portal to support access to all Cognos business intelligence
products in an extended enterprise environment. During fiscal 2000 the
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Corporation released PowerPlay 6.6, which provides Web managed reporting and
analysis functions for intranet, extranet and Internet access to OLAP (online
analytical processing) data. Also, during fiscal 2000 the Corporation released
Cognos Visualizer, a business management and measurement product that extends
the capabilities of PowerPlay and Impromptu with advanced visual reporting and
analysis. The Corporation also released new versions of Impromptu Web Reports,
DataMerchant, and Cognos Finance (formerly LEX2000).
The Corporation continues to support its application development tools and to
that end released a new version of PowerHouse during fiscal 2000 which enables
Web deployment of PowerHouse applications.
During fiscal 2001 the Corporation will invest in research and development of
business intelligence solutions, particularly those solutions that support the
Corporation's strategy to meet the needs of the extended enterprise customers
within the e-business economy. These investments will include the development of
e-application packages which include pre-defined data marts, key reports and
analysis solutions. The Corporation will continue the development of business-
to-business solutions using BI which extend the enterprise to incorporate the
supply chain, and the relationship with an enterprise's customers.
Acquisitions
Fiscal 2000
The Corporation acquired Information Tools AG, the Corporation's distributor in
Switzerland. The shareholders of Information Tools AG are to receive total
consideration of approximately $657,000, of which $458,000 was received in cash
during fiscal 2000. The remainder of the consideration ($199,000) is payable
equally on the first and second anniversaries of the closing of the transaction.
An amount, not to exceed $500,000 could also be paid in contingent
consideration. Of that amount, approximately $120,000 will be paid in fiscal
2001 relating to fiscal 2000 results. This amount has been recorded as
additional purchase price.
The Corporation purchased the entire outstanding minority interest in the
Corporation's subsidiary in Singapore, Cognos Far East Pte Limited. The former
minority shareholders of Cognos Far East Pte Limited received approximately
$1,688,000 in cash upon completion of the purchase. No further consideration is
due to the former minority shareholders of the subsidiary.
Fiscal 1999
The Corporation acquired substantially all the assets of Relational Matters
including DecisionStream software. DecisionStream aggregates and integrates
large volumes of transaction data with multidimensional data structures.
Relational Matters will receive approximately $7,550,000 over three years and
250,980 shares of the Corporation's common stock valued at $1,823,000 over the
same time period. The shares, all of which were issued, are being held in escrow
by the Corporation and will be released on the second (40%) and third (60%)
anniversaries of the closing of the transaction. For valuation purposes, the
deferred payments and shares were appropriately discounted.
The Corporation acquired LEX2000 Inc., a developer of financial data mart and
reporting software, for a combination of cash and the Corporation's common
stock. The shareholders of LEX2000 Inc. will receive approximately $7,444,000
over three years and 252,118 shares of the Corporation's common stock valued at
$1,940,000 over the same time period. Approximately 14,200 shares were issued at
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closing; the remainder, all of which were issued, are being held in escrow by
the Corporation and will be released equally on the second (50%) and third (50%)
anniversaries of the closing of the transaction. For valuation purposes, the
deferred payments and shares were appropriately discounted.
Fiscal 1998
During the first quarter ended May 31, 1997, the Corporation completed the
acquisition of Right Information Systems Limited (RIS) of London, England. RIS
was the provider of 4Thought(TM), business modeling and forecasting software.
The shareholders of RIS received $4,500,000 and 180,000 shares of the
Corporation's common stock, valued at $1,607,000. These shares are being held in
escrow by the Corporation until April 9, 2000.
During the third quarter ended November 30, 1997, the Corporation completed the
acquisition of Interweave Software, Inc. (Interweave) of Santa Clara,
California, U.S.A. Interweave was the developer and marketer of the Interweave
software product line, which allows information technology organizations to
deploy intranet- and extranet-based business intelligence applications more
broadly within and across enterprises. The acquisition agreement called for the
Corporation to pay approximately $12,415,000 cash to the shareholders of
Interweave, most of which was paid upon completion of the acquisition.
The acquisitions in fiscal 2000, 1999, and 1998 have been accounted for using
the purchase method. The results of operations of all acquired companies prior
to their respective dates of acquisition were not material. The results of all
acquired companies have been combined with those of the Corporation since their
respective dates of acquisition. (See Note 5 of the Notes to the Consolidated
Financial Statements.)
Investment Tax Credits
The Corporation recognized $6.2 million, $14.9 million, and $9.4 million in
fiscal 2000, 1999, and 1998, respectively, related to research and development
activities performed in Canada.
Interest Income and Expense
Interest income is earned on the Corporation's cash, cash equivalents, and
short-term investments, and interest expense relates primarily to the interest
on the Corporation's mortgage and capital leases.
Net interest income was $6.7 million, $5.9 million, and $4.9 million in fiscal
2000, 1999, and 1998, respectively. The increase during fiscal 2000 was the
result of a significant increase in the average size of the investment
portfolio, and to a lesser extent the impact of favorable exchange rate
fluctuations. This increase was offset by a slight decrease in the average
effective interest rates during fiscal 2000. The increase in fiscal 1999 was
primarily attributable to higher average effective interest rates, and to a
lesser extent, a larger average portfolio, which was partially offset by the
impact of adverse exchange rate fluctuations.
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Tax Expense
The Corporation's tax rate is affected by the relative profitability of its
operations in various geographic regions. In fiscal 2000 the Corporation's
effective tax rate was 33%, compared to 31% in fiscal 1999, and 29% in fiscal
1998. (See Note 9 of the Notes to the Consolidated Financial Statements.)
Liquidity and Capital Resources
As of February 29, 2000, the Corporation held $196.7 million in cash, cash
equivalents, and short-term investments, an increase of $47.0 million from
February 28, 1999. In addition, the Corporation has arranged an unsecured credit
facility that includes an operating line and foreign exchange conversion
facilities. The operating line permits the Corporation to borrow funds or issue
letters of credit or guarantee up to Cdn$15.0 (US$10.4) million, subject to
certain covenants. As of February 29, 2000, there were no direct borrowings
under this operating line. As discussed further below, the Corporation has
foreign exchange conversion facilities that allow it to hold foreign exchange
contracts of approximately Cdn$130.0 (US$89.7) million outstanding at any one
time.
As of February 29, 2000, the Corporation had a total of $4.9 million of long-
term liabilities (including the current portion of long-term debt), consisting
of a mortgage, other long-term liabilities, and certain capital leases. As of
February 29, 2000, working capital was $166.5 million, an increase of $43.1
million from February 28, 1999, primarily because of higher levels of cash,
accounts receivable, and short-term investments, which were partially offset by
increases in deferred revenue and other current liabilities. Working capital
increased in fiscal 2000 even though the Corporation used $26.0 million for
share repurchases and $2.1 million for acquisitions during the year.
Cash provided by operating activities (after changes in non-cash working capital
items) for fiscal 2000 was $83.2 million, a decrease of $1.4 million compared to
the prior fiscal year. This fluctuation was due to a net increase in non-cash
working capital as compared to a net decrease in non-cash working capital during
fiscal 1999, which was offset by an increase in net income after adjustments for
depreciation, amortization and other non-cash items.
Cash used in investing activities was $37.7 million for fiscal 2000, a decrease
in investment of $11.9 million compared to the prior fiscal year. The majority
of the fluctuation stems from a decrease in net investments in short-term
investment and decreases in acquisition costs; these decreases were offset by an
increase in fixed asset additions. The increase in fixed asset additions was
primarily the result of computer equipment and software purchases. Further,
during fiscal 2000 the Corporation began the construction of a second building
on the site of its corporate headquarters in Ottawa. The Corporation has
invested approximately $3.4 million in the current year and it is anticipated
that costs will total $21 million when the construction is substantially
complete in fiscal 2001. (See Note 7 of the Notes to the Consolidated Financial
Statements.) During fiscal 1999, the Corporation purchased the remaining
interest in its head office building in Ottawa, Canada for approximately $4.8
million. In fiscal 2000, the Corporation spent $7.4 million related to the
activity in short-term investments compared to $19.2 million (both net of
maturities) in fiscal 1999. In addition, the Corporation spent $2.1 million in
fiscal 2000 on acquisitions, compared to $9.2 million in fiscal 1999. (See Note
5 of the Notes to the Consolidated Financial Statements.)
Cash used in financing activities was $9.1 million for fiscal 2000, compared to
$28.7 million in fiscal 1999. The Corporation's financing activities for both
fiscal years were centered around the repurchase of its own shares in the open
market, and the issuance of shares pursuant to the Corporation's stock
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purchase plan and the exercise of stock options. During fiscal 2000, the
Corporation repurchased 2,286,000 shares at a cost of $26.0 million, compared to
3,006,000 shares repurchased at a cost of $34.1 million in fiscal 1999.
Offsetting this activity, the Corporation issued 2,093,000 common shares for
consideration of $16.5 million during fiscal 2000, compared to 1,146,000 shares
for consideration of $5.0 million in fiscal 1999. The issuance of shares in both
periods was pursuant to the Corporation's stock purchase plan and the exercise
of stock options by employees, officers, and directors. In fiscal 1999, the
Corporation also issued 503,000 shares for a value of $3.8 million in
conjunction with the acquisition of Relational Matters and LEX2000 Inc. In
fiscal 1998 the Corporation issued 180,000 shares for a value of $1.6 million in
conjunction with the acquisition of RIS. (See Note 5 of the Notes to the
Consolidated Financial Statements.)
The share repurchases made in the past three fiscal years were part of distinct
open market share repurchase programs through the Nasdaq National Market. The
share repurchases made in fiscal 2000 were part of two open market share
repurchase programs. The program adopted in October 1998 expired on October 8,
1999. Under this program the Corporation repurchased 3,161,800 of its shares for
$35.4 million; all repurchased shares were cancelled. In October 1999, the
Corporation adopted a new program that will enable it to purchase up to
4,200,000 common shares (not more than 5% of those issued and outstanding)
between October 9, 1999 and October 8, 2000. Under the current program the
Corporation has repurchased 100,000 shares for $1.3 million during fiscal 2000;
all repurchased shares were cancelled. This program does not commit the
Corporation to make any share repurchases. Purchases will be made on The Nasdaq
Stock Market at prevailing open market prices and paid out of general corporate
funds. All repurchased shares will be cancelled. A copy of the Notice of
Intention to Make an Issuer Bid is available from the Corporate Secretary. (See
Note 10 of the Notes to the Consolidated Financial Statements.)
The Corporation's policy with respect to foreign currency exposure is to manage
its financial exposure to certain foreign exchange fluctuations with the
objective of neutralizing some of the impact of foreign currency exchange
movements. To achieve this objective, the Corporation enters into foreign
exchange forward contracts to hedge portions of the net investment in its
various subsidiaries. The Corporation enters into these foreign exchange forward
contracts with major Canadian chartered banks, and therefore does not anticipate
non-performance by these counterparties. The amount of the exposure on account
of any non-performance is restricted to the unrealized gains in such contracts.
As of February 29, 2000, the Corporation had foreign exchange forward contracts,
with maturity dates ranging from March 30, 2000 to May 25, 2000, to exchange
various foreign currencies in the amount of $6.2 million.
The Corporation has never declared or paid any cash dividends on its common
shares. The Corporation's current policy is to retain its earnings to finance
expansion and to develop, license, and acquire new software products, and to
otherwise reinvest in the Corporation.
The Corporation anticipates that through fiscal 2001 its operations will be
financed by current cash balances and funds from operations. If the Corporation
were to require funds in excess of its current cash position to finance its
longer-term operations, the Corporation would expect to obtain such funds from,
one or a combination of, the expansion of its existing credit facilities, or
from public or private sales of equity or debt securities.
Inflation has not had a significant impact on the Corporation's results of
operations.
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Year 2000 Project
Beginning in fiscal 1998 the Corporation commenced an intensive effort to
identify and categorize potential problem areas and develop action plans with
respect to the Year 2000. This process involved an examination of its products,
and its internal systems, hardware and software, as well as contacting its
suppliers to obtain assurances regarding their Year 2000 readiness. The total
project costs for both the Corporation's software products and its internal
systems and processes were $2.4 million, of which approximately $0.1 million
were capitalized. Of the total project costs, $0.7 million, were incurred during
fiscal 2000, and $1.7 million during fiscal 1999.
European Economic and Monetary Union
The introduction of the euro currency on January 1, 1999 has associated with it
many potential implications for businesses operating in Europe including, but
not limited to, products, information technology, pricing, currency exchange
rate risk and derivatives exposure, continuity of material contracts, and
potential tax consequences.
The Corporation is preparing for this new euro currency, which is scheduled to
be introduced in stages over the course of a 3 1/2 year transition period. The
Corporation believes the introduction of the euro will have limited longer-term
implications on the Corporation's business. The Corporation is preparing for the
introduction of the euro in the area of its internal processes and systems
through identifying, modifying, and testing these processes and systems to
handle transactions involving the euro in accordance with the regulations. The
Corporation's financial application systems represent the most significant
internal systems that will be affected by the introduction of the euro. The
Corporation upgraded these systems to a version that enables it, together with
certain process changes and modifications provided by the application vendor to
its supported customers, to handle the initial requirements for transactions
involving the euro. The Corporation continues to identify and, where necessary,
modify its systems and processes in order to handle the various stages of the
euro implementation. The Corporation is continuing to monitor its pricing in
Europe, giving consideration to the introduction of the euro.
The Corporation believes that the costs relating to the conversion of its
internal systems and processes will not have a material adverse effect on its
business, results of operations, or financial condition.
Market Risk
Market risk represents the risk of loss that may impact our financial position
due to adverse changes in financial market prices and rates. Our market risk
exposure is primarily a result of fluctuations in interest rates and foreign
currency exchange rates. We do not hold or issue financial instruments for
trading purposes.
Further discussion of our investment and foreign exchange policies can be found
in Notes 1 and 8 of the Notes to the Consolidated Financial Statements.
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Interest Rate Risk
Our exposure to market rate risk for changes in interest rates relates primarily
to our investment portfolio. The investment of cash is regulated by our
investment policy of which the primary objective is security of principal. Among
other selection criteria, the investment policy states that the term to maturity
of investments cannot exceed one year in length. We do not use derivative
financial instruments in our investment portfolio.
Interest income on our cash, cash equivalents, and short-term investments is
subject to interest rate fluctuations, but we believe that the impact of these
fluctuations does not have a material effect on our financial position due to
the short-term nature of these financial instruments. The amount of our long-
term debt is immaterial. Our interest income and interest expense are most
sensitive to the general level of interest rates in Canada and the United
States. Sensitivity analysis is used to measure our interest rate risk. For the
fiscal year ending February 29, 2000, a 100 basis-point adverse change in
interest rates would not have had a material effect on our consolidated
financial position, earnings, or cash flows.
Foreign Currency Risk
We operate internationally; accordingly, a substantial portion of our financial
instruments are held in currencies other than the United States dollar. Our
policy with respect to foreign currency exposure is to manage financial exposure
to certain foreign exchange fluctuations with the objective of neutralizing some
of the impact of foreign currency exchange movements. To achieve this objective,
we enter into foreign exchange forward contracts to hedge portions of the net
investment in various subsidiaries. The forward contracts are typically between
the United States dollar and the British pound, the German mark, and the
Australian dollar. Sensitivity analysis is used to measure our foreign currency
exchange rate risk. As of February 29, 2000, a 10% adverse change in foreign
exchange rates versus the U.S. dollar would not have had a material effect on
our reported cash, cash equivalents, and short-term investments.
Certain Factors That May Affect Future Results
We make certain statements in this report that constitute forward-looking
statements. These statements include, but are not limited to, statements
relating to our expectations concerning future revenues and earnings, including
future rates of growth, from the licensing of our business intelligence and
application development products and related product support and services, and
relating to the sufficiency of capital to meet our working capital and capital
expenditure requirements. Forward-looking statements are subject to risks and
uncertainties that may cause future results to differ materially from those
expected. There can be no guarantee that future results will turn out as
expected. Factors that may cause such differences include, but are not limited
to, the factors discussed below. Additional risks and uncertainties that we are
unaware of or currently deem immaterial may also adversely affect our business
operations.
Our growth may not continue at historical growth rates.
Although we have experienced significant license revenue growth with respect to
our business intelligence products over the past few fiscal years, we cannot
assure you that we will continue to grow. If we do grow, we cannot assure you
that we will be able to maintain the historical rate or extent of such growth in
the future. Despite product license revenue growth from our application
development tools during fiscal 1999, we have been experiencing a decline in
product license revenue from our application
15
<PAGE>
development tools over the past several years. In the long term, we expect
declining revenues in these more established proprietary markets for our
application development tools.
Our quarterly and annual operating results are subject to fluctuations, which
may cause our stock price to fluctuate or decline.
Historically, our quarterly operating results have varied from quarter to
quarter, and we anticipate this pattern to continue. We typically realize a
larger percentage of our annual revenue and earnings in the fourth quarter of
each fiscal year, and lower revenue and earnings in the first quarter of the
next fiscal year. Our quarterly operating results may be adversely affected by a
wide variety of factors, including:
. our ability to maintain revenue growth at current levels or anticipate
a decline in revenue from any of our products;
. changes in product mix and our ability to anticipate changes in
shipment patterns;
. our ability to identify and develop new technologies and to
commercialize those technologies into new products;
. our ability to accurately select appropriate business models and
strategies;
. our ability to make appropriate decisions which will position us to
achieve further growth;
. our ability to identify, hire, train, motivate, and retain highly
qualified personnel, and to achieve targeted productivity levels;
. our ability to identify, develop, deliver, and introduce in a timely
manner new and enhanced versions of our products which anticipate
market demand and address customer needs;
. market acceptance of business intelligence software generally and of
new and enhanced versions of our products in particular;
. timing of new product announcements;
. our ability to establish and maintain a competitive advantage;
. changes in our pricing policies or those of our competitors and other
competitive pressures on selling prices;
. size, timing, and execution of customer orders and shipments,
including delays, deferrals, or cancellations of customer orders;
. number and significance of product enhancements and new product and
technology announcements by our competitors;
. our reliance on third party distribution channels as part of our sales
and marketing strategy;
. the timing and provision of pricing protections and exchanges from
certain distributors;
. changes in foreign currency exchange rates and issues relating to the
conversion to the euro; and
. our ability to enforce our intellectual property rights.
As a result of the foregoing and other factors, we may experience material
fluctuations in future quarterly and annual operating results. These
fluctuations could materially and adversely affect our stock price, as well as,
our business, results of operations, and financial condition.
The software markets that we target are subject to rapid technological change
and new product introductions and enhancements.
The markets for our products are characterized by:
. rapid and significant technological change;
. frequent new product introductions and enhancements;
16
<PAGE>
. changing customer demands; and
. evolving industry standards.
We believe that our future success depends principally on our ability to
continue to support a number of popular operating systems and databases; our
ability to maintain and improve our product line; and our ability to rapidly
develop new products that achieve market acceptance, maintain technological
competitiveness, and meet an expanding range of customer requirements. If we are
unable to achieve these factors, we may lose our competitive position.
Successful product development and introduction depend upon a number of factors,
including new product selection, timely and efficient completion of product
design, product performance at customer locations, and whether our competitors
develop similar products. In addition, the introduction of products embodying
new technologies can quickly make existing products obsolete and unmarketable.
We cannot assure you that our products will remain competitive, respond to
market demands and developments and new industry standards, and not become
obsolete. In particular, we cannot assure you that we have developed the
appropriate products to respond effectively to the growing market interest in
Web-based software, or if so, whether we can continue to bring those products to
market in a timely and cost-effective basis and distribute those products in the
face of competition from similar products developed by existing or new
competitors. We cannot assure you that market interest in Web-based software
will continue at the same rate, or that alternative methods of deploying
software will not become more popular. If we are unable to identify a shift in
the market demand quickly enough, we may not be able to develop products to meet
those new demands, or bring them to market in a timely way.
We rely on partners and other distribution channels to market and distribute our
products and any failure of these parties to do so, could have a material
adverse effect on our business.
Our sales and marketing strategy includes multi-tiered channels ranging from a
direct sales force to various forms of third-party distributors, resellers, and
original equipment manufacturers. We have developed a number of these
relationships and intend to continue to develop new channel partner
relationships. Our inability to attract important and effective channel
partners, or these partners' inability to penetrate their respective market
segments, or the loss of any of our channel partners as a result of competitive
products offered by other companies or products developed internally by these
channel partners or otherwise, could materially adversely affect our business,
results of operations, and financial condition.
Unauthorized used of our intellectual property could damage our business.
Our success depends in part on our ability to protect our proprietary rights in
our intellectual property. We rely on certain intellectual property protections,
including contractual provisions, patents, copyright, trademark and trade secret
laws, to preserve our intellectual property rights. Despite our precautions, it
may be possible for third parties to obtain and use our intellectual property
without our authorization. Policing unauthorized use of software is difficult
and some foreign laws do not protect proprietary rights to the same extent as
Canada or the United States.
To protect our intellectual property, we may become involved in litigation,
which could result in substantial expenses and materially disrupt the conduct of
our business. Third parties could assert that our technology infringes their
proprietary rights, which could adversely affect our ability to distribute our
products and result in substantial litigation expenses and monetary liability.
Any invalidation of our
17
<PAGE>
intellectual property rights or lengthy and expensive defense of those rights
could have a material adverse affect on our business, results of operations, and
financial condition.
The loss of our rights to use software licensed to us by third parties could
harm our business.
In order to provide a complete solution, we license certain technologies used in
our products from third parties, generally on a non-exclusive basis. The
termination of such licenses, or the failure of the third-party licensors to
adequately maintain or update their products, could delay our ability to ship
certain of our products while we seek to implement alternative technology
offered by other sources. In addition, alternative technology may not be
available on commercially reasonable terms. In the future, it may be necessary
or desirable to obtain other third-party technology licenses relating to one or
more of our products or relating to current or future technologies to enhance
our product offerings. We cannot assure you that we will be able to obtain
licensing rights to the needed technology on commercially reasonable terms, if
at all.
We face intense competition and could be affected by the actions of our
competitors.
We face substantial competition throughout the world, primarily from software
companies located in the United States, Europe, and Canada. Some of our
competitors have been in business longer than us and have substantially greater
financial and other resources with which to pursue research and development,
manufacturing, marketing, and distribution of their products. We expect our
current competitors and potentially new competitors to continue to improve the
performance of their current products and to introduce new products or new
technologies that provide improved cost of ownership and performance
characteristics. New product introductions by our competitors could cause a
decline in sales, a reduction in the sales price, or a loss of market acceptance
of our existing products. To the extent that we are unable to effectively
compete against our current and future competitors, our ability to sell products
could be harmed and our market share reduced. Any erosion of our competitiveness
could have a material adverse effect on our business, results of operations, and
financial condition.
We have multinational operations that are subject to risks inherent in
international operations.
We derive a significant portion of our total revenues from international sales.
International sales are subject to significant risks, including:
. unexpected changes in legal and regulatory requirements and policy
changes affecting our markets;
. changes in tariffs and other trade barriers;
. fluctuations in currency exchange rates;
. political and economic instability;
. longer payment cycles and other difficulties in accounts receivable
collection;
. difficulties in managing distributors and representatives;
. difficulties in staffing and managing foreign operations;
. difficulties in protecting our intellectual property; and
. potentially adverse tax consequences.
Each of these factors could adversely affect our business, results of
operations, and financial condition.
18
<PAGE>
Our executive management and other key personnel are essential to our business;
we may not be able to recruit and retain the personnel we need to succeed.
Our performance is substantially dependent on the performance of our key
technical and management personnel. The loss of the services of any of these
persons could have a material adverse effect on our business, results of
operations, and financial condition. Our success is highly dependent on our
continuing ability to identify, hire, train, motivate, and retain highly
qualified management, technical, sales, and marketing personnel. Competition for
such personnel is intense, and we cannot assure you that we will be able to
attract, assimilate, or retain highly qualified technical and managerial
personnel in the future. Our inability to attract and retain the necessary
management, technical, sales, and marketing personnel could have a material
adverse effect on our business, results of operations, and financial condition.
Pursuing and completing recent and potential acquisitions could divert
management attention and financial resources and may not produce the desired
business results.
We completed the acquisitions of Information Tools AG, and the outstanding
minority interest in Cognos Far East Pte Limited during fiscal 2000. In fiscal
1999, we acquired Relational Matters and LEX2000 Inc., and in fiscal 1998, Right
Information Systems Limited and Interweave Software, Inc. We may in turn engage
in additional selective acquisitions of other products or businesses that we
believe are complementary to ours. We cannot assure you that we will be able to
identify additional suitable acquisition candidates available for sale at
reasonable prices, consummate any acquisition, or successfully integrate any
acquired product or business into our operations. Further, acquisitions may
involve a number of special risks, including:
. diversion of management's attention;
. disruption to our ongoing business;
. failure to retain key acquired personnel;
. difficulties in assimilating acquired operations, technologies,
products, and personnel;
. unanticipated expenses, events, or circumstances;
. assumption of legal and other undisclosed liabilities; and
. the ability to appropriately value the acquired in-process research
and development.
If we do not successfully address these risks or any other problems encountered
in connection with an acquisition, the acquisition could have a material adverse
effect on our business, results of operations, and financial condition. Problems
with an acquired business could have a material adverse effect on our
performance as a whole. In addition, if we proceed with an acquisition, our
available cash may be used to complete the transaction, or shares may be issued
which could cause a dilution to existing shareholders.
Our stock price will fluctuate.
The market price of our common shares may be volatile and could be subject to
wide fluctuations due to a number of factors, including:
. actual or anticipated fluctuations in our results of operations;
. announcements of technological innovations or new products by us or
our competitors;
. changes in estimates of our future results of operations by securities
analysts;
19
<PAGE>
. general industry changes in the business intelligence tools or
client/server development tools markets; or
. other events or factors.
In addition, the financial markets have experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
to the operating performance of these companies. Broad market fluctuations, as
well as economic conditions generally and in the software industry specifically,
may adversely affect the market price of our common shares. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
that company. Similar litigation may occur in the future with respect to us,
which could result in substantial costs, divert management's attention and other
company resources, and have a material adverse effect upon our business, results
of operations, and financial condition.
20
<PAGE>
Quarterly Results
The following table sets out selected unaudited consolidated financial
information for each quarter in fiscal 1999 and fiscal 2000.
On April 6, 2000, subsequent to year-end, the Board of Directors of the
Corporation authorized a two-for-one stock split, effected in the form of a
stock dividend, payable on or about April 27, 2000 to shareholders of record at
the close of business on April 20, 2000. All historic consolidated results have
been restated for the split.
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 2000
---------------------------------------- ---------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
---------------------------------------- ---------------------------------------
($000s, except per share amounts, Canadian GAAP)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $67,309 $70,583 $76,308 $86,925 $81,645 $88,128 $97,753 $118,114
-------------------------------------- ---------------------------------------
Operating expenses
Cost of product license 942 1,137 1,354 2,305 1,054 1,001 1,456 1,724
Cost of product support 2,408 2,793 2,968 2,997 3,095 3,336 3,608 3,719
Selling, general, and
administrative 43,140 42,140 44,789 48,226 53,478 56,263 63,183 71,903
Research and development 9,946 10,235 10,863 11,230 12,197 12,845 13,574 14,932
Investment tax credits (2,465) (5,085) (3,647) (3,683) (1,167) (1,163) (2,177) (1,700)
-------------------------------------- ---------------------------------------
Total operating expenses 53,971 51,220 56,327 61,075 68,657 72,282 79,644 90,578
-------------------------------------- ---------------------------------------
Operating income $13,338 $19,363 $19,981 $25,850 $12,988 $15,846 $18,109 $ 27,536
====================================== =======================================
Net income $10,375 $13,223 $14,955 $19,569 $ 9,796 $11,768 $12,782 $ 20,196
====================================== =======================================
Net income per share
Basic $ 0.12 $ 0.15 $ 0.17 $ 0.23 $ 0.11 $ 0.14 $ 0.15 $ 0.23
====================================== =======================================
Fully diluted $ 0.11 $ 0.15 $ 0.17 $ 0.22 $ 0.11 $ 0.14 $ 0.15 $ 0.23
====================================== ======================================
</TABLE>
The Corporation's sales cycle typically ranges from a few days up to twelve
months, depending on factors such as the size of the transaction, the product
involved, the length of the customer relationship, the timing of new product
introductions by the Corporation and others, the level of sales management
activity, and general economic conditions. Delays in closing product licensing
transactions at or near the end of any quarter may have a materially adverse
effect on the financial results for that quarter. While the Corporation takes
steps to minimize the impact of such delays, there can be no assurance that such
delays will not occur. See Certain Factors That May Affect Future Results.
21
<PAGE>
COGNOS INCORPORATED
REPORT OF MANAGEMENT
The Corporation's management is responsible for preparing the accompanying
consolidated financial statements in conformity with accounting principles
generally accepted in Canada. In preparing these consolidated financial
statements, management selects appropriate accounting policies and uses its
judgment and best estimates to report events and transactions as they occur.
Management has determined such amounts on a reasonable basis in order to ensure
that the financial statements are presented fairly, in all material respects.
Financial data included throughout this Annual Report is prepared on a basis
consistent with that of the financial statements.
The Corporation maintains a system of internal accounting controls designed to
provide reasonable assurance, at a reasonable cost, that assets are safeguarded
and that transactions are executed and recorded in accordance with the
Corporation's policies for doing business. This system is supported by written
policies and procedures for key business activities; the hiring of qualified,
competent staff; and by a continuous planning and monitoring program.
Ernst & Young LLP, the independent auditors appointed by the shareholders, have
been engaged to conduct an examination of the consolidated financial statements
in accordance with generally accepted auditing standards, and have expressed
their opinion on these statements. During the course of their audit, Ernst &
Young LLP reviewed the Corporation's system of internal controls to the extent
necessary to render their opinion on the consolidated financial statements.
The Board of Directors is responsible for ensuring that management fulfills its
responsibility for financial reporting and internal control, and is ultimately
responsible for reviewing and approving the consolidated financial statements.
The Board carries out this responsibility principally through its Audit
Committee; all members are outside Directors. The Committee meets four times
annually to review audited and unaudited financial information prior to its
public release. The Committee also considers, for review by the Board of
Directors and approval by the shareholders, the engagement or reappointment of
the external auditors. Ernst & Young LLP has full and free access to the Audit
Committee.
Management acknowledges its responsibility to provide financial information that
is representative of the Corporation's operations, is consistent and reliable,
and is relevant for the informed evaluation of the Corporation's activities.
/s/ James M. Tory /s/ Ron Zambonini /s/ Donnie M. Moore
James M. Tory Ron Zambonini Donnie M. Moore
Chairman President and Senior Vice President,
Chief Executive Officer Finance & Administration, and
Chief Financial Officer
March 30, 2000
[except Note 14, as to which
the date is April 6, 2000]
22
<PAGE>
COGNOS INCORPORATED
AUDITORS' REPORT
To the Board of Directors and Shareholders of Cognos Incorporated:
We have audited the consolidated balance sheets of Cognos Incorporated as at
February 29, 2000 and February 28, 1999 and the consolidated statements of
income, stockholders' equity, and cash flows for each of the years in the three-
year period ended February 29, 2000. These financial statements are the
responsibility of the Corporation'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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at February 29,
2000 and February 28, 1999, and the results of its operations and its cash flows
for each of the years in the three-year period ended February 29, 2000, in
accordance with accounting principles generally accepted in Canada.
On March 30, 2000, we reported separately to the Board of Directors and
Shareholders of Cognos Incorporated on financial statements for the same
periods, prepared in accordance with accounting principles generally accepted in
the United States of America.
/s/ Ernst & Young LLP
Ottawa, Canada Ernst & Young LLP
March 30, 2000 Chartered Accountants
[except Note 14, as to which
the date is April 6, 2000]
23
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(US$000s except share amounts, CDN GAAP)
<TABLE>
<CAPTION>
Years Ended the Last Day of February
Note 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Product license $203,299 $158,393 $126,820
Product support 118,061 93,311 72,832
Services 64,280 49,421 45,182
- --------------------------------------------------------------------------------------------------------------
Total revenue 385,640 301,125 244,834
- --------------------------------------------------------------------------------------------------------------
Operating expenses
Cost of product license 5,235 5,738 3,828
Cost of product support 13,758 11,166 9,694
Selling, general, and administrative 244,827 178,295 143,493
Research and development 53,548 42,274 33,530
Investment tax credits (6,207) (14,880) (9,432)
- --------------------------------------------------------------------------------------------------------------
Total operating expenses 311,161 222,593 181,113
- --------------------------------------------------------------------------------------------------------------
Operating income 74,479 78,532 63,721
Interest expense 6 (718) (527) (481)
Interest income 7,454 6,430 5,340
- --------------------------------------------------------------------------------------------------------------
Income before taxes 81,215 84,435 68,580
Income tax provision 9 26,673 26,313 19,638
- --------------------------------------------------------------------------------------------------------------
Net income $ 54,542 $ 58,122 $ 48,942
==============================================================================================================
Net income per share 10, 14
Basic $ 0.63 $ 0.66 $ 0.55
==============================================================================================================
Fully diluted $ 0.62 $ 0.65 $ 0.54
==============================================================================================================
Weighted average number of shares (000s) 10, 14
Basic 85,972 87,416 88,414
==============================================================================================================
Fully diluted 92,082 93,404 96,082
==============================================================================================================
</TABLE>
(See accompanying notes)
24
<PAGE>
CONSOLIDATED BALANCE SHEETS
(US$000s, CDN GAAP)
<TABLE>
<CAPTION>
February 29, February 28,
Note 2000 1999
- ---------------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents 8 $132,435 $ 93,617
Short-term investments 8 64,284 56,074
Accounts receivable 2 107,823 76,876
Inventories 806 807
Prepaid expenses 7,840 6,388
- ------------------------------------------------------------------------------------------------------------
313,188 233,762
Fixed assets 3 44,835 30,164
Intangible assets 4 40,158 50,179
- ------------------------------------------------------------------------------------------------------------
$398,181 $314,105
============================================================================================================
Liabilities
Current liabilities
Accounts payable $ 22,908 $ 18,960
Accrued charges 17,540 13,148
Salaries, commissions, and related items 24,024 19,656
Income taxes payable 3,548 7,290
Current portion of long-term debt 6 2,176 123
Deferred revenue 76,537 51,242
- ------------------------------------------------------------------------------------------------------------
146,733 110,419
Long-term debt 6 - 2,489
Long-term liabilities 5 2,699 5,820
Deferred income taxes 9 21,730 16,775
- ------------------------------------------------------------------------------------------------------------
171,162 135,503
- ------------------------------------------------------------------------------------------------------------
Commitments and Contingencies 7
Stockholders' Equity
Capital stock
Common shares
(2000 - 86,657,578; 1999 - 86,850,568) 10, 14 106,936 91,985
Retained earnings 126,316 95,329
Other accumulated comprehensive items (6,233) (8,712)
- ------------------------------------------------------------------------------------------------------------
227,019 178,602
- ------------------------------------------------------------------------------------------------------------
$398,181 $314,105
============================================================================================================
</TABLE>
(See accompanying notes)
On behalf of the Board:
/s/ Douglas C. Cameron /s/ James M. Tory
Douglas C. Cameron, Director James M. Tory, Chairman
25
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(US$000s except share amounts, CDN GAAP)
<TABLE>
<CAPTION>
Other
Common Stock Accumulated
----------------------- Retained Comprehensive
Shares Amount Earnings Items Total
- --------------------------------------------------------- ------------------------------------------------------
(000s)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances,
February 28, 1997 87,178 $ 74,739 $ 46,122 $ (4,949) $115,912
Issuance of stock
Stock option plans 3,316 8,557 8,557
Stock purchase plans 74 776 776
Business acquisitions 180 1,607 1,607
Repurchase of shares (2,540) (2,386) (26,725) (29,111)
Income tax effect related to stock options 2,425 2,425
- --------------------------------------------------------------------------------------------------------------------------
88,208 85,718 19,397 (4,949) 100,166
- --------------------------------------------------------------------------------------------------------------------------
Net income 48,942 48,942
Other comprehensive items
Foreign currency translation adjustments (1,803) (1,803)
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income 48,942 (1,803) 47,139
- --------------------------------------------------------------------------------------------------------------------------
Balances,
February 28, 1998 88,208 $ 85,718 $ 68,339 $ (6,752) $147,305
Issuance of stock
Stock option plans 1,054 4,141 4,141
Stock purchase plans 92 846 846
Business acquisitions 503 3,763 3,763
Repurchase of shares (3,006) (3,005) (31,132) (34,137)
Income tax effect related to stock options 522 522
- --------------------------------------------------------------------------------------------------------------------------
86,851 91,985 37,207 (6,752) 122,440
- --------------------------------------------------------------------------------------------------------------------------
Net income 58,122 58,122
Other comprehensive items
Foreign currency translation adjustments (1,960) (1,960)
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income 58,122 (1,960) 56,162
- --------------------------------------------------------------------------------------------------------------------------
Balances,
February 28, 1999 86,851 $ 91,985 $ 95,329 $ (8,712) $178,602
Issuance of stock
Stock option plans 1,973 15,420 15,420
Stock purchase plans 120 1,095 1,095
Repurchase of shares (2,286) (2,458) (23,555) (26,013)
Income tax effect related to stock options 894 894
- --------------------------------------------------------------------------------------------------------------------------
86,658 106,936 71,774 (8,712) 169,998
- --------------------------------------------------------------------------------------------------------------------------
Net income 54,542 54,542
Other comprehensive items
Foreign currency translation adjustments 2,479 2,479
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive income 54,542 2,479 57,021
- --------------------------------------------------------------------------------------------------------------------------
Balances,
February 29, 2000 86,658 $106,936 $126,316 $ (6,233) $227,019
==========================================================================================================================
</TABLE>
(See accompanying notes)
26
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$000s, CDN GAAP)
<TABLE>
<CAPTION>
Years Ended the Last Day of February
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in) operating activities
Net income $ 54,542 $ 58,122 $ 48,942
Non-cash items
Depreciation and amortization 26,272 17,958 12,367
Deferred income taxes 4,756 (3,685) (370)
Loss on disposal of fixed assets 148 185 403
- ------------------------------------------------------------------------------------------------------------
85,718 72,580 61,342
Change in non-cash working capital
Increase in accounts receivable (32,818) (12,805) (17,135)
Decrease (increase) in inventories 31 (267) 91
Increase in prepaid expenses (1,328) (2,852) (837)
Increase in accounts payable 3,930 3,526 3,571
Increase in accrued charges 1,004 2,568 300
Increase in salaries, commissions, and related items 4,394 5,806 2,948
Increase (decrease) in income taxes payable (3,993) 5,624 (2,603)
Increase in deferred revenue 26,280 10,438 8,208
- ------------------------------------------------------------------------------------------------------------
83,218 84,618 55,885
- ------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities
Maturity of short-term investments 138,796 96,860 131,340
Purchase of short-term investments (146,238) (116,093) (151,141)
Acquisition costs (2,146) (9,174) (16,915)
Additions to fixed assets (28,096) (21,147) (12,068)
Proceeds from the sale of fixed assets 24 12 45
- ------------------------------------------------------------------------------------------------------------
(37,660) (49,542) (48,739)
- ------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities
Issue of common shares 17,409 5,509 11,758
Repurchase of shares (26,013) (34,137) (29,111)
Repayment of long-term debt (467) (107) (92)
- ------------------------------------------------------------------------------------------------------------
(9,071) (28,735) (17,445)
- ------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 2,331 (2,338) (1,240)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 38,818 4,003 (11,539)
Cash and cash equivalents, beginning of period 93,617 89,614 101,153
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 132,435 93,617 89,614
Short-term investments, end of period 64,284 56,074 36,712
- ------------------------------------------------------------------------------------------------------------
Cash, cash equivalents, and short-term investments, end
of period $ 196,719 $ 149,691 $ 126,326
===========================================================================================================
</TABLE>
(See accompanying notes)
27
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Business
The Corporation develops, markets, and supports computer software products for
data access, exploring, reporting, and analysis, and for application development
on a wide range of open and proprietary platforms. The Corporation markets and
supports these products both directly and through resellers worldwide.
Basis of Presentation
These consolidated financial statements have been prepared by the Corporation in
United States (U.S.) dollars and in accordance with generally accepted
accounting principles (GAAP) in Canada, applied on a consistent basis.
Consolidated financial statements prepared in accordance with U.S. GAAP, in U.S.
dollars, are made available to all shareholders, and filed with various
regulatory authorities.
Basis of Consolidation
These consolidated financial statements include the accounts of the Corporation
and its subsidiaries. All but one of the subsidiaries are wholly owned.
Intercompany transactions and balances have been eliminated.
Estimates
The preparation of these consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and the accompanying
notes. In the opinion of Management, these consolidated financial statements
reflect all adjustments necessary to present fairly the results for the periods
presented. Actual results could differ from these estimates.
Comprehensive Income
Comprehensive Income includes net income and "other comprehensive income." Other
comprehensive income refers to changes in the balances of revenues, expenses,
gains, and losses that are recorded directly as a separate component of
Stockholders' Equity and excluded from net income. The only comprehensive item
for the Corporation relates to foreign currency translation adjustments
pertaining to those subsidiaries not using the U.S. dollar as their functional
currency.
Foreign Currency Translation
The financial statements of the parent company and its non-U.S. subsidiaries
have been translated into U.S. dollars in accordance with The Canadian Institute
of Chartered Accountants (CICA) Handbook, Section 1650, Foreign Currency
Translation. All balance sheet amounts have been translated using the exchange
rates in effect at the applicable year end. Income statement amounts have been
translated using the weighted average exchange rate for the applicable year. The
gains and losses resulting from the
28
<PAGE>
changes in exchange rates from year to year have been reported as a separate
component of Stockholders' Equity. Currency transaction gains and losses are
immaterial for all periods presented.
Revenue
The Corporation recognizes revenue in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition, issued by the American Institute of
Certified Public Accountants.
Substantially all of the Corporation's product license revenue is earned from
licenses of off-the-shelf software requiring no customization. Revenue from
these licenses is recognized when all of the following criteria are met:
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable, and collectibility is probable. If a license includes the
right to return the product for refund or credit, revenue is recognized net of
an allowance for estimated returns provided all the requirements of SOP 97-2
have been met.
Revenue from product support contracts is recognized ratably over the life of
the contract. Incremental costs directly attributable to the acquisition of
product support contracts are deferred and expensed in the period the related
revenue is recognized.
Revenue from education, consulting, and other services is recognized at the time
such services are rendered.
For contracts with multiple obligations (e.g. deliverable and undeliverable
products, support obligations, education, consulting and other services), the
Corporation allocates revenue to each element of the contract based on objective
evidence, specific to the Corporation, of the fair value of the element.
Cash, Cash Equivalents, and Short-Term Investments
Cash includes cash equivalents, which are investments that are generally held to
maturity and have terms to maturity of three months or less at the time of
acquisition. Cash equivalents typically consist of commercial paper, term
deposits, banker's acceptances and bearer deposit notes issued by major North
American banks, and corporate debt. Cash and cash equivalents are carried at
cost, which approximates their fair value.
Short-term investments are investments that are generally held to maturity and
have terms greater than three months at the time of acquisition. Short-term
investments typically consist of commercial paper, Government of Canada Treasury
Bills, and banker's acceptances. Short-term investments are carried at cost,
which approximates their fair value.
Inventories
Inventories are comprised principally of finished goods and are stated at the
lower of cost, on an average cost basis, and net realizable value.
Fixed Assets
Fixed assets are recorded at cost. Computer equipment and software, and the
building, are depreciated using the straight line method. Office furniture is
depreciated using the diminishing balance method.
29
<PAGE>
Leasehold improvements are amortized using the straight line method over either
the life of the improvement or the term of the lease, whichever is shorter.
Assets leased on terms that transfer substantially all of the benefits and risks
of ownership to the Corporation are accounted for as capital leases, as though
the asset had been purchased and a liability incurred. All other leases are
accounted for as operating leases.
Intangible Assets
This category includes acquired technology and goodwill associated with various
acquisitions, and deferred software development costs.
Acquired technology represents the discounted fair value of the estimated net
future income-producing capabilities of software products acquired on
acquisitions. Acquired technology is amortized over five years on a straight
line basis. The Corporation evaluates the expected future net cash flows of the
acquired technology at each reporting date, and adjusts to net realizable value
if necessary.
Goodwill represents the excess of the purchase price of acquired companies over
the estimated fair value of the tangible and intangible net assets acquired.
Goodwill is amortized over five years on a straight line basis. The Corporation
evaluates the expected future net cash flows of the acquired businesses at each
reporting date, and adjusts goodwill for any impairment.
Software development costs are expensed as incurred unless they meet generally
accepted accounting criteria for deferral and amortization. Software development
costs incurred prior to the establishment of technological feasibility do not
meet these criteria, and are expensed as incurred. Research costs are expensed
as incurred. For costs that are capitalized, the amortization is the greater of
the amount calculated using either (i) the ratio that the appropriate product's
current gross revenues bear to the total of current and anticipated future gross
revenues for that product, or (ii) the straight line method over the remaining
economic life of the product. Such amortization is recorded over a period not
exceeding three years. The Corporation reassesses whether it has met the
relevant criteria for continued deferral and amortization at each reporting
date.
Income Taxes
The Corporation adopted CICA Handbook, Section 3465, Income Taxes in fiscal
1998. Under this method, future tax assets and liabilities are determined based
on differences between financial reporting and income tax bases of assets and
liabilities, and are measured using the tax rates and laws that are expected to
be in effect when the differences reverse.
Cash Flows
In June 1998, the CICA released Section 1540, Cash Flow Statements, which was
adopted by the Corporation in fiscal 1999. Under this method, non-cash investing
and financing transactions are excluded. The comparative consolidated
statements of cash flows have been restated.
2. Accounts Receivable
Accounts receivable include an allowance for doubtful accounts of $4,734,000 and
$4,430,000 as of February 29, 2000 and February 28, 1999, respectively.
30
<PAGE>
3. Fixed Assets
<TABLE>
2000 1999
---------------------------------- ----------------------------------
Accumulated Accumulated
Depreciation Depreciation Depreciation/
and and Amortization
Cost Amortization Cost Amortization Rate
------------- ---------------- -------------- --------------- ------------------
($000s) ($000s)
<S> <C> <C> <C> <C> <C>
Computer equipment and
software $ 63,334 $43,370 $ 46,795 $32,665 33%
Office furniture 21,602 11,317 15,877 9,230 20%
Leasehold improvements 8,160 3,726 5,404 2,754 Lease Term
Land 820 - 788 - -
Building 7,198 1,243 6,916 967 2.5%
Construction in progress* 3,377 - - - -
------------- --------------- -------------- ---------------
104,491 $59,656 75,780 $45,616
================ ===============
(59,656) (45,616)
------------- --------------
Net book value $ 44,835 $ 30,164
============= ==============
</TABLE>
* See Note 7
Depreciation and amortization of fixed assets was $13,898,000, $10,760,000, and
$8,766,000 in each of fiscal 2000, 1999, and 1998, respectively.
4. Intangible assets
Intangible assets as at February 29, 2000, and February 28, 1999, include
acquired technology and goodwill, and are disclosed net of amortization.
The Corporation recorded $2,352,000 of goodwill in fiscal 2000 and $26,338,000
of acquired technology and goodwill in fiscal 1999. Amortization of intangible
assets was $12,374,000, $7,143,000, and $3,171,000 in each of fiscal 2000, 1999,
and 1998, respectively (see Note 5).
The Corporation did not capitalize any costs of internally-developed computer
software to be sold, licensed, or otherwise marketed in each of fiscal 2000,
1999, and 1998, and recorded $0, $55,000, and $430,000 of corresponding
amortization, respectively.
5. Acquisitions
Fiscal 2000 Acquisitions
On May 28, 1999, the Corporation completed the acquisition of Information Tools
AG, the Corporation's distributor in Switzerland. The shareholders of
Information Tools AG are to receive total consideration of approximately
$657,000 of which $458,000 was received in cash during fiscal 2000. The
remainder of the consideration ($199,000) is payable equally on the first and
second anniversaries of the closing of the transaction. An amount not to exceed
$500,000 could also be paid in contingent consideration. Of that
31
<PAGE>
amount, approximately $120,000 will be paid in fiscal 2001 relating to fiscal
2000 results and has been recorded as additional purchase price.
On July 15, 1999, the Corporation completed the purchase of the entire
outstanding minority interest in the Corporation's subsidiary in Singapore,
Cognos Far East Pte Limited. The former minority shareholders of Cognos Far East
Pte Limited received approximately $1,688,000 in cash upon completion of the
purchase. No further consideration is due to the former minority shareholders of
the subsidiary.
Both acquisitions have been accounted for using the purchase method. The results
of operations of both acquired companies prior to the acquisition were not
material, and thus pro forma information has not been provided. The results of
both acquired companies have been combined with those of the Corporation since
their respective dates of acquisition.
Total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date: ($000s)
<TABLE>
<CAPTION>
Cognos Far
Information East Pte
Tools AG Limited Total
----------------- ----------------- -----------------
<S> <C> <C> <C>
Assets acquired $ 683 $ - $ 683
Liabilities assumed (570) - (570)
----------------- ----------------- -----------------
Net assets acquired 113 - 113
Goodwill 664 1,688 2,352
----------------- ----------------- -----------------
Purchase price $ 777 $ 1,688 $ 2,465
================= ================= =================
Consideration
Cash 458 1,688 2,146
Deferred payment 319 - 319
----------------- ----------------- -----------------
$ 777 $ 1,688 $ 2,465
================= ================= =================
</TABLE>
Fiscal 1999 Acquisitions
On December 3, 1998, the Corporation completed the acquisition of substantially
all the assets of Relational Matters including DecisionStream software.
DecisionStream aggregates and integrates large volumes of transaction data with
multidimensional data structures. Relational Matters will receive approximately
$7,555,000 over three years and 250,980 shares of the Corporation's common stock
valued at $1,823,000 over the same time period. The shares, all of which were
issued, are being held in escrow by the Corporation and will be released on the
second (40%) and third (60%) anniversaries of the closing of the transaction.
For valuation purposes, the deferred payments and shares were appropriately
discounted.
On February 24, 1999, the Corporation completed the acquisition of LEX2000 Inc.,
a developer of financial data mart and reporting software, for a combination of
cash and the Corporation's common stock. The shareholders of LEX2000 Inc. will
receive approximately $7,444,000 over three years and 252,118 shares of the
Corporation's common stock valued at $1,940,000 over the same time period.
Approximately 14,200 shares were issued at closing; the remainder, all of which
were issued, are being held in escrow by the Corporation and will be released
equally on the second (50%) and third (50%)
32
<PAGE>
anniversaries of the closing of the transaction. For valuation purposes, the
deferred payments and remaining shares were appropriately discounted.
The scheduled aggregate annual payments for the long-term liabilities related to
these two acquisitions are $3,501,000 and $2,599,000, in fiscal 2001 and 2002,
respectively. Amounts due within twelve months are included in accrued charges.
Both acquisitions have been accounted for using the purchase method. The results
of operations of both acquired companies prior to the acquisitions were not
material, and thus pro forma information has not been provided. The results of
both acquired companies have been combined with those of the Corporation since
their respective dates of acquisition.
Total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date: ($000s)
<TABLE>
<CAPTION>
Relational
Matters LEX2000 Total
----------------- ------------------ -----------------
<S> <C> <C> <C>
Assets acquired
Acquired technology $ 6,000 $ 15,499 $ 21,499
Other assets 25 1,501 1,526
---------------- ----------------- ----------------
6,025 17,000 23,025
Liabilities assumed (37) (2,869) (2,906)
Deferred tax credits -- (6,201) (6,201)
----------------- ------------------ -----------------
Net assets acquired 5,988 7,930 13,918
Goodwill 3,385 1,454 4,839
---------------- ----------------- ----------------
Purchase price $ 9,373 $ 9,384 $ 18,757
================= ================== =================
Consideration
Cash $ 4,419 $ 4,755 $ 9,174
Deferred payment 3,131 2,689 5,820
Shares 1,823 1,940 3,763
---------------- ----------------- ----------------
$ 9,373 $ 9,384 $ 18,757
================= ================== =================
</TABLE>
Fiscal 1998 Acquisitions
On April 9, 1997, the Corporation completed the acquisition of Right Information
Systems Limited (RIS) of London, England. RIS was the provider of 4Thought,
business modeling and forecasting software. The shareholders of RIS received
$4,500,000 and 180,000 shares of the Corporation's common stock, valued at
$1,607,000. These shares, all of which were issued, are being held in escrow by
the Corporation until April 9, 2000.
On October 24, 1997, the Corporation completed the acquisition of Interweave
Software, Inc. (Interweave) of Santa Clara, California, U.S.A. Interweave was
the developer and marketer of the Interweave software product line, which allows
information technology organizations to deploy intranet- and extranet-based
business intelligence applications more broadly within and across enterprises.
The acquisition agreement called for the Corporation to pay $12,415,000 to the
shareholders of Interweave, the majority of which was paid upon completion of
the acquisition
33
<PAGE>
Both acquisitions have been accounted for using the purchase method. The results
of operations of both acquired companies prior to the acquisitions were not
material, and thus pro forma information has not been provided. The results of
both acquired companies have been combined with those of the Corporation since
their respective dates of acquisition.
Total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date: ($000s)
<TABLE>
<CAPTION>
RIS Interweave Total
----------------- ------------------ ------------------
<S> <C> <C> <C>
Assets acquired
Acquired technology $ 7,001 $ 21,667 $ 28,668
Other assets 239 390 629
---------------- ----------------- -----------------
7,240 22,057 29,297
Liabilities assumed (1,050) (4,544) (5,594)
Deferred tax credits (2,001) (8,667) (10,668)
----------------- ------------------ ------------------
Net assets acquired 4,189 8,846 13,035
Goodwill 1,918 3,569 5,487
---------------- ----------------- -----------------
Purchase price $ 6,107 $ 12,415 $ 18,522
================= ================== ==================
Consideration
Cash $ 4,500 $ 12,415 $ 16,915
Shares 1,607 - 1,607
---------------- ----------------- -----------------
$ 6,107 $ 12,415 $ 18,522
================= ================== ==================
</TABLE>
6. Long-term Debt
<TABLE>
<CAPTION>
2000 1999
------------------ ----------------
($000s)
<S> <C> <C>
Mortgage at 12.5% per annum, repayable in blended monthly
installments of principal and interest of Cdn $45,200 to
October 2000 $ 2,142 $ 2,160
Other 34 452
------------------ ----------------
2,176 2,612
Less current portion (2,176) (123)
------------------ ----------------
$ - $ 2,489
================== ================
</TABLE>
Interest expense on long-term debt was $264,000, $271,000, and $301,000 in
fiscal 2000, 1999, and 1998, respectively.
7. Commitments
Certain of the Corporation's offices, computer equipment, and vehicles are
leased under various terms. The annual aggregate lease expense in each of fiscal
2000, 1999, and 1998 was $12,205,000, $9,219,000, and $8,599,000, respectively.
34
<PAGE>
The aggregate amount of payments for these operating leases, in each of the next
five fiscal years and thereafter, is approximately as follows: ($000s)
2001 $12,939
2002 10,261
2003 7,501
2004 4,915
2005 4,200
Thereafter 8,770
In August 1999, the Corporation announced plans for the construction of a second
building on the site of its corporate headquarters on Riverside Drive in Ottawa
- -- Riverside II. The total cost of Riverside II and related improvements is
estimated to be $21 million. The Corporation is currently committed to
approximately $15 million of the total cost and as at February 29, 2000, had
incurred capital expenditures of approximately $3.4 million. Construction is
expected to be substantially complete before the end of fiscal 2001.
8. Financial Instruments
Off-Balance-Sheet Risk
The Corporation's policy with respect to foreign currency exposure is to manage
its financial exposure to certain foreign exchange fluctuations with the
objective of neutralizing some of the impact of foreign currency exchange
movements. To achieve this objective, the Corporation enters into foreign
exchange forward contracts to hedge portions of the net investment in its
various subsidiaries. As a result, the exchange gains and losses recorded on
translation of the subsidiaries' financial statements are partially offset by
the gains and losses attributable to the applicable foreign exchange forward
contracts. Realized and unrealized gains and losses from the applicable foreign
exchange forward contracts are recorded as part of the foreign currency
translation adjustments included in the Consolidated Statements of Stockholders'
Equity. The Corporation has foreign exchange conversion facilities that allow it
to hold foreign exchange contracts of Cdn $130,000,000 (US $89,730,000)
outstanding at any one time. The Corporation enters into foreign exchange
forward contracts with major Canadian chartered banks, and therefore does not
anticipate non-performance by these counterparties. The amount of the exposure
on account of any non-performance is restricted to the unrealized gains in such
contracts. As of February 29, 2000, the Corporation had foreign exchange forward
contracts, with maturity dates ranging from March 30, 2000 to May 25, 2000, to
exchange various foreign currencies in the amount of $6,239,000. As of February
28, 1999, the Corporation had foreign exchange forward contracts, with maturity
dates ranging from March 25, 1999 to May 27, 1999, to exchange various foreign
currencies in the amount of $3,862,000.
Concentration of Credit Risk
The investment of cash is regulated by the Corporation's investment policy,
which is periodically reviewed and approved by the Audit Committee of the Board
of Directors. The primary objective of the Corporation's investment policy is
security of principal. The Corporation manages its investment credit risk
through a combination of (i) a selection of securities with an acceptable credit
rating; (ii) selection of term to maturity, which in no event exceeds one year
in length; and (iii) diversification of debt issuers, both individually and by
industry grouping.
35
<PAGE>
Included in cash, cash equivalents, and short-term investments as of February
29, 2000 and February 28, 1999 were corporate debt amounts of $73,805,000 and
$46,941,000, respectively. The corporate debt amounts as of February 29, 2000
and February 28, 1999 were with two distinct issuers. These amounts were repaid,
in full, at maturity in March of their respective years. All the Corporation's
short-term investments as of February 29, 2000 and February 28, 1999 had
maturity dates before the end of June of their respective years. The
Corporation's cash, cash equivalents, and short-term investments are denominated
predominantly in Canadian and U.S. dollars.
The Corporation has an unsecured credit facility, subject to annual renewal,
that includes an operating line and foreign exchange conversion facilities. The
operating line permits the Corporation to borrow funds or issue letters of
credit or guarantee up to an aggregate of Cdn $15,000,000 (US $10,353,000),
subject to certain covenants. As of February 29, 2000 and February 28, 1999,
there were no direct borrowings under this operating line.
There is no concentration of credit risk related to the Corporation's position
in trade accounts receivable. Credit risk, with respect to trade receivables, is
minimized because of the Corporation's large customer base and its geographical
dispersion (see Note 12).
Fair Value of Financial Instruments
For certain of the Corporation's financial instruments, including accounts
receivable, accounts payable, and other accrued charges, the carrying amounts
approximate the fair value due to their short maturities. Cash and cash
equivalents, short-term investments, long-term debt, and long-term liabilities
are carried at cost, which approximates their fair value.
9. Income Taxes
Details of the income tax provision (recovery) are as follows: ($000s)
<TABLE>
<CAPTION>
2000 1999 1998
----------------- ---------------- --------------
<S> <C> <C> <C>
Current
Canadian $ 16,880 $ 15,581 $ 8,755
Foreign 9,943 9,228 8,550
----------------- ---------------- --------------
26,823 24,809 17,305
----------------- ---------------- --------------
Deferred
Canadian 1,765 3,274 4,163
Foreign (1,915) (1,770) (1,830)
----------------- ---------------- --------------
(150) 1,504 2,333
----------------- ---------------- --------------
Income tax provision $ 26,673 $ 26,313 $ 19,638
================= ================ ==============
</TABLE>
36
<PAGE>
The reported income tax provision differs from the amount computed by applying
the Canadian rate to income before income taxes. The reasons for this difference
and the related tax effects are as follows: ($000s)
<TABLE>
<CAPTION>
2000 1999 1998
----------------- -------------- --------------
<S> <C> <C> <C>
Expected Canadian tax rate 44.0% 44.0% 44.0%
================= ============== ==============
Expected tax provision $ 35,735 $ 37,151 $ 29,279
Foreign tax rate differences (10,422) (10,906) (8,740)
Net change in valuation allowance and other
income tax benefits earned (2,680) (1,064) (4,581)
Non-deductible expenses and non-taxable income 2,876 193 361
Withholding tax on foreign income 1,179 987 822
Reorganization costs - - 2,426
Other (15) (48) 71
----------------- -------------- --------------
Reported income tax provision $ 26,673 $ 26,313 $ 19,638
================= ============== ==============
</TABLE>
Deferred income taxes result principally from temporary differences in the
recognition of certain revenue and expense items for financial and tax reporting
purposes. Significant components of the Corporation's deferred tax assets and
liabilities as of February 29, 2000 and February 28, 1999 are as follows:
($000s)
<TABLE>
<CAPTION>
2000 1999
----------------- ----------------
<S> <C> <C>
Deferred tax assets
Net operating tax loss carryforwards $ 4,460 $ 5,507
Investment tax credits 1,404 4,499
Deferred revenue 2,490 2,702
Other 2,186 1,912
----------------- ---------------
Total deferred tax assets 10,540 14,620
Valuation allowance for deferred tax assets (4,460) (5,507)
----------------- ---------------
Net deferred tax assets 6,080 9,113
----------------- ---------------
Deferred tax liabilities
Book and tax differences on assets 16,069 15,957
Reserves and allowances 7,484 5,415
Income tax credits 5,346 4,502
Other (1,089) 14
----------------- ---------------
Total deferred tax liabilities 27,810 25,888
----------------- ---------------
Net deferred income tax liability $ 21,730 $ 16,775
================= ===============
</TABLE>
The net change in the total valuation allowance for the years ended February 29,
2000 and February 28, 1999 was a decrease of $1,047,000 and $7,309,000,
respectively.
Realization of the net deferred tax assets is dependent on generating sufficient
taxable income in certain legal entities. Although realization is not assured,
management believes it is more likely than not that the
37
<PAGE>
net amount of the future tax asset will be realized. However, this estimate
could change in the near term as future taxable income in these certain legal
entities changes.
As of February 29, 2000, the Corporation had tax loss carryforwards of
approximately $10,027,000 available to reduce future years' income for tax
purposes. These losses expire as follows: ($000s)
2002 $ 294
2003-2010 425
Indefinitely 9,308
-------------
Total $10,027
=============
Income before taxes attributable to all foreign operations was $37,215,000,
$39,219,000, and $35,102,000 in each of fiscal 2000, 1999, and 1998,
respectively.
The Corporation has provided for foreign withholding taxes on the portion of the
undistributed earnings of foreign subsidiaries expected to be remitted.
Income taxes paid were $18,658,000, $8,201,000, and $11,273,000 in each of
fiscal 2000, 1999, and 1998, respectively.
10. Stockholders' Equity
Capital Stock
The authorized capital of the Corporation consists of an unlimited number of
common shares, without nominal or par value, and an unlimited number of
preferred shares, issuable in series. No series of preferred shares has been
created or issued.
Share Repurchase Programs
The share repurchases made in the past three fiscal years were part of distinct
open market share repurchase programs through the Nasdaq National Market. The
share repurchases made in fiscal 2000 were part of two open market share
repurchase programs. The program adopted in October 1998 expired on October 8,
1999. Under this program the Corporation repurchased 3,161,800 of its shares;
all repurchased shares were cancelled. In October 1999, the Corporation adopted
a new program that will enable it to purchase up to 4,200,000 common shares (not
more than 5% of those issued and outstanding) between October 9, 1999 and
October 8, 2000. This program does not commit the Corporation to make any share
repurchases. Purchases will be made on The Nasdaq Stock Market at prevailing
open market prices and paid out of general corporate funds. All repurchased
shares will be cancelled.
38
<PAGE>
The details of the share repurchases were as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------------- -------------------------------- -----------------------------
Shares Cost Shares Cost Shares Cost
------------- ------------- ------------- -------------- ------------ -------------
(000s) ($000s) (000s) ($000s) (000s) ($000s)
<S> <C> <C> <C> <C> <C> <C>
July 1996 program - $ - - $ - 170 $ 1,931
October 1997 program - - 2,030 23,463 2,370 27,180
October 1998 program 2,186 24,689 976 10,674 - -
October 1999 program 100 1,324 - - - -
------------- ------------- ------------- -------------- ------------ -------------
2,286 $26,013 3,006 $ 34,137 2,540 $29,111
============= ============= ============= ============== ============ =============
</TABLE>
The amount paid to acquire the shares over and above the average carrying value
has been charged to retained earnings.
Stock Option Plans
As of February 29, 2000, the Corporation had stock options outstanding under two
plans: 4,421,000 pertain to the 1997-2002 Stock Option Plan and 2,849,000
pertain to the 1993-1998 Stock Option Plan.
There were 14,000,000 shares of common stock originally reserved by the Board of
Directors for issuance under the Corporation's 1997-2002 Stock Option Plan ("the
Plan"), which was approved by the Corporation's shareholders in June 1997 and
replaced the 1993-1998 Stock Option Plan. Options may be granted to directors,
officers, employees, and consultants at such times and under such terms as
established by the Plan. Options may be fully exercisable on the date of grant
or may be exercisable in installments. Options will expire not later than 10
years from the date of grant or any shorter period as may be determined. All
options are priced at the market price of the Corporation's shares on The
Toronto Stock Exchange on the trading day preceding the date of grant. In June
1999, options were awarded to employees, executive officers and directors. These
options vest equally in April 2000, April 2001, April 2002, and April 2003, and
expire in April 2007. There were 9,381,000 options available for grant under the
Plan as of February 29, 2000.
Under the 1993-1998 Stock Option Plan, options were awarded to directors,
officers, and employees. For the options outstanding as of February 29, 2000,
the vesting dates extend to September 2001 and the expiry dates range from April
2000 to September 2005. In April 1996, options were awarded to certain key
officers under an executive option award. These options vest equally in April
1999, April 2000, and April 2001, and expire in April 2003. All options were
priced at the market price of the Corporation's shares on The Toronto Stock
Exchange on the trading day preceding the date of grant. The 1993-1998 Stock
Option Plan expired on January 1, 1998.
Employee Stock Purchase Plan
This plan was approved by the Corporation's shareholders in July 1993 and was
amended on May 19, 1999. The amended plan was approved by the Corporation's
shareholders on June 22, 1999, and will terminate on November 30, 2002. Under
the plan, 3,000,000 common shares were reserved for issuance. A participant in
the Employee Stock Purchase Plan authorizes the Corporation to deduct an amount
per pay period that cannot exceed five (5) percent of annual target salary
divided by the number of pay
39
<PAGE>
periods per year. Deductions are accumulated during each of the Corporation's
fiscal quarters ("Purchase Period") and on the first trading day following the
end of any Purchase Period these deductions are applied toward the purchase of
common shares. The purchase price is ninety (90) percent of the lesser of The
Toronto Stock Exchange average closing price on (a) the first five trading days
of the Purchase Period or (b) the last five trading days of the Purchase Period.
All full-time and part-time permanent employees may participate in the plan.
Accounting for Stock-Based Compensation
Under Canadian GAAP, the benefits of the Corporation's stock option and purchase
plans are not recognized as compensation expense. If the fair values of the
options granted since fiscal 1996 had been recognized as compensation expense on
a straight line basis over the vesting period of the grant (consistent with the
method prescribed by FASB Statement No. 123), stock-based compensation costs
would have reduced net income by $9,096,000, $8,239,000, and $6,824,000;
reduced basic net income per share by $0.11, $0.09, and $0.08, and reduced fully
diluted net income per share by $0.10, $0.09, and $0.07 in fiscal 2000, 1999,
and 1998, respectively.
Because the Corporation has only applied these measurement principles to options
granted subsequent to February 28, 1995 and the Corporation's amortization
period for compensation expense approximates four years, the above pro forma
disclosure for fiscal 1998 is not indicative of pro forma amounts that will be
reported in future years. The pro forma disclosure for fiscal 2000 and 1999
includes the full extent of amortization expense for four years of option
grants.
The fair value of the options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions for
fiscal 2000, 1999, and 1998, respectively: risk-free interest rates of 5.8%,
5.5%, and 6.5%, expected life of the options of 2.8 years, 2.9 years, and 3.0
years, expected volatility of 55%, 56%, and 56%, and for all years, a dividend
yield of zero.
40
<PAGE>
Activity in the stock option plans for fiscal 2000, 1999, and 1998 was as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------- ---------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------------------------- ---------------------------- -----------------------------
(000s) (000s) (000s)
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year 6,769 $ 9.72 6,571 $ 8.29 7,940 $ 5.33
Granted 2,772 11.18 1,935 13.33 2,190 11.48
Exercised (1,973) 7.81 (1,054) 3.94 (3,316) 2.60
Cancelled (298) 11.73 (683) 9.52 (243) 9.54
---------- ---------- ----------
Outstanding, end of year 7,270 11.17 6,769 9.72 6,571 8.29
========== ========== ==========
Options exercisable at
year end 1,234 1,460 1,077
========== ========== ==========
Weighted average per
share fair value of
options granted during
the year calculated
using the Black-Scholes
option pricing model $ 4.59 $ 5.54 $ 4.84
=========== =========== ===========
</TABLE>
The following table summarizes significant ranges of outstanding and exercisable
options held by directors, officers, and employees as of February 29, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- -----------------------------------
Weighted Weighted Weighted
Range of Exercise Average Average Average
Prices Options Remaining Life Exercise Price Options Exercise Price
- ---------------------- ------------- ------------------ ----------------- ------------- -----------------
(000s) (000s)
<S> <C> <C> <C> <C> <C>
$3.55 - $5.52 26 0.4 years $ 4.22 25 $ 4.22
$8.76 - $10.69 1,801 4.2 8.95 407 8.96
$10.70 - $11.04 3,612 6.5 10.93 449 10.94
$11.05 - $13.86 1,660 6.2 13.37 353 13.17
$17.58 - $23.56 158 7.8 18.65 - -
$27.95 - $28.06 13 7.9 28.03 - -
------------- -------------
7,270 5.9 $ 11.17 1,234 $ 10.78
============= =============
</TABLE>
Net Income per Share
Net income per share is based on the weighted average number of shares
outstanding during each year.
41
<PAGE>
The reconciliation of the numerator and denominator for the calculation of net
income per share and fully diluted net income per share is as follows: (000s,
except per-share amounts)
<TABLE>
<CAPTION>
2000 1999 1998
---------------- ------------- -------------
<S> <C> <C> <C>
Net Income per Share
Net income $ 54,542 $ 58,122 $ 48,942
================ ============= =============
Weighted average number of shares outstanding 85,972 87,416 88,414
================ ============= =============
Net income per share $ 0.63 $ 0.66 $ 0.55
================ ============= =============
Fully Diluted Net Income per Share
Net income $ 54,542 $ 58,122 $ 48,942
Imputed Interest 2,941 2,571 2,719
---------------- ------------- -------------
Adjusted Net Income $ 57,483 $ 60,693 $ 51,661
================ ============= =============
Weighted average number of shares outstanding 85,972 87,416 88,414
Dilutive effect of stock options * 6,110 5,988 7,668
---------------- ------------- -------------
Adjusted weighted average number of shares
outstanding 92,082 93,404 96,082
================ ============= =============
Fully diluted net income per share $ 0.62 $ 0.65 $ 0.54
================ ============= =============
</TABLE>
* All anti-dilutive options have been excluded.
Imputed earnings on the proceeds from the exercise of options are calculated
using a 5% after-tax rate of return.
11. Pension Plans
The Corporation operates a Retirement Savings Plan for the parent company and
also operates various other defined contribution pension plans for its
subsidiaries. The Corporation contributes amounts related to the level of
employee contributions for both types of plans.
The pension costs in fiscal 2000, 1999, and 1998 were $3,839,000, $2,744,000,
and $2,327,000, respectively.
12. Segmented Information
The Corporation operates in one business segment--computer software tools. This
segment engages in business activities from which it earns license, support, and
services revenue, and incurs expenses. Within this business segment, the
Corporation develops, markets, and supports two complementary lines of software
products that are designed to satisfy enterprise-wide business-critical needs.
The Corporation's business intelligence products give individual users the
ability to independently access,
42
<PAGE>
explore, analyze, and report corporate data. The Corporation's client/server
application development tools are designed to increase the productivity of
system analysts and developers. Cognos products are distributed both directly
and through resellers worldwide.
Revenue is derived from the licensing of software and the provision of related
services, which include product support and education, consulting, and other
services. The Corporation generally licenses software and provides services
subject to terms and conditions consistent with industry standards. Customers
may elect to contract with the Corporation for product support, which includes
product and documentation enhancements, as well as telephone support, by paying
either an annual fee or fees based on usage of support services.
The Corporation operates internationally, with a substantial portion of its
business conducted in foreign currencies. Accordingly, the Corporation's results
are affected by year-over-year exchange rate fluctuations of the United States
dollar relative to the Canadian dollar, to various European currencies, and to a
lesser extent, other foreign currencies.
No single customer accounted for 10% or more of the Corporation's revenue during
any of the last three fiscal years. In addition, the Corporation is not
dependent on any single customer or group of customers, or supplier.
The accounting policies for the segment are the same as those described in the
Summary of Significant Accounting Policies. The required financial information
for segment profit and segment assets is the same as that presented in the
Consolidated Financial Statements. Geographic information is as follows: ($000s)
<TABLE>
<CAPTION>
2000 1999 1998
------------------ ---------------- ----------------
<S> <C> <C> <C>
Revenue to external customers*
U.S.A. $ 204,730 $ 153,827 $ 123,774
Canada 30,120 24,040 22,328
United Kingdom 44,972 41,563 38,257
Europe 77,778 60,502 43,189
Asia/Pacific 28,040 21,193 17,286
------------------ ---------------- ----------------
$ 385,640 $ 301,125 $ 244,834
================== ================ ================
</TABLE>
* Revenues are attributed to countries based on location of customer
Fixed assets
Canada $ 31,055 $ 20,148
U.S.A. 8,659 6,078
Other countries 5,121 3,938
-------------- -------------
$ 44,835 $ 30,164
============== =============
43
<PAGE>
Intangible assets
Canada $13,137 $14,719
U.S.A. 27,021 35,460
-------- --------
$40,158 $50,179
======== ========
13. Comparative Results
Certain of the prior years' figures have been reclassified in order to conform
to the presentation adopted in the current year.
14. Subsequent Event
On April 6, 2000, the Board of Directors of the Corporation authorized a two-
for-one stock split, effected in the form of a stock dividend, payable on or
about April 27, 2000 to shareholders of record at the close of business on April
20, 2000.
All share and per-share amounts in the accompanying financial statements, and
notes thereto have been adjusted for the split.
44
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Five-Year Summary
The following Selected Consolidated Financial Data has been derived from the
Corporation's consolidated financial statements that have been audited by Ernst
& Young LLP, independent chartered accountants. The Selected Consolidated
Financial Data should be read in conjunction with the Consolidated Financial
Statements and related Notes, and with Management's Discussion and Analysis of
Financial Condition and Results of Operations.
On April 6, 2000, subsequent to year-end, the Board of Directors of the
Corporation authorized a two-for-one stock split, effected in the form of a
stock dividend, payable on or about April 27, 2000 to shareholders of record at
the close of business on April 20, 2000. All historic consolidated results have
been restated for the split.
<TABLE>
<CAPTION>
Years Ended the Last Day of February
- -------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
(US$000s except share amounts, Canadian GAAP)
<S> <C> <C> <C> <C> <C>
Statement of Income Data
Revenue $385,640 $301,125 $244,834 $198,185 $152,186
- -------------------------------------------------------------------------------------------------------------------------
Operating expenses
Cost of product license 5,235 5,738 3,828 3,266 3,433
Cost of product support 13,758 11,166 9,694 9,634 7,488
Selling, general, and administrative 244,827 178,295 143,493 114,617 98,908
Research and development 53,548 42,274 33,530 28,951 22,382
Investment tax credits (6,207) (14,880) (9,432) (3,683) -
- -------------------------------------------------------------------------------------------------------------------------
Total operating expenses 311,161 222,593 181,113 152,785 132,211
- -------------------------------------------------------------------------------------------------------------------------
Operating income 74,479 78,532 63,721 45,400 19,975
Interest expense (718) (527) (481) (427) (468)
Interest income 7,454 6,430 5,340 4,524 4,019
- -------------------------------------------------------------------------------------------------------------------------
Income before taxes 81,215 84,435 68,580 49,497 23,526
Income tax provision 26,673 26,313 19,638 12,708 5,996
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 54,542 $ 58,122 $ 48,942 $ 36,789 $ 17,530
=========================================================================================================================
Net income per share
Basic $0.63 $0.66 $0.55 $0.43 $0.21
Fully diluted $0.62 $0.65 $0.54 $0.41 $0.20
Weighted average number of shares (000s)
Basic 85,972 87,416 88,414 86,298 82,578
Fully diluted 92,082 93,404 96,082 95,390 90,426
Balance Sheet Data (at end of period)
Working capital $166,455 $123,343 $112,846 $103,727 $ 66,149
Total assets 398,181 314,105 245,718 189,152 140,010
Total debt 2,176 2,612 2,457 2,655 2,744
Stockholders' equity 227,019 178,602 147,305 115,912 78,297
</TABLE>
45
