COGNOS INCORPORATED
This Compliance Document provides information to the shareholders of Cognos
Incorporated in advance of its fiscal 2001 Annual Meeting of Shareholders. The
documentation consists of:
A. The Notice of Meeting and Proxy Statement (with Proxy Page (i) and 1
Card enclosed) for the Corporation's Annual Meeting of
Shareholders to be held June 21, 2001
B. Consolidated Financial Information in accordance with Page 29
Canadian generally accepted accounting principles for
the Corporation's fiscal year ended February 28, 2001
(supplemental to the Corporation's 2001 Annual Report)
COGNOS(R)
A. NOTICE OF MEETING & PROXY STATEMENT
3755 Riverside Drive, P.O. Box 9707, Station T, Ottawa, Ontario, Canada, K1G 4K9
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN THAT the Annual Meeting ("Meeting") of Shareholders of
Cognos Incorporated ("Corporation") will be held at the Tudor Reception Hall,
3750 Bowesville Road, Ottawa, Ontario, Canada, on Thursday, June 21, 2001, at
3:30 p.m., for the following purposes:
1. to receive the consolidated financial statements of the Corporation in
accordance with both United States and Canadian generally accepted accounting
principles for the fiscal year ended February 28, 2001, and the reports of
the auditors thereon,
2. to elect directors for the ensuing year,
3. to appoint independent auditors and authorize the directors to fix their
remuneration,
4. to transact such other business as may properly come before the meeting and
any adjournment thereof.
This Notice is accompanied by a form of proxy; a Proxy Statement; the Annual
Report of the Corporation, including financial information in accordance with
United States (U.S.) generally accepted accounting principles; and financial
information in accordance with Canadian generally accepted accounting principles
for the fiscal year ended February 28, 2001. Shareholders of record at the close
of business on May 4, 2001 are entitled to receive notice of the Meeting. They
may vote at the Meeting unless their shares are transferred and the transferee:
(a) produces a certificate(s) representing the transferred shares, or otherwise
establishes ownership of the transferred shares, and (b) has demanded in
writing, at least ten days before the Meeting, to be included on the list of the
Corporation's shareholders entitled to vote at the Meeting.
DATED at Ottawa this 18th day of May, 2001.
By Order of the Board of Directors
/s/ James M. Tory
James M. Tory
Chairman of the Board
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If you cannot attend the meeting in person, please complete, sign, date, and
return the enclosed form of proxy in the envelope provided as soon as possible
in order to ensure that your shares are represented at the Meeting.
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i
PROXY STATEMENT
Table of Contents
PAGE
----
Solicitation of Proxies.................................................................. 1
Appointment and Revocation of Proxies.................................................... 1
Voting of Proxies........................................................................ 2
Shareholder Proposals.................................................................... 3
Voting Shares and Principal Holders Thereof.............................................. 3
Directors................................................................................ 4
Security Ownership of Management and Principal Holders................................... 10
Executive Compensation................................................................... 12
Audit Committee Report and Audit Fees.................................................... 20
Appointment of Auditors.................................................................. 21
Other Matters............................................................................ 21
Expenses and Solicitation................................................................ 21
Approval by Board of Directors........................................................... 21
Annex A - Alignment with TSE Corporate Governance Guidelines............................. 22
Annex B - Alignment with SEC Audit Committee Rules....................................... 25
Annex C - Audit Committee Mandate........................................................ 26
ii
[LOGO]
3755 Riverside Drive, Ottawa, Ontario, Canada, K1G 4K9
PROXY STATEMENT
(First mailed to Shareholders on May 18, 2001)
SOLICITATION OF PROXIES
The information contained in this Proxy Statement is furnished in connection
with the solicitation by the management of Cognos Incorporated ("Corporation")
of proxies to be used at the Annual Meeting of Shareholders ("Meeting") of the
Corporation to be held on June 21, 2001, at 3:30 p.m. at the Tudor Reception
Hall, 3750 Bowesville Road, Ottawa, Ontario, Canada, or at any adjournment of
the Meeting. The solicitation of proxies will be made primarily by mail but
proxies may also be solicited directly by officers of the Corporation. The costs
of solicitation will be borne by the Corporation.
The specific purposes of the meeting are set out in the Notice of Meeting
accompanying this Proxy Statement.
The information contained in this Proxy Statement is given as at May 18, 2001,
except where otherwise noted.
All share and per-share amounts in this Proxy Statement have been adjusted for
the two-for-one stock split approved by the Board of Directors on April 6, 2000,
which was paid by way of dividend on April 27, 2000 to shareholders of record on
April 20, 2000.
All dollar amounts in this Proxy Statement are in United States dollars unless
otherwise stated. Foreign currency amounts have been translated into United
States dollars using the appropriate exchange rates for United States currency,
as reported by the Bank of Canada.
APPOINTMENT AND REVOCATION OF PROXIES
The persons named in the enclosed form of proxy ("Proxy Form") are either
directors or officers of the Corporation. Every shareholder has the right to
appoint another person (who need not be a shareholder) to represent the
shareholder at the Meeting and may do so either by inserting that person's name
in the blank space provided in the Proxy Form or by completing another proper
form of proxy. In either case, to be valid, the completed proxy must be
delivered to: (a) the Corporation's transfer agent, Computershare Trust Company
of Canada, 100 University Avenue, 11/th/ Floor, Toronto, Ontario, Canada M5J
2Y1, in the addressed envelope accompanying this Proxy Statement, or (b) to the
Secretary of the Corporation, no later than forty-eight hours preceding the
Meeting or any adjournment of the Meeting.
Only registered holders of common shares of the Corporation, or the person they
appoint as their proxies, are permitted to attend and vote at the Meeting.
However, in many cases, common shares of the Corporation beneficially owned by a
holder (a "Non-Registered Holder") are registered either (a) in the name of an
intermediary ("Intermediary") that the Non-Registered Holder deals with in
respect of the shares; or (b) in the name of a clearing agency.
1
In accordance with the requirements of National Policy Statement No. 41 of the
Canadian Securities Administrators, the Corporation has distributed copies of
the Notice of Meeting, this Proxy Statement, the Proxy Form and the
Corporation's 2001 Annual Report to Shareholders (which includes management's
discussion and analysis) (collectively, the "Meeting materials") to the clearing
agencies and Intermediaries for distribution to Non-Registered Holders who have
not waived the right to receive them.
Generally, Non-Registered Holders who have not waived the right to receive
Meeting materials will either (c) be given a voting instruction form which must
-------
be completed and signed by the Non-Registered Holder in accordance with the
instruction on the form (which may, in some cases, permit the completion of the
voting instruction form by telephone), or (d) be given a proxy which has already
been signed by the Intermediary (typically by a facsimile, stamped signature),
and which is otherwise uncompleted except that it is restricted as to the number
of shares beneficially owned by the Non-Registered Holder. This latter form of
proxy need not be signed by the Non-Registered Holder. A Non-Registered Holder
who wishes to submit a proxy should properly complete the form of proxy and
deposit it with Computershare Trust Company of Canada, in the manner described
in the first paragraph of this Section.
These procedures permit Non-Registered Holders to direct the voting of the
shares they beneficially own. If a Non-Registered Holder who receives either a
proxy or a voting instruction form wishes to attend and vote at the Meeting in
--
person (or have another person attend and vote on behalf of the Non-Registered
- ------
Holder), the Non-Registered Holder should strike out the names of the persons
named in the form of proxy and insert the Non-Registered Holder's (or such other
person's) name in the blank space provided or, in the case of a voting
instruction form, follow the corresponding directions on the form. In either
case, Non-Registered Holders should carefully follow the instructions of their
Intermediaries.
A registered shareholder who has given a proxy may revoke the proxy by:
(e) completing and signing a proxy bearing a later date and depositing it
with Computershare Trust Company of Canada in the manner described
above; or
(f) depositing an instrument in writing executed by the shareholder or by
the shareholder's attorney authorized in writing: (i) at the
registered offices of the Corporation at any time up to and including
the last business day preceding the day of the Meeting, or any
adjournment of the Meeting, at which the proxy is to be used, or (ii)
with the chairman of the Meeting prior to the commencement of the
Meeting on the day of the Meeting or any adjournment of the Meeting;
or
(g) in any other manner permitted by law.
A Non-Registered Holder may revoke a voting instruction form or a waiver of the
right to receive Meeting materials and to vote given to an Intermediary at any
time by written notice to the Intermediary, except that an Intermediary is not
required to act on a revocation of a voting instruction form or of a waiver of
the right to receive Meeting materials and to vote that is not received by the
Intermediary at least seven days prior to the Meeting.
VOTING OF PROXIES
The persons named in the Proxy Form will vote the shares in respect of which
they are appointed proxy in accordance with the direction of the shareholder
appointing them. In the absence of any direction, the shares will be voted FOR
the election of directors and FOR the appointment of independent auditors and
the authorization of the directors to fix their remuneration, as described in
this Proxy Statement.
2
The management of the Corporation knows of no amendment to the matters referred
to in the Notice of Meeting or of any other business that will be presented to
the Meeting. If any amendment or other business is properly brought before the
Meeting, the persons named in the Proxy Form are given discretionary authority
to vote on any amendment or on any other business in accordance with their
judgment.
SHAREHOLDER PROPOSALS
To be considered for inclusion in next year's Proxy Statement, shareholder
proposals must be received at the Corporation's principal executive offices no
later than the close of business on January 18, 2002.
For any proposal that is not submitted for inclusion in next year's Proxy
Statement (as described in the preceding paragraph) but is instead sought to be
presented directly at next year's annual meeting, Securities and Exchange
Commission rules permit management to vote proxies in its discretion if (a) the
Corporation receives notice of the proposal before the close of business on
April 3, 2002 and advises stockholders in next year's Proxy Statement about the
nature of the matter and how management intends to vote on such matter, or (b)
does not receive notice of the proposal prior to the close of business on April
3, 2002.
Notices of intention to present proposals at the fiscal 2002 Annual Meeting
should be addressed to The Secretary, Cognos Incorporated, 3755 Riverside Drive,
P.O. Box 9707, Station T, Ottawa, Ontario, Canada K1G 4K9. The Corporation
reserves the right to reject, rule out of order, or take other appropriate
action with respect to any proposal that does not comply with these and other
applicable requirements.
VOTING SHARES AND PRINCIPAL HOLDERS THEREOF
The authorized capital of the Corporation consists of an unlimited number of
common shares ("shares") of which 88,442,071 shares were issued and outstanding
as of May 4, 2001 ("Record Date").
Only shareholders of record at the close of business on the Record Date are
entitled to receive notice of, attend and vote at the Meeting. They may vote at
the Meeting unless their shares are transferred and the transferee: (a) produces
a certificate(s) representing the transferred shares, or otherwise establishes
ownership of the transferred shares, and (b) has demanded in writing, at least
ten days before the Meeting, to be included on the list of the Corporation's
shareholders entitled to vote at the Meeting. Shareholders are entitled to one
vote for each share registered in their respective names.
The principal shareholders of the Corporation are set out in the table appearing
in "SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL HOLDERS".
Directors will be elected and independent auditors will be appointed by a
majority of shares represented and entitled to vote at the Meeting.
3
DIRECTORS
Election of Directors
The Articles of the Corporation provide for a Board of Directors ("Board") of
not less than three and not more than twelve directors to be elected annually.
Eight directors will be elected at the Meeting. Each director elected will hold
office until the next annual meeting or until a successor is duly elected, or
appointed, unless the position is earlier vacated.
The persons named in the Proxy Form will (unless authority to vote is withheld)
vote in favor of the election of the eight nominees listed below, or if one of
those nominees is unable to serve, or for good cause will not serve (an event
that management has no reason to believe will occur), the persons named in the
Proxy Form reserve the right to fix the number of directors at less than eight
or to vote for a substitute at their discretion.
The following table sets out the name and age of each person nominated for
election as a director; 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; the name of any publicly-traded corporation of
which the nominee is a director, and the number of common shares beneficially
owned or over which control or direction is exercised and the number of deferred
share units held by each of them.
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Name and Age Director Shares Beneficially Deferred Share
Principal Occupation Since Owned or Controlled Units Held
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John E. Caldwell (51) + 2000 800 504.88
Chief Executive Officer of Geac Computer
Corporation Limited, a software and systems
solutions provider, since November 2000.
Private Investor from October 1999 to October
2000, and President and Chief Executive
Officer, CAE Inc., from June 1993 to October
1999. Director of Geac Computer Corporation
Limited and Stelco Inc.
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Douglas C. Cameron (62) *+ 1983 12,000 1,402.72
Investment Advisor, RBC Dominion Securities
Inc., an investment dealer, since October 1993.
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Pierre Y. Ducros (62) ++ 1986 20,000 1,202.33
Private Investor since June 1996. Chairman and
Chief Executive Officer, DMR Group Inc. from
February 1973 to June 1996. Director of
Alliance Atlantis Communications Inc., BCE
Emergis, National Bank Financial and Manulife
Financial.
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4
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Douglas J. Erwin (48) ++ 1998 Nil 1,202.33
President and Chief Executive Officer,
PentaSafe Security Technologies, Inc., an
auditing and security software company, since
April 1998. Chief Operating Officer, BMC
Software, Inc. from April 1994 to October 1997.
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Robert W. Korthals (67) ++ 1997 2,000 1,402.72
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., RTO Enterprises Inc. and
Suncor Energy Inc.
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Candy M. Obourn (51) + 1999 1,000 246.91
President, Document Imaging and Senior Vice
President, Eastman Kodak Company, a
photographic products and imaging company,
since January 2000. President, Document
Imaging and Vice President of Kodak from
October 1995 to December 1999.
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James M. Tory, Q.C. (71) * 1982 89,000 5,210.09
Chairman of the Board of Directors since
September 1995. Chair Emeritus and Counsel,
Torys, Barristers & Solicitors, since March
1995 and prior thereto as a partner in that
firm. Director of Inmet Mining Corporation and
Goldlist Properties Inc.
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Renato (Ron) Zambonini (54) 1994 257,072 N/A
President and Chief Executive Officer since
September 1995.
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* Member of the Corporate Governance Committee.
+ Member of the Audit Committee.
++ Member of the Human Resources & Compensation Committee.
Statement of Corporate Governance Practices
The Toronto Stock Exchange ("TSE") requires that the Corporation disclose its
approach to corporate governance and relate the corporate governance practices
of the Corporation to specific guidelines. These guidelines, together with a
brief description of the alignment of the Corporation's practices with them, are
set out in Annex A to this Proxy Statement. The Corporation is satisfied that it
complies with the recommended guidelines.
5
Board Meetings and Composition
The Board has five regularly scheduled meetings each year - following the end of
each fiscal quarter and a strategic planning session. Additional meetings may be
convened by the Board as required. The Board met nine times during the recently
completed fiscal year. Each director attended more than 75% of the total number
of meetings of the Board in that period and the total number of meetings held by
all committees of the Board on which that director served in that period.
All nominees for director, except Mr. Zambonini, are unrelated and outside
directors. The Corporation does not have a significant shareholder. A
significant shareholder is a shareholder with the ability to exercise a majority
of the votes for the election of the Board of Directors.
Board Committees
The Board has established three standing committees: the Corporate Governance
Committee, the Audit Committee, and the Human Resources & Compensation
Committee. The Board has adopted written mandates for each committee.
Corporate Governance Committee
The Corporate Governance Committee is responsible for making recommendations to
the Board with respect to: (a) all matters relating to the stewardship role of
the Board in respect of the management of the Corporation, (b) Board size,
composition, and orientation, (c) Board compensation, and (d) procedures
necessary to allow the Board to function independently of management. This
committee is also responsible for reporting to the Board with respect to
appropriate candidates for nomination to the Board, and for evaluating the
performance of the Board. Although this committee did not meet during the
recently completed fiscal year, the matters for which it is responsible were
undertaken by the Board as a whole. This committee is currently composed of the
following directors: Mr. Tory (Chairman) and Mr. Cameron. Each of them is an
unrelated director.
Audit Committee
The Audit Committee is responsible for supervising the audit of the
Corporation's financial records as well as establishing policies and procedures
concerning the Corporation's financial reporting, internal accounting, financial
controls, management information, and risk management. In 1998, the Board
adopted a written charter for the Audit Committee which is set out in Annex C.
The charter is reviewed and updated on a regular basis. The committee is
responsible for reviewing quarterly financial statements and the annual
financial statements prior to their approval by the full Board and therefore
meets not less frequently than each fiscal quarter in conjunction with each
quarterly Board meeting. The committee meets with the independent auditors of
the Corporation on a regular basis without any members of management present.
The Audit Committee met four times during the most recently completed fiscal
year. This committee is currently composed of the following directors: Mr.
Cameron (Chairman), Mr. Caldwell and Ms. Obourn. Each of them is an unrelated
director and is otherwise independent of the Corporation (as independence is
defined in the listing standards of the Nasdaq National Market).
The U.S. Securities and Exchange Commission has recently adopted new rules
regarding the composition and operation of the Audit Committee. These rules are
designed to improve the qualifications of audit committee members and the
quality of financial information being given to the investing public. The rules
are set out in Annex B to this Proxy Statement, together with a brief
description of the alignment of the Corporation's practices with the rules. The
Corporation and the Board have reviewed the requirements under the new rules and
are satisfied that the Committee is in compliance with their requirements. As
required by the new rules, the Report of the Audit Committee is set out at page
20.
6
Human Resources & Compensation Committee
The Human Resources & Compensation Committee reviews and recommends to the Board
the compensation for the Chief Executive Officer. It also reviews and approves
the compensation for other executive officers based, in part, on the
recommendations of the Chief Executive Officer. In addition, the committee
reviews and approves significant personnel policies of the Corporation,
including incentive programs, compensation, benefits, and overall compensation
policies. The committee met once and also took actions by written consent during
the most recently completed fiscal year. Consent actions related to the approval
of the issuance of options as required under the Corporation's stock option
plan. This committee is currently composed of unrelated directors, namely: Mr.
Korthals (Chairman), Mr. Ducros and Mr. Erwin. Each of them is an unrelated
director.
Compensation of Directors
The annual retainer payable to a non-employee director is C$15,000 and an
additional annual retainer of C$2,500 is payable for each non-employee director
who chairs a committee of the Board. The Chairman receives additional
compensation in respect of his duties in the amount of C$50,000. Each non-
employee director receives meeting fees of C$1,250 for attendance (including
attendance by telephone) at each Board meeting and committee meeting of which
the director is a member. 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.
A deferred share plan for non-employee directors ("DSP") was adopted in April
1999. Under the DSP, non-employee directors may receive all or part of their
annual retainer fee in cash, options or deferred share units. A deferred share
unit ("DSU") is a unit, equivalent in value to a common share of the
Corporation, credited by means of a bookkeeping entry in the books of the
Corporation to an account in the name of the non-employee director. At the end
of the director's tenure as a member of the Board the director is either (a)
paid the market value of the shares represented by the DSUs, or (b) receives the
whole number equivalent of the number of DSUs in common shares of the
Corporation purchased on the open market. DSUs represent the variable (at risk)
component of the directors' compensation. All directors have elected to receive
their entire annual retainer in the form of DSUs. Additional compensation
consisting of deferred share units or an option award under the DSP may be
awarded to non-employee directors as the Board deems appropriate.
The total cash compensation paid to non-employee directors in fiscal 2001 for
duties performed during the fiscal year was $75,135. The table at page 4 sets
out the number of DSUs held by each nominee for director. No amounts were paid
for duties outside those normally undertaken by directors.
Non-executive directors hold stock options that are currently exercisable or
exercisable within 60 days from the Record Date ("Exercisable Optioned Shares")
as indicated in the notes to the table appearing in "SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL HOLDERS". The following table sets out, for each of the
non-executive directors, the grant date and exercise price for those Exercisable
Optioned Shares. Unless otherwise noted, all option grants vest immediately on
the date of grant, continue as long as the grantee is a director and expire on
the eighth anniversary of the date of grant.
7
====================================================================================================================================
Grant Date / April 15, April 23, October 8, April 14, Sept. 28, June 25, Dec. 21, March 14, April 11,
Exercise 1996 / 1997 / 1997 / 1998 / 1998 / 1999 / 1999 / 2000 / 2000 /
Price/(1)/ $ 9.43 $ 11.35 $ 12.14 $ 14.09 $ 8.33 $10.75 $ 20.18 $ 33.80 $35.11 Total
- ------------------------------------------------------------------------------------------------------------------------------------
J. Caldwell 20,000 2,000 22,000
D. Cameron 4,000/(2)/ 3,000 3,000 4,000 2,000 16,000
P. Ducros 9,000/(2)/ 3,000 3,000 4,000 2,000 21,000
D. Erwin 20,000 4,000 2,000 26,000
R. Korthals 20,000/(3)/ 3,000 3,000 4,000 2,000 32,000
C. Obourn 20,000 2,000 22,000
J. Tory 9,000/(2)/ 3,000 3,000 4,000 2,000 21,000
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TOTAL 22,000 20,000 12,000 12,000 20,000 20,000 20,000 20,000 14,000 160,000
====================================================================================================================================
(1) Options are granted in Canadian dollars. Exercise price shown in U.S.
dollars is quoted using the historical rate of exchange as at the date of
grant.
(2) Options expire on the seventh anniversary of the date of grant.
(3) Options vest in equal installments on each of the four successive
anniversaries of the date of grant.
All stock options referred to above were awarded under the Stock Option Plans
described under "Human Resources & Compensation Committee Report on Executive
Compensation - Long-Term Incentives".
Decisions Requiring Board Approval
In addition to those matters which must by law be approved by the Board,
management is also required to seek Board approval for any disposition,
commitment, venture, or significant expenditure in either monetary or business
terms. Changes in senior management are reviewed by the Human Resources &
Compensation Committee, and then referred to the Board for final disposition.
Expectations of Management
The Board expects management of the Corporation to effectively manage its
business in accordance with the strategic and policy directions approved by the
Board. Management is expected to fully inform the Board of its performance in
relation to those plans and any events that may affect those plans, and propose
to the Board remedial or alternate actions. The Board, either directly or
through its Corporate Governance Committee, will continue to review its
corporate governance practices and make any changes that it deems necessary.
Shareholder Feedback
Inquiries from shareholders are responded to by the Vice President, Corporate
Relations, the Secretary or another appropriate officer of the Corporation. The
Corporation maintains regular communications with the financial and investment
community through industry analyst briefings by the Chief Executive Officer, the
Chief Operating Officer and the Chief Financial Officer on at least a quarterly
basis. The quarterly earnings conference calls are webcast over the Internet and
are accessible for a limited period of time from the Corporation's investor
relations web page at www.cognos.com.
8
Directors' and Officers' Indemnification
The Corporation indemnifies each director and officer of the Corporation against
liability resulting from any civil, criminal or administrative action or
proceeding to which that person is made a party by reason of being, or having
been, a director or officer of the Corporation (including an action by or on
behalf of the Corporation), as long as that person (a) acted honestly and in
good faith with a view to the best interests of the Corporation, and (b) had
reasonable grounds for believing that his or her conduct was lawful in any
criminal or administrative proceeding that is enforced by a monetary penalty.
During the year ended February 28, 2001, the Corporation carried directors' and
officers' liability insurance coverage with an aggregate policy limit of $13.4
million (C$20 million) with a $5.0 million (C$7.5 million) deductible. The
annual premium for this coverage, amounting to $36,863 (C$55,196), was paid by
the Corporation.
9
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL HOLDERS
The following table sets out information, as at May 4, 2001, 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 3, 2001, by each
nominee for director, each executive officer named in the Summary Compensation
Table, and all directors and executive officers as a group.
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Name Shares Beneficially Owned Percentage/(1)/
- -------------------------------------------------------------------------------------------------
Michael U. Potter/(2)/ 10,880,018 12.12%
Sixty-Two John Street,
Ottawa, Ontario, Canada, K1M 1M3
John E. Caldwell/(3)/ 22,800 *
Douglas C. Cameron/(4)/ 28,000 *
Pierre Y. Ducros/(5)/ 41,000 *
Douglas J. Erwin/(6)/ 26,000 *
Robert W. Korthals/(7)/ 34,000 *
Candy M. Obourn/(8)/ 23,000 *
James M. Tory/(9)/ 110,000 *
Renato Zambonini/(10)/ 597,072 *
Terry Hall/(11)/ 293,600 *
Robert A. Engels/(12)/ 76,053 *
Tony Sirianni/(13)/ 63,003 *
Donnie M. Moore/(14)/ 122,484 *
Robert G. Ashe/(15)/ 265,167 *
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Directors and Executive Officers as a group 1,972,711 2.2%
(15 persons) /(1) (16)/
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* 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 3, 2001. Reference to shares that the persons named below have
the right to acquire through options includes options currently exercisable
or exercisable on or before July 3, 2001.
(2) Mr. Potter has sole voting power and sole investment power over 47,818
shares and shared voting power and shared investment power over 10,832,200
shares. Mr. Potter has the right to acquire nil shares through options.
(3) Mr. Caldwell has the right to acquire 22,000 shares through options.
(4) Mr. Cameron has the right to acquire 16,000 shares through options.
(5) Mr. Ducros has the right to acquire 21,000 shares through options.
(6) Mr. Erwin has the right to acquire 26,000 shares through options.
(7) Mr. Korthals has the right to acquire 32,000 shares through options.
(8) Ms. Obourn has the right to acquire 22,000 shares through options.
10
(9) Mr. Tory has the right to acquire 21,000 shares through options.
(10) Mr. Zambonini has the right to acquire 340,000 shares through options.
(11) Mr. Hall has the right to acquire 159,398 shares through options.
(12) Mr. Engels ceased to be an officer of the Corporation on July 13, 2000
but remained an employee of the Corporation during the fiscal year ended
February 28, 2001. He has the right to acquire 7,500 shares through
options.
(13) Mr. Sirianni has the right to acquire 25,000 shares through options.
(14) Mr. Moore has the right to acquire 108,500 shares through options.
(15) Mr. Ashe has the right to acquire 229,167 shares through options.
(16) The group is comprised of the individuals named in the Summary
Compensation Table on page 12, the remaining executive officers of the
Corporation, and those persons who were directors of the Corporation on
the Record Date. The amount shown includes 1,306,909 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 3, 2001.
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.
11
EXECUTIVE COMPENSATION
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 28, 2001,
the other four most highly compensated executive officers of the Corporation and
one additional individual who was not serving as an officer at the end of the
fiscal year.
Summary Compensation Table
(All dollar amounts are in U.S. dollars)
- ---------------------------------------------------------------------------------------------------------------------
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)/
- ---------------------------------------------------------------------------------------------------------------------
Renato Zambonini/(5)/ 2001 $267,148 $420,757 --- 100,000 $ 3,718
President and Chief 2000 $254,585 $375,938 --- 150,000 $ 4,583
Executive Officer 1999 $230,049 $391,083 --- 0 ---
Terry Hall 2001 $315,000 $336,000 --- 80,000 $ 1,500
Senior Vice President, 2000 $281,250 $518,036 --- 200,000 $ 1,708
Operations and Chief 1999 $235,000 $440,740 --- 0 $ 531
Operating Officer
Robert A. Engels /(6)/ 2001 $225,967 $144,002 --- ---- $ 8,111
Senior Vice President, 2000 $244,826 $199,907 --- 30,000 $ 8,737
European Operations 1999 $233,773 $202,750 --- 0 $11,118
Tony Sirianni 2001 $180,000 $222,265 --- 60,000 $ 2,130
Senior Vice President, 2000 ---- ---- --- ---- ----
North American Field 1999 ---- ---- --- ---- ----
Operations
Donnie M. Moore/(5)//(7)//(8)/ 2001 $163,628 $161,290 --- 60,000 $ 3,673
Senior Vice President, 2000 $152,751 $157,721 --- 100,000 $ 3,793
Finance & Administration 1999 $150,032 $170,036 --- 0 $ 3,684
and Chief Financial
Officer
Robert G. Ashe/(5)//(8)/ 2001 $156,949 $118,994 --- 50,000 $ 3,651
Senior Vice President, 2000 ---- ---- --- ---- ----
Chief Corporate Officer 1999 ---- ---- --- ---- ----
- ------------------------------------------------------------------------------------------------------------------
(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.
(3) As of the Record Date, the Corporation has not granted any 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, Moore and Ashe.
Cognos Limited (U.K.) contributed to the Cognos Limited Executive
12
Retirement Scheme for Mr. Engels, and Cognos Corporation (U.S.A.)
contributes to a 401(k) savings plan for Messrs. Hall and Sirianni.
(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:
2001 -- C$1.00 = US$0.6679
2000 -- C$1.00 = US$0.6789
1999 -- C$1.00 = US$0.6668
(6) Mr. Engels was employed in Europe and paid in pounds sterling. Mr. Engels
was an executive officer of the Corporation until July 13, 2000. He remains
an employee of the Corporation. 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:
2001 -- UK(Pounds)1.00 = US$1.4884
2000 -- UK(Pounds)1.00 = US$1.6107
1999 -- UK(Pounds)1.00 = US$1.6527
(7) In each of the three fiscal years shown the entire bonus amount was
contributed on behalf of Mr. Moore to a retirement arrangement established
and maintained in accordance with guidelines promulgated by the Canada
Customs and Revenue Agency (formerly Revenue Canada).
(8) On May 1, 2001, Mr. Moore resigned as Senior Vice President, Finance &
Administration and Chief Financial Officer and retired from full-time
employment with the Corporation. He will continue to be employed on an
indefinite part-time basis for a period ending no earlier than May 1, 2002.
Robert G. Ashe assumed his duties and was appointed Senior Vice President,
Chief Corporate Officer effective on the same date.
13
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 28, 2001.
- --------------------------------------------------------------------------------------------------------------------
Individual Grants
-------------------------------------------------------------- Potential Realizable Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted to Exercise Expiration Option Term (3)
Options Employees in Price per Date -----------------------------
Name Granted (1) Fiscal Year Share (2) (mm/dd/yy) 5% 10%
- ------------------------------------------------------------------------------------------------- ---------
Renato Zambonini 100,000 3.9% $35.52 4/11/08 $1,696,012 $4,062,209
- ---------------------------------------------------------------------------------------------------------------------
Terry Hall 80,000 3.1% $35.52 4/11/08 $1,356,810 $3,249,767
- ---------------------------------------------------------------------------------------------------------------------
Robert A. Engels ---- ---- ---- ---- ---- ----
- ---------------------------------------------------------------------------------------------------------------------
Tony Sirianni (4) 20,000 0.8% $31.65 3/31/08 $ 302,211 $ 723,841
40,000 1.6% $35.52 4/11/08 $ 678,405 $1,624,884
- ---------------------------------------------------------------------------------------------------------------------
Donnie M. Moore 60,000 2.4% $35.52 4/11/08 $1,017,607 $2,437,325
- ---------------------------------------------------------------------------------------------------------------------
Robert G. Ashe 50,000 2.0% $35.52 4/11/08 $ 848,006 $2,031,105
- ---------------------------------------------------------------------------------------------------------------------
(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. Option awards to employees typically vest
on each of the successive four anniversaries of the date of grant and
expire on the eighth anniversary of the date of grant.
(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 "Human Resources & Compensation Committee Report on Executive
Compensation - Long-Term Incentives". The circumstances giving rise to the
second award granted to Mr. Sirianni are described within this section.
14
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 28, 2001, by the named executive officers and the number and
value of such officers' outstanding options as at February 28, 2001. Dollar
values indicated represent the net of market value less exercise price.
- ----------------------------------------------------------------------------------------------------------------
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/(1)/
--------------------------------------------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------------------------------------------
Renato Zambonini 0 0 157,500 332,500 $1,781,149 $2,549,726
Terry Hall 124,996 $2,672,621 25,000 330,008 $ 90,867 $2,205,323
Robert A. Engels 82,496 $2,343,930 0 72,504 0 $ 812,645
Tony Sirianni 19,624 $ 419,965 0 105,626 0 $ 426,404
Donnie M. Moore 128,000 $3,656,188 0 235,000 0 $1,932,627
Robert G. Ashe 83,333 $2,239,472 91,659 225,008 $1,032,136 $1,932,721
- ----------------------------------------------------------------------------------------------------------------
(1) Value of unexercised in-the-money options is calculated based on the fair
market value of the underlying shares on the Nasdaq, minus the exercise
price, and assumes sale of the underlying shares on February 28, 2001, the
last trading day in fiscal 2001, at a price of $21.06 being the fair market
value of the Corporation's shares on such date.
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 "Human Resources & Compensation Committee Report on Executive
Compensation - Long-Term Incentives."
As of May 1, 2001, Mr. Donnie Moore resigned as Senior Vice President, Finance &
Administration and Chief Financial Officer and retired from full-time employment
with the Corporation. His employment agreement was amended to provide that he
will continue to be employed on an indefinite part-time basis for a period
ending no earlier than May 1, 2002. His compensation for those duties is $30,000
annually. Also, in recognition of his outstanding contribution to the
Corporation during 15 years of service as Chief Financial Officer, a special
one-time payment in the amount of C$156,916 will be made to his retirement
arrangement established and maintained in accordance with guidelines issued by
the Canada Customs and Revenue Agency (formerly Revenue Canada).
15
Human Resources & Compensation Committee Report on Executive Compensation
Mandate of the Human Resources & Compensation Committee
The mandate of the Human Resources & Compensation Committee ("Committee") is set
out in "Corporate Governance - Board Committees". Among other matters, it is
responsible for reviewing and approving the compensation for the Chief Executive
Officer and the other executive officers of the Corporation. The Corporation's
compensation program for executive officers comprises cash compensation and
long-term incentive compensation in the form of stock options. A policy of stock
ownership for executives of the Corporation was adopted in fiscal 2000 (as
described in "Share Ownership" below).
Cash Compensation
Each senior officer is assigned a target cash compensation amount at the
beginning of each fiscal year. This amount is based on salary surveys of both
similarly-sized software companies and larger software companies, some of which
are represented in the Performance Graph on page 19, as well as on job
responsibilities and performance. Target cash compensation is allocated between
two components: a fixed base salary and a variable bonus target. At the election
of the executive officer, the Corporation may contribute to a retirement
arrangement in accordance with guidelines established by the Canada Customs and
Revenue Agency (formerly Revenue Canada).
Base salary is based on the criteria set out above, that is, on market surveys,
job responsibilities and performance.
The bonus target for each officer varies in accordance with his role,
responsibilities and objectives. Once the target is set, most of the officers
will earn a significant portion of their bonus target based on corporate
performance, the amount of which is to be determined under the Performance
Formula referred to below. The balance will be earned based on the
accomplishment of specific objectives related to the individual responsibilities
and duties of the particular officer. Some of these objectives are quantitative
while others require subjective judgments.
The amounts of the actual bonus payments related to corporate performance is
determined by way of a fixed formula established by the Committee at the
commencement of the fiscal year ("Performance Formula") based on a combination
of the Corporation's revenue growth and return on equity. The balance, based on
individual performance, is determined in accordance with a pre-set formula
calculation related to the attainment of specific quantitative goals and/or a
subjective assessment of performance where a quantitative increase is
inappropriate.
In a given year, an officer may achieve more or less than the established target
cash compensation amount depending on corporate and personal performance against
these objectives. For the year ended February 28, 2001, individual bonus amounts
earned ranged from 101% to 210% of the bonus target primarily as a result of the
effect of the Performance Formula and other bonus performance criteria. The
range of total cash compensation earned by all named executive officers was from
100% to 147% of their respective individual target cash compensation amounts.
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
16
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. Options to directors
typically vest in their entirety on 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 have fully vested and expire on the eighth anniversary of the date of
grant. At the time of the 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 fiscal 2000 and it concluded that
it was unduly complex. On May 19, 1999 this requirement was ended and replaced
by share ownership guidelines for executives (described below) 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.
Mr. Tony Sirianni, Senior Vice President, North American Field Operations,
became an executive officer during the fiscal year ended February 28, 2001. On
March 31, 2000, Mr. Sirianni was awarded an option to acquire 20,000 shares
under the 1997 Option Plan. The Committee based this award on the importance of
Mr. Sirianni's role in the key North American market. 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 11, 2000, the Committee awarded option grants to certain key employees
of the Corporation and its subsidiaries, including all of the named executive
officers, with the exception of Mr. Engels, as set out in "Option/SAR Grants in
Last Fiscal Year".
As of the Record Date, options to purchase 6,932,206 shares under the 1997
Option Plan, and predecessor plans, were outstanding at a weighted average
exercise price of $8.37.
17
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.
Chief Executive Officer Compensation
The Chief Executive Officer's ("CEO") compensation is reviewed and recommended
to the Board by the Committee. The Committee was of the view that the CEO was
undercompensated in comparison to industry levels. Following discussions with
Mr. Zambonini, the Committee agreed with Mr. Zambonini's request that any
increase should be primarily in the form of risk-based compensation tied to the
performance of the Corporation. Accordingly, Mr. Zambonini's base salary was set
at $267,148 (C$400,000), representing a 7% increase over his Canadian dollar
base salary in the previous fiscal year. His bonus target was increased by 60%
over his Canadian dollar bonus target in the previous fiscal year, to $200,361
(C$300,000). His bonus payment is determined by using the Performance Formula
referred to in "Human Resources & Compensation Committee Report on Executive
Compensation - Long Term Incentives", above, and resulted in a bonus of $420,757
(C$630,000) (210% of bonus target) for the fiscal year ended February 28, 2001.
This report has been provided by the Human Resources & Compensation Committee of
the Board of Directors.
Robert W. Korthals (Chairman)
Pierre Y. Ducros
Douglas J. Erwin
Human Resources & Compensation Committee Interlock and Insider Participation in
Compensation Decisions
The members of the Human Resources & Compensation Committee are Messrs. Korthals
(Chairman), Ducros and Erwin. No member of the Committee was at any time during
the past year an officer or employee of the Corporation or any of its
subsidiaries, was formerly an officer of the Corporation or any of its
subsidiaries, or had any relationship with the Corporation requiring disclosure
herein. During the last year, no executive officer of the Corporation served as
(i) a member of the compensation committee (or other committee of the Board of
Directors performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors) of another entity, one of whose
executive officers served on the Human Resources & Compensation Committee of the
Corporation; (ii) a director of another entity, one of whose executive officers
served on the Human Resources & Compensation Committee of the Corporation; or
(iii) a member of the compensation committee (or other committee of the Board of
Directors performing equivalent functions or in the absence of any such
committee, the entire Board of Directors) of another entity, one of whose
executive officers served as a director of the Corporation.
18
Performance Graph
[GRAPH]
(1) Dollar amounts are in U.S. dollars.
(2) The stock price performance graph is not necessarily indicative of future
performance. Information used on the graph was obtained from The Nasdaq
Stock Market, Inc., a source believed to be reliable, but the Corporation
is not responsible for any errors or omissions in such information.
The above graph compares the five-year cumulative total return on the
Corporation's shares with the comparable cumulative return of a broad equity
index and an industry index. The indexes used are the Center for Research in
Securities Prices ("CRSP") Total Return Index for The Nasdaq Stock Market (U.S.
and Foreign Companies), and the Nasdaq Computer & Data Processing Services
Stocks Index.
The graph assumes $100 invested on February 28, 1996 in the Corporation's shares
and each of the Nasdaq indexes.
19
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed with management the Corporation's
audited consolidated financial statements as of and for the year ended February
28, 2001.
The Audit Committee has also discussed with Ernst & Young LLP the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants.
The Audit Committee has received and reviewed the written disclosures and the
letter from Ernst & Young LLP required by Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees, as amended, and has
discussed with Ernst & Young LLP their independence and considered the
compatibility of nonaudit services with the auditors' independence.
Based on the reviews and discussions referred to above, the Audit Committee has
recommended to the Board of Directors that the audited consolidated financial
statements referred to above be included in the Corporation's Annual Report on
Form 10-K for the fiscal year ended February 28, 2001 and that Ernst & Young LLP
be appointed independent auditors of the Corporation for 2002. The foregoing
report is provided by the following independent directors, who constitute the
Audit Committee.
Douglas C. Cameron (Chairman)
John E. Caldwell
Candy M. Obourn
FEES PAID TO THE INDEPENDENT AUDITORS
Audit Fees
The aggregate fees billed by Ernst & Young LLP for professional services
rendered for the audit of the Corporation's annual consolidated financial
statements for the fiscal year ended February 28, 2001 and the reviews of the
unaudited interim financial statements included in the Corporation's Form 10-Q's
for the fiscal year ended February 28, 2001 ("Audit Services") were $347,000.
Financial Information Systems Design and Implementation Fees
Ernst & Young did not perform any professional services with respect to
financial information systems design and implementation for the fiscal year
ended February 28, 2001 ("Technology Services").
All Other Fees
The aggregate fees billed by Ernst & Young LLP for professional services other
than Audit Services and Technology Services for the fiscal year ended February
28, 2001 were $823,000.
20
APPOINTMENT OF AUDITORS
A resolution will be presented at the Meeting to appoint Ernst & Young LLP as
independent auditors of the Corporation for the fiscal year ending February 28,
2002 and authorize directors to fix their remuneration. Ernst & Young LLP have
been auditors of the Corporation since January 1984. The Board recommends a vote
in favor of this resolution.
Arrangements have been made for one or more representatives of Ernst & Young LLP
to attend the Meeting. These representatives will be accorded the opportunity to
address the Meeting and can be expected to respond to appropriate questions.
OTHER MATTERS
The management of the Corporation knows of no amendment or variation of the
matters referred to in the Notice of Annual Meeting and of no other business to
be brought before the Meeting. However, if any amendment, variation or other
business is properly brought before the Meeting, the Proxy Form confers
discretionary authority on the persons appointed proxy to vote on any amendment
or variation of the matters referred to in the Notice of Annual Meeting or any
other business in accordance with their best judgment.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation. In
addition to soliciting shareholders by mail through its regular employees, the
Corporation may request banks and brokers to solicit their customers who have
shares of the Corporation registered in the names of a nominee and, if so, will
reimburse such banks and brokers for their reasonable out-of-pocket costs.
Solicitation by officers and employees of the Corporation may also be made of
some shareholders in person or by mail, telephone or fax following original
solicitation.
APPROVAL BY BOARD OF DIRECTORS
The contents and the sending of this Proxy Statement have been approved by the
Board of Directors of the Corporation.
DATED at Ottawa this 18th day of May, 2001.
/S/ James M. Tory
James M. Tory
Chairman of the Board
21
ANNEX A
ALIGNMENT WITH TSE CORPORATE GOVERNANCE GUIDELINES
- ------------------------------------------------------------------------------------------------------------------------------------
TSE Corporate Governance Guideline Alignment Comment
Status
- ------------------------------------------------------------------------------------------------------------------------------------
1. Board should explicitly assume responsibility
for stewardship of the corporation, and
assume responsibility for:
- ------------------------------------------------------------------------------------------------------------------------------------
(a) adoption of a strategic planning process; Yes The Board meets with management annually to
specifically discuss strategic planning, product
and business plans and risks and opportunities.
Updates are presented at Board meetings.
- ------------------------------------------------------------------------------------------------------------------------------------
(b) identification of principal risks and Yes Principal business risks are assessed by the Board
implementing appropriate risk management at the annual strategic planning session and
systems; updated regularly by senior management in
compliance with various legal and financial
requirements and management's assessment of those
risks. The Audit Committee assists the Board with
the review of the risk management program.
- ------------------------------------------------------------------------------------------------------------------------------------
(c) succession planning, including Yes This responsibility is assigned to the Human
appointing, training and monitoring of senior Resources & Compensation Committee.
management;
- ------------------------------------------------------------------------------------------------------------------------------------
(d) communications policy; and Yes Communications with the Corporation's stakeholders
is done by various means, including news releases,
the general media, the corporate internet site
(www.cognos.com), mailings and regular staff
--------------
meetings. Quarterly and annual earnings releases
are approved by the Audit Committee and Board.
Other media releases and communications are
coordinated by the Public Relations and Corporate
Relations departments and the Corporate Human
Resources department.
- ------------------------------------------------------------------------------------------------------------------------------------
(e) integrity of internal control and Yes The Audit Committee establishes and regularly
management information systems. monitors policies regarding internal controls and
management information systems.
- ------------------------------------------------------------------------------------------------------------------------------------
2. Majority of directors should be Yes The current Board consists of eight directors,
"unrelated"./(1)/ seven of whom are unrelated.
- ------------------------------------------------------------------------------------------------------------------------------------
3. Disclose for each director whether he or she Yes The table at page 4 sets out the principal
is related and how that conclusion was occupation or employment of each proposed director.
reached. In making the determination as to whether a
proposed director is related, the factual
circumstances of each proposed director are
considered in the context of many factors,
including the nature of any interest, business or
other relationship which that proposed directors
has, which could, or could be reasonably be
perceived to materially interfere with the ability
to act with a view to the best interests of the
Corporation. /(2)/
- ------------------------------------------------------------------------------------------------------------------------------------
4. Committee composed of unrelated (i.e. Yes This responsibility is assigned to the Corporate
non-management) directors responsible for Governance Committee. It is composed of unrelated
nominations and assessment of directors. directors.
- ------------------------------------------------------------------------------------------------------------------------------------
5. Implement a process to assess effectiveness Yes It is the Chairman's responsibility to assess the
of board, committees and directors. effectiveness of the individual Board members and
take such remedial action as is necessary.
- ------------------------------------------------------------------------------------------------------------------------------------
22
- ------------------------------------------------------------------------------------------------------------------------------------
6. Provide orientation and education programs Yes All new directors receive a complete orientation
for new directors. program, consisting of presentations and briefings
by the Chairman and senior management on the
business and operations of the Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
7. Consider board size with view to improving Yes The Corporate Governance Committee makes
effectiveness. recommendations with respect to board size. The
current size of the Board is considered to be
effective and its composition reflects diverse
backgrounds and skills.
- ------------------------------------------------------------------------------------------------------------------------------------
8. Review adequacy and form of director Yes Directors' compensation was reviewed during fiscal
compensation relative to risks and 2000 and brought into line with industry practices.
responsibilities. Only non-employee directors are compensated and may
elect to receive all or a portion of their annual
retainer fee in the form of deferred share units
under a plan which took effect in fiscal 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
9. Board committees should generally be composed Yes The Board committees are composed entirely of
of outside directors, a majority of whom unrelated, outside directors.
should be unrelated.
- ------------------------------------------------------------------------------------------------------------------------------------
10. Appoint committee responsible for corporate Yes This responsibility is assigned to the Corporate
governance issues. Governance Committee.
- ------------------------------------------------------------------------------------------------------------------------------------
11. Develop position descriptions to limit
management's responsibilities:
- ------------------------------------------------------------------------------------------------------------------------------------
(a) for board and Chief Executive Officer; and Yes Written mandates have been adopted for the Board,
each of its committees, and for the Chief Executive
Officer.
- ------------------------------------------------------------------------------------------------------------------------------------
(b) approve corporate objectives for Chief Yes The Chief Executive Officer's objectives are
Executive Officer. established annually during the strategic planning
session.
- ------------------------------------------------------------------------------------------------------------------------------------
12. Establish procedures to enable board to Yes The positions of Chairman of the Board and Chief
function independently of management. Executive Officer are held by different people.
The mandate of the Corporate Governance Committee
is structured to preserve this separation. The
Board has the opportunity to meet without the
presence of management at each Board meeting.
- ------------------------------------------------------------------------------------------------------------------------------------
13. (a) Audit Committee should have a Yes The written mandate, including specific
specifically defined mandate, including responsibilities, has been adopted and is set out
oversight responsibility for management in Annex C. See Audit Committee on page 6.
reporting on internal controls.
- ------------------------------------------------------------------------------------------------------------------------------------
(b) All members should be outside directors. Yes All members are outside directors.
- ------------------------------------------------------------------------------------------------------------------------------------
(c) Have direct communication with auditors. Yes The Audit Committee meets with the Corporation's
auditors without members of management present as
required, but not less than annually.
- ------------------------------------------------------------------------------------------------------------------------------------
14. Implement systems to enable individual Yes The Board, and individual directors may engage
directors to engage outside advisor at outside advisors at the expense of the Corporation
corporation's expense. in appropriate circumstances, in consultation with
the Chairman.
- ------------------------------------------------------------------------------------------------------------------------------------
/(1)/ Under the TSE guidelines, the term "unrelated director" means a director
who is free from any interest and any business or other relationship
which could, or could reasonably be perceived to, materially interfere
with the director's ability to act with a view to the best interests of
the Corporation, other than interests arising from shareholding. An
"outside director" is a director who is not an officer (other than
Chairman of the Board) or employee of the Corporation or any of its
affiliates.
23
/(2)/ 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. Mr. Tory himself provides no legal services to the
Corporation and has no direct or indirect responsibility for any legal
services provided by Torys to 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 (see Compensation of Directors)
impairs his status as an unrelated director as that amount is payable in
respect of his additional responsibilities and duties as Chairman of the
Board.
24
ANNEX B
ALIGNMENT WITH SEC AUDIT COMMITTEE RULES
- ------------------------------------------------------------------------------------------------------------------------------------
SEC Audit Committee Rule Alignment Comment
Status
- ------------------------------------------------------------------------------------------------------------------------------------
1. (a) Every audit committee have at least Yes The Audit Committee is composed of three members.
three members;
- ------------------------------------------------------------------------------------------------------------------------------------
(b) all audit committee members must be Yes Each of them is independent, as defined by the
independent; National Association of Securities Dealers
("NASD")/(1)/.
- ------------------------------------------------------------------------------------------------------------------------------------
(c) committee members be financially Yes Each of them is a seasoned business person and
literate. meets the applicable NASD requirements for
financial literacy and financial expertise.
- ------------------------------------------------------------------------------------------------------------------------------------
2. At least one committee member have prior Yes All committee members have relevant accounting or
accounting or financial management financial management experience.
experience.
- ------------------------------------------------------------------------------------------------------------------------------------
3. The board adopt a written audit committee Yes A written mandate has been adopted.
charter that describes the committee's
responsibilities.
- ------------------------------------------------------------------------------------------------------------------------------------
4. The proxy statement must include a report Yes See Annex C.
from the audit committee.
- ------------------------------------------------------------------------------------------------------------------------------------
5. Outside auditor review of quarterly Yes The Corporation's auditors have historically
financial statements prior to filings. conducted reviews of the Corporation's quarterly
financial statements. Beginning in fiscal 2000, the
Corporation's independent auditors have reviewed
quarterly financial statements prior to filings.
- ------------------------------------------------------------------------------------------------------------------------------------
/(1)/ The Corporation may license its products and sell its services in the
ordinary course of business to companies for which members of the Corporation's
Board serve as executive officers. In fiscal 2001, the Corporation did business
with Geac Computer Corporation Limited, of which company Mr. Caldwell, a member
of the Audit Committee, became Chief Executive Officer in November 2000. The
amount received from Geac with respect to the license of products and the
purchase of services is not considered to be significant and does not impair Mr.
Caldwell's independence status, as defined by NASD.
25
ANNEX C
COGNOS INCORPORATED
BOARD OF DIRECTORS
AUDIT COMMITTEE MANDATE
1. ESTABLISHMENT
The Board of Directors of Cognos Incorporated ("Board") has established an
Audit Committee to supervise the audit of the Corporation's financial records as
well as policies and procedures concerning the Corporation's financial
reporting, internal accounting, financial controls, management information and
risk management.
2. MEMBERS
The Board annually will appoint not less than three (3) Directors as
members of the Committee. No Director who is also an officer of the Corporation,
or who is otherwise related to the Corporation except by reason of being a
Director or a Shareholder, may be a member of the Committee. The Auditor of the
Corporation will have the right to be given notice of, and attend, every meeting
of the Committee.
3. DUTIES
The Committee will have the following duties:
(a) Relations with the Auditor
. Review with Management, and make recommendations to the Board,
regarding the appointment of the Corporation's external Auditor
("Auditor").
. Review with Management, on a regular basis, the terms of the
Auditor's engagement and the appropriateness and reasonableness of
any proposed audit fees.
. Review all issues related to any change of Auditor, including all
of the requirements pursuant to National Policy 31 (or any
successor policy or legislation) and plan steps for an orderly
transition.
. Review any engagements for non-audit services to be provided by the
Auditor or its affiliates, including proposed fees.
. Review all factors that might impair, or be perceived to impair,
the independence of the Auditor.
(b) Audit & Financial Reporting
. Review the audit plan with the Auditor and Management.
. Review with Management and the Auditor any proposed changes in
major accounting policies, the presentation and impact of
significant risks and uncertainties and key estimates and judgment
of Management that may be material to financial reporting.
. Question Management and the Auditor regarding financial reporting
issues discussed during fiscal period.
. Review any problems experienced by the Auditor in performing
audits.
. Review audited annual financial statements in conjunction with the
Auditor and review with Management all significant variances
between comparative reporting periods.
26
. Review the post audit or management letter containing the
recommendations of the Auditor, Management's response and,
subsequently, follow-up identified weaknesses.
. Review all interim financial statements before release to public
and regulatory authorities.
. Review all public disclosure documents containing audited or
unaudited financial Information before release including any
Prospectus, the Annual Report, Annual Proxy Statement or any other
documents required to be filed with regulatory agencies.
. Review with Management the Corporation's relationship with
regulators and the timeliness and accuracy of corporate filings
with regulatory authorities.
(c) Internal Controls
. Establish, monitor and review policies and procedures for internal
accounting, financial control and management information ("internal
controls").
. Consult with the Auditor regarding the adequacy of the
Corporation's internal controls.
. Review with Management its philosophy with respect to internal
controls and, on a regular basis, address any perceived
shortcomings in those controls.
. Review with Management, the appointment of the Chief Financial
Officer, any other key financial personnel involved in the
financial reporting process.
. Obtain from Management adequate assurances that all statutory
payments and withholdings have been made.
(d) Risk Management
. Identify the risks inherent in the business of the Corporation.
. Establish and monitor policies and procedures necessary to address,
as much as is reasonably possible, these identified risks.
. In conjunction with Management, review on an annual basis all
aspects of the corporation's risk management program, including all
significant insurance policies and the Corporation's investment
policy (including its use of financial risk management
instruments).
4. CHAIRPERSON
The Board will appoint a member as Chairperson of the Committee. In the
Chairperson's absence, or if the position is vacant, the Committee may select
another member as Chairperson.
5. MEETINGS
The Committee will determine the date, time and place of its meetings. The
Committee may meet on written or verbal notice from the Chairperson or, in
accordance with the provisions of the Canada Business Corporations Act, upon
--------------------------------
notice from the Auditor. If the Chairperson is absent, or if the position is
vacant, any Director may call a meeting. The Committee may establish those
procedures for the conduct of its business it deems appropriate, such procedures
to be in keeping with those adopted by the Board. All decisions will be by
majority vote. In the event of a tie, the Chairperson will have the casting
vote.
27
6. QUORUM
Two members of the Committee constitute a quorum for the transaction of
business.
7. RECOMMENDATIONS
The Committee will report its recommendations to the Board at the Board's
next meeting.
8. VACANCY
Subject to quorum requirements, failure by the Board to fill a vacancy on
the Committee will not invalidate its decisions.
9. SECRETARY AND MINUTES
The Secretary of the Corporation, or such other person as maybe appointed
by the Chairperson of the Committee, will act as Secretary of the Committee. The
minutes of the Committee will be in writing and duly entered in the books of the
Corporation.
28
[LOGO]
COGNOS INCORPORATED
B. FINANCIAL INFORMATION
IN ACCORDANCE WITH CANADIAN GAAP
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2001
The consolidated financial information as set out in the Corporation's 2001
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 2001
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.
29
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 28, 2001:
PAGE
--------
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................... 31
Report of Management....................................................................... 51
Auditors' Report........................................................................... 52
Consolidated Financial Statements and Notes................................................ 53
Five-Year Summary.......................................................................... 74
30
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
28, 2001, beginning on page 51. We prepare and file our 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, our Board of Directors authorized a two-for-one stock split,
effected in the form of a stock dividend, payable on or about April 27, 2000 to
stockholders 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
Cognos is a leading global provider of business intelligence software solutions.
We develop, market, and support an integrated business intelligence platform
that allows our customers, as well as their partners, customers, and suppliers,
to analyze and report data from multiple perspectives and to effectively
coordinate decision-making and actions across the extended enterprise through
intranets, extranets, and the Internet. Our software is designed to allow our
customers to effectively use data to make faster, more informed decisions in
order to improve operational effectiveness, increase customer satisfaction,
accelerate corporate response times, and, ultimately, enhance revenues and
profits.
Our enterprise business intelligence platform (EBI Platform) is uniquely
positioned to take advantage of the accelerating demand for business
intelligence solutions for the extended enterprise across all industries. Our
EBI Platform is an integrated software foundation that is designed to meet our
customers' end-to-end business intelligence requirements, including reporting,
analysis, query, and visualization, in a secure, Web-based environment that is
easy to use and deploy across the extended enterprise. The information produced
by our platform is distributed over a business intelligence portal that enables
users, both inside and outside the organization, to access business intelligence
content, such as reports and scorecarding, through a secure, personalized Web-
based interface. Our business intelligence solution also includes an integrated
set of analytic applications built upon the foundation of our EBI Platform,
which provide "out-of-the-box" functionality for reporting and analysis in
functional areas such as finance, inventory, and sales.
Revenue is derived from the licensing of software and the provision of related
services, which include product support and education, consulting, and other
services. We generally license software and provide services subject to terms
and conditions consistent with industry standards. Our customers may elect to
contract with us for product support, which includes product and documentation
enhancements, as well as telephone support, by paying either an annual fee or
fees based on their usage of support services.
We operate internationally with a substantial portion of our business conducted
in foreign currencies. Accordingly, our 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, to other
foreign currencies.
31
Currently we derive our revenue from the licensing, support, and service of
business intelligence solutions and application development tools. In the most
recent fiscal year, revenue associated with our business intelligence solutions
made up 90% of our total revenues; application development tools made up 10% of
our total revenues. The percentage of revenue attributable to application
development tools has declined over the last six fiscal years and is expected to
continue to decline in the future as the market moves away from proprietary
systems and towards packaged application products. We are focused on
maintaining our leadership position in the business intelligence market and
believe that the application development tools market will continue to decrease
in importance for our financial results.
We recognize 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 our 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, and that would not have been incurred
but for the acquisition of that contract, are deferred and expensed in the
period the related revenue is recognized. These costs include commissions
payable on sales of support contracts. Revenue from education, consulting, and
other services is recognized at the time the services are rendered. For
contracts with multiple obligations (e.g., deliverable and undeliverable
products, support obligations, education, consulting, and other services), we
allocate revenue to each element of the contract based on objective evidence of
the fair value of the element.
The sales cycle for our products may span nine months or more. Historically, we
have recognized a substantial portion of our revenues in the last month of a
quarter, with these revenues frequently concentrated in the last two weeks of a
quarter. Even minor delays in booking orders may have a significant adverse
impact on revenues for a particular quarter. To the extent that delays are
incurred in connection with orders of significant size, the impact will be
correspondingly greater. As corporations move to enterprise-wide deployments,
orders become larger, and hence, the impact of the sales cycle becomes
increasingly harder to predict. We currently operate with virtually no order
backlog because our software products typically are shipped shortly after orders
are received. Product license revenues in any quarter are substantially
dependent on orders booked and shipped in that quarter. As a result of these and
other factors, our quarterly results have varied significantly in the past and
are likely to fluctuate significantly in the future. Accordingly, we believe
that quarter-to-quarter comparisons of our results of operations are not
necessarily indicative of the results to be expected in any future period.
We license our software through our direct sales force and value-added
resellers, system integrators, and original equipment manufacturers. Direct
sales accounted for approximately 70%, 69%, and 69% of our license revenues for
the years ended February 28, 2001 (fiscal 2001), February 29, 2000 (fiscal
2000), and February 28, 1999 (fiscal 1999), respectively. As enterprise-wide
deployments become more important to our customers, we believe that the direct
sales channel is the most effective method of penetrating the large enterprise
market; however, in order to have adequate market coverage for smaller and mid-
size companies, we continue to expend a significant amount of resources
developing our indirect sales activities. We also continue to commit significant
management time and financial resources to developing direct and indirect
international sales and support channels.
32
RESULTS OF OPERATIONS
Total revenue for fiscal 2001 was $495.7 million, which was 29% more than the
fiscal 2000 revenue of $385.6 million which, in turn, was 28% more than the
fiscal 1999 revenue of $301.1 million. Net income for fiscal 2001 was $62.7
million and basic net income per share was $0.72, compared to fiscal 2000 net
income of $54.5 million and basic net income per share of $0.63, and net income
of $58.1 million and basic net income per share of $0.66 for fiscal 1999.
We experienced decreases in net income as a percentage of revenue in fiscal 2001
and 2000. In both fiscal 2001 and 2000 we increased our investment in our sales
channels to focus on revenue growth and expand global market coverage. During
fiscal 2001 the decrease in net income as a percentage of revenue was the result
of increases in selling, general, and administrative expenses. The decrease
during fiscal 2000 was the result of increases in selling, general, and
administrative expenses and decreases in the level of investment tax credits
(ITCs) from prior years. The decrease in the level of 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.
Percentage Change
from Fiscal
Percentage of Revenue ----------------------------------
-------------------------------------- 2000 to 1999 to
2001 2000 1999 2001 2000
--------------------------------------- ----------------------------------
Revenue 100.0% 100.0% 100.0% 28.5% 28.1%
---------------------------------------
Operating expenses
Cost of product license 1.5 1.3 1.9 39.7 (8.8)
Cost of product support 3.6 3.6 3.7 29.5 23.2
Selling, general, and administrative 66.1 63.5 59.2 33.8 37.3
Research and development 13.6 13.9 14.0 25.6 26.7
Investment tax credits (1.4) (1.6) (4.9) 7.8 (58.3)
---------------------------------------
Total operating expenses 83.4 80.7 73.9 32.8 39.8
---------------------------------------
Operating income 16.6 19.3 26.1 10.5 (5.2)
Interest expense (0.2) (0.2) (0.2) 9.5 36.2
Interest income 2.5 1.9 2.2 66.2 15.9
---------------------------------------
Income before taxes 18.9 21.0 28.1 15.6 (3.8)
Income tax provision 6.3 6.9 8.8 16.9 1.4
---------------------------------------
Net income 12.6% 14.1% 19.3% 15.0% (6.2)%
=======================================
* not meaningful
33
REVENUE
Our total revenue was $495.7 million in fiscal 2001, compared to $385.6 million
in fiscal 2000, and $301.1 million in fiscal 1999. Our growth in total revenue
was derived primarily from the increase in revenue from our business
intelligence products, principally Web versions of Impromptu(R) and
PowerPlay(R); contributing to the increase, but to a lesser extent, were Cognos
Visualizer, DecisionStream(TM), Cognos Query, and Cognos Finance. Total revenue
for all business intelligence products was $446.8 million, $328.0 million, and
$230.9 million in fiscal 2001, 2000, and 1999, respectively, which resulted in
year-over-year increases of 36% and 42%, respectively. Total revenue from our
business intelligence products represented 90%, 85%, and 77% of total revenue in
fiscal 2001, 2000, and 1999, respectively.
Total revenue from our application development tools, PowerHouse(R) and
Axiant(R), was $48.9 million in fiscal 2001, compared to $57.6 million in fiscal
2000, and $70.2 million in fiscal 1999, which resulted in year-over-year
decreases of 15% and 18%, respectively.
The growth in total revenue from product license, product support, and services
in fiscal 2001 from fiscal 2000 was as follows: a 29% increase in product
license revenue, a 25% increase in product support revenue, and a 33% increase
in services revenue. This compares to an increase for the same categories for
fiscal 2000 from fiscal 1999 as follows: 28%, 27%, and 30%, respectively.
Our 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 2001, the percentage of total revenue from North America,
Europe, and Asia/Pacific was 64%, 30%, and 6%, respectively, compared to 61%,
32%, and 7%, respectively, in fiscal 2000 and 59%, 34%, and 7%, respectively, in
fiscal 1999. In fiscal 2001, total revenue from North America, Europe, and
Asia/Pacific increased from fiscal 2000 by 35%, 19%, and 13%, respectively,
compared to increases of 32%, 20%, and 32%, respectively, in fiscal 2000 from
fiscal 1999. The increase in growth for fiscal 2001 compared to fiscal 2000 in
North America is attributable to the increase in revenue from the business
intelligence products; however, due to economic conditions, growth rates began
to slow in the fourth quarter of fiscal 2001. The decrease in growth for Europe
was partly the result of foreign exchange rate fluctuations. Further, we were
able to take advantage of market opportunities in Continental Europe, but were
unable to realize these advantages in the United Kingdom. Excluding exchange
rate fluctuations, revenue growth for Europe would have been 32% for fiscal 2001
as compared to 28% growth, excluding exchange fluctuations, for fiscal 2000. The
decline in growth rate during fiscal 2001 in Asia/Pacific was mainly
attributable to our Australian markets, where we experienced slower growth which
was mainly attributable to year-over-year exchange rate fluctuations.
A substantial portion of our business is conducted in foreign currencies.
Accordingly, our 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, to other foreign
currencies. The effect of foreign exchange rate fluctuations decreased the
overall revenue growth by four percentage points in fiscal 2001 from fiscal 2000
and by two percentage points in fiscal 2000 from fiscal 1999.
Product License Revenue
Total product license revenue was $262.8 million, $203.3 million, and $158.4
million in fiscal 2001, 2000, and 1999, respectively, and accounted for 53% of
our revenue for each of the respective time periods. The increase in all periods
occurred predominantly as a result of the performance of our business
intelligence products. Product license revenue from these products was $248.8
million, $186.6 million, and $131.9 million in fiscal 2001, 2000, and 1999,
respectively, which resulted in year-over-year increases of 33% and
34
41%, respectively. The growth in product license revenue from the business
intelligence products during fiscal 2001 was less than the growth rate reported
in fiscal 2000. Although the overall revenue growth rate in North America
increased in fiscal 2001 from fiscal 2000, we experienced the impact of the
rapid economic slowdown in this geographical region late in our fourth fiscal
quarter. We experienced hesitancy on the part of commercial customers in North
America to make large commitments. We believe that the softening North American
economy is causing a retrenchment in the near-term level of investment in higher
valued software products. Product license revenue associated with the business
intelligence products contributed approximately 95%, 92%, and 83% to this
revenue category in fiscal 2001, 2000, and 1999, respectively.
Product license revenue from our application development tools, PowerHouse and
Axiant, was $14.0 million, $16.7 million, and $26.5 million in fiscal 2001,
2000, and 1999, respectively. We expect that, in both the short and long term,
the trend of decreasing product license revenue from these products will
continue.
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 believe that a direct sales force is more
effective than third-party sales in reaching Global 2000 companies because it is
more relationship focused. We use third-party distributors in selected regions
in order to extend our geographic coverage.
Total product license revenue from third-party channels represented 30% of total
product license revenue in fiscal 2001 compared to 31% in fiscal 2000 and 1999.
Within our business intelligence market, product license revenue from third-
party channels was $75.7 million in fiscal 2001, compared to $57.3 million in
fiscal 2000 and $42.3 million in fiscal 1999. Product license revenue within
this market from third-party channels represented 30% of our product license
revenue in fiscal 2001, compared to 31% in fiscal 2000 and 32% in fiscal 1999.
Product Support Revenue
Product support revenue was $147.6 million, $118.1 million, and $93.3 million in
fiscal 2001, 2000, and 1999, respectively. Product support revenue accounted for
30% of our total revenue for fiscal 2001 and 31% for fiscal 2000 and 1999. The
increase in the dollar amounts was the result of new support contracts from the
expansion of our customer base, as well as the renewal of existing support
contracts.
Total product support revenue from the business intelligence products was $114.2
million, $78.8 million, and $52.0 million in fiscal 2001, 2000, and 1999,
respectively and made up 77%, 67%, and 56% of the total product support revenue
in fiscal 2001, 2000, and 1999, respectively. In fiscal 2001, total product
support revenue from business intelligence products increased by 45% from fiscal
2000 and total product support revenue from application development tools
decreased by 15% over the same period. 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.
Services Revenue
Revenue from education, consulting, and other services was $85.3 million, $64.3
million, and $49.4 million in fiscal 2001, 2000, and 1999, respectively.
Services revenue accounted for 17% of our total revenue for fiscal 2001 and 2000
and accounted for 16% of our total revenue for fiscal 1999. During fiscal 2001,
we continued to increase the level of sales of our business intelligence
solutions within global enterprises. Our business intelligence solutions were
increasingly being deployed on an enterprise-wide, global basis within
organizations for mission-critical applications. Successful installation and
deployment of our solution has
35
become critical to our customers' success. As a result, our customers have
increasingly required services such as strategic planning, project management,
analysis and design, technical advisory, and instruction to effectively deploy
our solutions.
The increase in services revenue in fiscal 2001 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. Services
revenue associated with the business intelligence products contributed
approximately 98%, 97%, and 95% to this revenue category in fiscal 2001, 2000,
and 1999, respectively.
OPERATING EXPENSES
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 2001 were $7.3 million
compared to $5.2 million in fiscal 2000 and $5.7 million in fiscal 1999. Product
license costs represented 3% of product license revenue for fiscal 2001 and 2000
and 4% of product license revenue for fiscal 1999. The increase, in dollar
terms, in fiscal 2001 from fiscal 2000 is due to increases in royalty costs;
material and distribution costs remained relatively consistent with fiscal 2000
levels. The decrease in fiscal 2000 from fiscal 1999 was due to decreases in
both royalty costs and materials and distribution costs associated with product
offerings.
Cost of Product Support
The cost of product support includes the costs associated with resolving
customer inquiries and other telesupport and websupport 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 $17.8 million, $13.8 million, and $11.2 million in fiscal 2001,
2000, and 1999, respectively. These costs represented 12% of product support
revenue for each of fiscal 2001, 2000, and 1999. The increase, in dollar terms,
in fiscal 2001 from fiscal 2000 was associated predominantly with increases in
customer telesupport and websupport costs. The increase in fiscal 2000 from
fiscal 1999 was associated predominantly with increases in customer telesupport
and websupport costs; while enhancement release costs contributed to a lesser
extent to the increase.
Selling, General, and Administrative
Selling, general, and administrative expenses were $327.6 million, $244.8
million, and $178.3 million in fiscal 2001, 2000, and 1999, respectively. These
costs were 66% of revenue in fiscal 2001 compared to 64% and 59% in fiscal 2000
and 1999, respectively. The increase in the selling, general, and administrative
expenses in fiscal 2001 was primarily the result of increases in staffing and
related compensation expenses. Contributing to a lesser extent to the increase
were facilities, marketing costs, and the amortization of the technology
acquired on acquisitions of various companies over the last four fiscal years.
During fiscal 2001, we continued to increase our investment in our sales
channels, to focus on opportunities for new revenue growth and expand global
market coverage. The average number of employees within the selling, general,
and administrative areas grew by 29% in fiscal 2001, predominantly as the result
of additions to sales and services staff. The increase in the selling, general,
and administrative expenses in fiscal 2000 was primarily 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, we
increased our investment in our sales
36
channels to focus on revenue growth and to expand our 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 and services staff. The costs per employee increased 4% in fiscal 2001 and
6% in fiscal 2000.
Research and Development
Research and development costs were $67.3 million, $53.5 million, and $42.3
million for fiscal 2001, 2000, and 1999, respectively. Research and development
costs have continued to increase, in dollar terms, over the last several fiscal
years, but have remained constant at 14% of total revenue for each of fiscal
2001, 2000, and 1999. The growth in fiscal 2001 was primarily the result of
increases associated with higher staffing levels in this area. Increases in
services purchased externally and other costs associated with the development of
our product lines to meet foreign market requirements also contributed to the
increase for the fiscal year. The growth during fiscal 2000 was predominantly
the result of higher staffing levels and related compensation expenses. The
increase in the average number of employees in this area was 15% in fiscal 2001
from fiscal 2000, and was 26% in fiscal 2000 from 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 2001, 2000, or 1999 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.
During fiscal 2001 we continued to invest in R&D activities for our business
intelligence solutions, including further development of e-Application packages
and continued investment in our existing enterprise business intelligence
platform. During the current fiscal year we released a new version of Cognos
Query, our Web-based database query and navigation tool, and DecisionStream 6.5,
a data mart creation component of the BI platform which unites data from
disparate sources and consolidates it into data marts. In addition to our e-
Application for Sales Analysis, Inventory Analysis, and Financial Analysis, we
released the e-Commerce Analysis application for the IBM WebSphere Commerce
Suite during fiscal 2001. We also released version 5.0 of Cognos Finance, a
solution that delivers integrated budgeting, forecasting, consolidation, and
financial reporting and analysis in one comprehensive system, and version 1.5 of
Cognos Visualizer which has significant enhancements for scorecarding and key
performance indicator applications displaying these metrics in a single
presentation. To further drive business value for customers, we released a new
product that creates scorecards of key performance indicators. This packaged
application addresses a key requirement for enterprise business performance
measurement.
During fiscal 2002, we plan to make available a new version of all our core
software products, with the release of EP Series 7. EP Series 7 will also
introduce enterprise event management technology we acquired this past year
through our purchase of NoticeCast Software Ltd. This technology monitors
business processes and automatically notifies users of key events and
performance indicators or data via their personal computer, personal digital
assistant or other wireless device, enabling them to take immediate action. Our
customers will be able to react rapidly to key business events and changes in
business performance as they will be able to leverage our business intelligence
platform to quickly relate these events to overall enterprise business
performance. To help customers address a broader range of enterprise
requirements, we plan to invest in research and development to extend our e-
Application offerings.
37
Acquisitions
Fiscal 2001
During the second quarter of fiscal 2001, we acquired Powerteam OY, our
distributor in Finland. The shareholders of Powerteam OY will receive
approximately $2,258,000 in cash over two years and could also receive cash
payments not to exceed $500,000 over the next three years. We have conditioned a
portion of the overall consideration on the continued tenure of certain
employees. Under generally accepted accounting principles, these amounts are
accounted for as compensation rather than as a component of the purchase price.
During the third quarter of fiscal 2001, we acquired NoticeCast Software Ltd.,
based in Twickenham, United Kingdom. NoticeCast's Enterprise Event Management
Software monitors business processes and delivers timely business intelligence
notifications to business users across the enterprise via e-mail on their
personal computer, hand-held or wireless device. The shareholders of NoticeCast
Software Ltd. received approximately $9,000,000 in cash on closing and will
receive 148,468 shares of our common stock valued at approximately $4,820,000.
We are holding the shares in escrow and they will be released on the second
anniversary of the closing of the transaction.
Also during the third quarter of fiscal 2001, we completed the acquisition of
Johnson & Michaels, Inc. (JAMI), a leading provider of business intelligence
consulting services. The shareholders of JAMI will receive total cash
consideration of approximately $3,915,000 over three years and 104,230 shares of
our common stock valued at $4,250,000 over the same period. Approximately
$1,406,000 was paid and 39,085 shares were issued on closing; we are holding the
remaining shares, all of which were issued, in escrow and they will be released
on the first (33%), second (33%), and third (34%) anniversaries of the closing
of the transaction. We have conditioned a portion of the overall consideration
on the continued tenure of certain employees. Under generally accepted
accounting principles, these amounts are accounted for as compensation rather
than as a component of the purchase price. The deferred shares, valued at
$2,656,000, are accounted for as an offset to capital stock.
Fiscal 2000
We acquired Information Tools AG, our 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 $60,000 will be paid in fiscal 2002 relating to fiscal
2001 results and approximately $120,000 was paid in fiscal 2001 relating to
fiscal 2000 results. We have conditioned a portion of the overall consideration
on the continued tenure of certain employees. Under generally accepted
accounting principles, these amounts are accounted for as compensation rather
than as a component of purchase price.
We also purchased the entire outstanding minority interest in our 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.
38
Fiscal 1999
During the fourth quarter ended February 28, 1999 we acquired substantially all
the assets of Relational Matters, including its DecisionStream software and
technology. DecisionStream software is a high-performance data aggregation and
integration tool used to populate data warehouses and data marts and OLAP
(online analytical processing) servers. The software simplifies the loading of
data marts into our business intelligence solutions, providing a coordinated
view of data marts throughout an organization. Relational Matters will receive
approximately $7,550,000 over three years and 250,980 shares of our common stock
valued at $1,823,000, over the same time period. We placed the shares, all of
which were issued, in escrow on the closing of the acquisition. A portion (40%)
were released on the second anniversary of the closing of the transaction and
the remainder (60%) will be released on the third anniversary of the closing of
the transaction. We have conditioned a portion of the overall consideration on
the continued tenure of certain employees. Under generally accepted accounting
principles, these amounts are accounted for as compensation rather than as a
component of purchase price. The deferred shares, valued at $1,823,000, are
accounted for as an offset to capital stock.
In addition, during the fourth quarter of fiscal 1999, we acquired LEX2000 Inc.,
for a combination of cash and our common stock. LEX2000(TM) was the only
significant in-process research and development project acquired on the
purchase. LEX2000 is a financial reporting, consolidation, budgeting, and
forecasting system designed to gather data from many sources and allow users to
report on and analyze data. LEX2000 provides the user with enterprise-wide
access to financial data creating data marts and retrieving information in order
to build complex financial reports. The shareholders of LEX2000 Inc. will
receive approximately $7,444,000 over three years and 252,118 shares of our
common stock valued at $1,940,000 over the same time period. Approximately
14,200 shares were issued at closing; we placed the remainder, all of which were
issued, in escrow on the closing of the acquisition. A portion (50%) was
released on the second anniversary of the closing of the transaction and the
remainder (50%) will be released on the third anniversary of the closing of the
transaction. We have conditioned a portion of the overall consideration on the
continued tenure of certain employees. Under generally accepted accounting
principles, these amounts are accounted for as compensation rather than as a
component of purchase price. The deferred shares, valued at $1,644,000, are
accounted for as an offset to capital stock.
The acquisitions in fiscal 2001, 2000, and 1999 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 our results of operations since their
respective dates of acquisition.
Investment Tax Credits
The Corporation recognized investment tax credits of $6.7 million, $6.2 million,
and $14.9 million in fiscal 2001, 2000, and 1999, respectively, related to
research and development activities performed in Canada.
Interest Income and Expense
Interest income was earned on our cash, cash equivalents, and short-term
investments and interest expense related primarily to the interest on our
mortgage, which was discharged during fiscal 2001, and capital leases. Net
interest income was $11.6 million, $6.7 million, and $5.9 million in fiscal
2001, 2000, and 1999, respectively. The increase during fiscal 2001 was the
result of an increase in the average size of the investment portfolio, and an
increase in the average effective interest rates earned on investments during
fiscal 2001. This increase was offset slightly by the impact of unfavorable
exchange rate fluctuations. The
39
increase in fiscal 2000 was the result of an 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 earned on investments during fiscal 2000.
Tax Expense
Our tax rate is affected by the relative profitability of our operations in
various geographic regions. In fiscal 2001 the Corporation's effective tax rate
was 33%, compared to 33% in fiscal 2000, and 31% in fiscal 1999.(See Note 9 of
the Notes to the Consolidated Financial Statements.)
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 2001, we held $234.6 million in cash, cash equivalents, and
short-term investments, an increase of $37.8 million from February 29, 2000. In
addition, we have arranged an unsecured credit facility that includes an
operating line and foreign exchange conversion facilities. The operating line
permits us to borrow funds or issue letters of credit or guarantee up to
Cdn$15.0 (US$9.8) million, subject to certain covenants. As of February 28,
2001, there were no direct borrowings under this operating line. As discussed
further below, we have foreign exchange conversion facilities that allow us to
hold foreign exchange contracts of approximately Cdn$130.0 (US$84.9) million
outstanding at any one time.
As of February 28, 2001, we had a total of $1.6 million of long-term liabilities
(including the current portion of long-term debt and long-term liabilities). As
of February 28, 2001, working capital was $197.7 million, an increase of $31.2
million from February 29, 2000, primarily because of higher levels of short-term
investments and accounts receivable which were partially offset by a decrease in
cash and increases in deferred revenue and other current liabilities. During
fiscal 2001 we used $14.0 million in cash for share repurchases and $11.4
million for acquisitions.
Cash provided by operating activities (after changes in non-cash working capital
items) for fiscal 2001 was $99.0 million, an increase of $15.8 million compared
to the prior fiscal year. This fluctuation was due to an increase in net income
after adjustments for depreciation, amortization, and other non-cash items and a
net decrease in non-cash working capital as compared to a net increase in non-
cash working capital during fiscal 2000.
Cash used in investing activities was $119.2 million for fiscal 2001, an
increase in investment of $81.5 million compared to the prior fiscal year. The
majority of the fluctuation stems from an increase in net investment in short-
term investments and increases in fixed asset additions and acquisition costs.
In fiscal 2001, we spent $56.6 million related to the activity in short-term
investments compared to $7.4 million (both net of maturities) in fiscal 2000. In
addition, we spent $11.4 million in fiscal 2001 on acquisitions, compared to
$2.1 million in fiscal 2000. (See Note 5 of the Notes to the Consolidated
Financial Statements.) The increase in fixed asset additions was primarily the
result of the construction, during fiscal 2001, of a second building on the site
of our corporate headquarters in Ottawa as well as purchases of computer
equipment and software. We invested approximately $17.8 million during fiscal
2001 in the expansion of our headquarters, as compared to $3.4 million during
fiscal 2000. This headquarters expansion was substantially complete in December
2000 and the building was fully occupied by the end of fiscal 2001.
Cash provided by financing activities was $4.5 million for fiscal 2001, compared
to the use of $9.1 million for financing activities during fiscal 2000. Our
financing activities for both fiscal years involved the repurchase of our own
shares in the open market, and the issuance of shares pursuant to our stock
purchase plan and the exercise of stock options. Relating to financing
activities, we issued 1,889,000 common shares
40
for consideration of $20.6 million during fiscal 2001, compared to 2,093,000
shares for consideration of $16.5 million in fiscal 2000. The issuance of shares
in both periods was pursuant to our stock purchase plan and the exercise of
stock options by employees, officers, and directors. During fiscal 2001 we
repurchased 579,500 shares at a cost of $14.0 million, compared to 2,286,000
shares repurchased at a cost of $26.0 million in fiscal 2000.
The share repurchases made in the past two fiscal years were part of distinct
open market share repurchase programs through the Nasdaq National Market. The
share repurchases made in fiscal 2001 were part of two open market share
repurchase programs. The program adopted in October 1999 expired on October 8,
2000. Under this program we repurchased 150,000 of our shares for $3.4 million;
all repurchased shares were cancelled. In October 2000, we adopted a new program
that will enable us to purchase up to 4,403,510 common shares (not more than 5%
of those issued and outstanding) between October 9, 2000 and October 8, 2001.
Under the current program we have repurchased 529,500 shares for $11.9 million
during fiscal 2001; all repurchased shares were cancelled. This program does not
commit us to make any share repurchases. Purchases will be made on the Nasdaq
National 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.)
Our policy with respect to foreign currency exposure is to manage our 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 our various subsidiaries. Typically
these contracts are between the United States dollar, the euro, the British
pound, the German mark, and the Australian dollar. We enter into these foreign
exchange forward contracts with major Canadian chartered banks, and therefore we
do 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 28, 2001, we had foreign exchange forward
contracts, with maturity dates ranging from March 29, 2001 to July 26, 2001, to
exchange various foreign currencies in the amount of $15.2 million.
We have never declared or paid any cash dividends on our common shares. Our
current policy is to retain our earnings to finance expansion and to develop,
license, and acquire new software products, and to otherwise reinvest in Cognos.
We anticipate that through fiscal 2002 our operations will be financed by
current cash balances and funds from operations. If we were to require funds in
excess of our current cash position to finance our longer-term operations, we
would expect to obtain such funds from, one or a combination of, the expansion
of our existing credit facilities, or from public or private sales of equity or
debt securities.
Inflation has not had a significant impact on our results of operations.
EUROPEAN ECONOMIC AND MONETARY UNION
The euro currency was introduced on January 1, 1999, and the transition to this
new currency 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 new euro currency is being introduced in stages over the course of a 3 1/2
year transition period. We believe the transition to the euro will have limited
longer-term implications on our business. We have taken
41
steps in the transition to the euro in the area of our internal processes and
systems through identifying, modifying, and testing these processes and systems
to handle transactions and reporting requirements involving the euro in
accordance with the regulations. Our financial application systems represent the
most significant internal systems that are affected by the transition to the
euro. We continue to upgrade these systems to enable us, together with certain
process changes and modifications provided by the application vendor to its
supported customers, to handle the requirements for transactions and reporting
involving the euro. To handle the full requirements of the euro we plan to
implement the latest version level upgrade of our financial applications systems
during fiscal 2002. We continue to identify, upgrade, and modify our systems and
processes in order to handle the various stages of the euro implementation. We
are continuing to monitor our pricing in Europe, giving consideration to the
transition to the euro.
We believe that the costs relating to the conversion of our internal systems and
processes incurred to date, along with any future costs relating to such
conversions, will not have a material adverse effect on our 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 28, 2001, 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
42
contracts are typically between the United States dollar, the euro, 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 28, 2001, 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 neither promises nor
guarantees, and are subject to risks and uncertainties that may cause future
results to differ materially from those stated in the forward-looking
statements. 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. We disclaim any obligation to publicly update or revise any such
statements to reflect any change in our expectations or events, conditions, or
circumstances on which any such statement may be based.
Risks Related to Our Business
Our revenue may not continue to grow at historical 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. Our growth rate may be affected by global economic conditions
generally, and the current economic slowdown, in particular.
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 and annual 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;
. the impact of global economic conditions on the sales cycle;
. our ability to obtain and close large enterprise transactions;
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 level;
43
. 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.
These fluctuations could materially adversely affect our share price and our
business, results of operations, and financial condition.
Our ability to adjust our expenses in the near term is limited, which could
cause our profits to decrease.
In recent fiscal years, we have experienced an increase in our operating
expenses as a result of decisions to invest in our sales channels, technical
support, and research and development organizations. As a result of current
economic conditions discretionary spending levels will be tempered; however, we
will continue to selectively incur expenditures in areas that we view as
strengthening our position in the marketplace. We base our operating expense
budgets on expected revenue trends which are more difficult to predict in
periods of economic uncertainty. If we do not meet revenue goals, we may not be
able to meet reduced operating expense levels. It is possible that in one or
more future quarters, our operating results may be below the expectations of
public market analysts and investors. In that event, the price of our common
shares may fall.
We may lose sales, or sales may be delayed, due to the long sales and
implementation cycles for our products, which would reduce our revenues.
Our customers typically invest substantial time, money, and other resources when
deciding to license our software products, in particular in situations where we
are making large enterprise-wide sales. As a result, we may wait many months
after our first contact with a customer while that customer seeks internal
approval for the purchase of our products. During this long sales cycle, events
may occur that affect the size or timing of the order or even cause it to be
cancelled. For example, purchasing decisions may be postponed, or large
purchases reduced, by periods of economic uncertainty, our competitors may
introduce new products or the customer's own budget and purchasing priorities
may change. The time required for implementation of our product varies among our
customers and may last several months, depending on our customer's needs. It may
be difficult to install our products if the customer has complicated operation
requirements, such as integrating databases, hardware, and software from
different vendors. Also, if a customer hires a third party to install our
products, we cannot be sure that our products will be installed successfully.
We rely, in part, on partners and other distribution channels to market and
distribute our products, and any failure of these parties to do so could
significantly harm our ability to expand our customer base, which would
adversely affect our growth strategy.
44
Our sales and marketing strategy includes multi-tiered channels 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 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 harm our ability to expand our customer base and, as a result,
could cause our business to grow more slowly than forecasted or could result in
additional, unanticipated expenses.
If we do not protect our intellectual property, we may not be competitive.
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 intellectual property 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.
Intellectual property claims could be time consuming and costly to defend
against, and, if we are unsuccessful, our ability to use intellectual property
in the future could be limited or we may have to pay damages.
We may become increasingly subject to claims by third parties that our
technology infringes their proprietary rights due to the growth of software
products in our target markets and the overlap in functionality of these
products. Regardless of their merit, any such claims could:
. be time consuming;
. be expensive to defend;
. divert management's attention and focus away from the business;
. cause product shipment delays; and
. require us to enter into costly royalty or licensing agreements.
On May 5, 2000, an action was filed in the United States District Court for the
Northern District of California against us and our subsidiary Cognos Corporation
by Business Objects S.A., for alleged patent infringement. The complaint alleges
that our Impromptu product infringes Business Objects' 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 us and
unspecified damages. On May 30, 2000 we answered the complaint, denying all
material allegations, and counterclaimed against Business Objects for a
declaratory judgment that we are not infringing Business Objects' patent and
that the patent is invalid. Based on the preliminary stage of the proceedings,
we cannot estimate the financial impact, if any, at this time. If successful, a
claim of infringement against us and our inability to license the infringed or
similar technology on commercially reasonable terms could have a material
adverse effect on our business, operating results, and financial condition.
The loss of our rights to use software licensed to us by third parties could
significantly increase our operating expenses by forcing us to seek alternative
technology and adversely affect our ability to compete.
In order to provide a complete business intelligence 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
45
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 significant operational and financial risks associated with our
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 materially impact our international operations and
adversely affect our business as a whole.
Pursuing, completing, and integrating recent and potential acquisitions could
divert management's attention and financial resources and may not produce the
desired business results.
In the past we have made acquisitions of products and businesses. In the future,
we may 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; and
. assumption of legal and other undisclosed liabilities
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.
Failure to manage our growth may impact our operating results.
46
We expect to continue to grow our business. The expansion of our business and
customer base has placed, and will continue to place, increased demands on our
management, operating systems, internal controls, and financial resources. If
not managed effectively, these increased demands may adversely affect the
services we provide to our existing clients. In addition, our personnel,
systems, procedures, and controls may be inadequate to support our future
operations. Consequently, in order to manage our growth effectively, we may be
required to increase expenditures to expand, train, and manage our employee
base, improve our management, financial, and information systems and controls,
or make other capital expenditures. Our results of operations and financial
condition could be harmed if we encounter difficulties in effectively managing
our growth.
If our product contains material defects, our ability to attract and retain
customers may be harmed.
Our software products are complex and may contain errors or defects,
particularly when first introduced, when new versions or enhancements are
released, or when configured to individual customer computing systems. We
currently have known errors and defects in our products. Despite testing
conducted by us, additional defects and errors found in current versions, new
versions, or enhancements of our products after commencement of commercial
shipment could result in the loss of revenues or a delay in market acceptance.
The occurrence of any of these events could cause us to lose customers or
require us to pay damages to existing customers and, therefore, could seriously
harm our business, operating results, and financial condition.
If a successful product liability claim is made against us, our business would
be seriously harmed.
Our license agreements with our customers typically contain provisions designed
to limit our exposure to potential product liability claims. Despite this, it is
possible that such limitation of liability provisions may not be effective as a
result of existing or future laws or unfavorable judicial decisions. We have not
experienced any product liability claims to date. However, the sale and support
of our products may entail the risk of such claims, which are likely to be
substantial in light of the use of our products in business-critical
applications. A successful product liability claim could result in significant
monetary liability and could seriously disrupt our business.
Currency fluctuations may adversely affect us.
A substantial portion of our revenues are earned in currencies other than U.S.
dollars, and, similarly, a substantial portion of our operating expenses are
incurred in currencies other than U.S. dollars. Fluctuations in the exchange
rate between the U.S. dollar and other currencies, such as the Canadian dollar
and the euro, may have a material adverse effect on our business, financial
condition, and operating results. 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. We enter into foreign exchange forward contracts to
hedge portions of the net investment in various subsidiaries, typically between
the United States dollar, the euro, the British pound, the German mark, and the
Australian dollar.
Our executive management and other key personnel are essential to our business,
and if we are not able to recruit and retain qualified personnel, our ability to
develop, market, and support our products and services could be harmed.
We depend on the services 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
47
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 may adversely affect our future growth and
profitability.
Risks Related to Our Industry
We face intense competition and, if we fail to compete successfully, our
business could be seriously harmed and our revenues could grow more slowly than
expected.
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 we have 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 existing 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.
If we do not respond effectively and on a timely basis to rapid technological
change, our products and services may become obsolete and we could lose
customers.
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.
We cannot assure you that our products will remain competitive, respond to
market demands and developments and new industry standards, and not become
obsolete. 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. In addition, failure to respond
successfully to technological change may harm our ability to attract and retain
customers.
Risks Related to External Conditions
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 solutions
markets; or
. other events or factors.
48
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.
49
QUARTERLY RESULTS
The following table sets out selected unaudited consolidated financial
information for each quarter in fiscal 2001 and fiscal 2000.
On April 6, 2000 our Board of Directors authorized a two-for-one stock split,
effected in the form of a stock dividend, payable on or about April 27, 2000 to
stockholders of record at the close of business on April 20, 2000. All historic
consolidated results have been restated for the split.
Fiscal 2000 Fiscal 2001
----------------------------------------- ------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
----------------------------------------- ------------------------------------------
($000s, except per share amounts, Canadian GAAP)
Revenue $81,645 $88,128 $97,753 $118,114 $108,698 $118,213 $124,638 $144,103
----------------------------------------- ------------------------------------------
Operating expenses
Cost of product license 1,054 1,001 1,456 1,724 1,729 1,713 1,925 1,948
Cost of product support 3,095 3,336 3,608 3,719 4,274 4,071 4,551 4,924
Selling, general, and
administrative 53,478 56,263 63,183 71,903 74,295 77,601 83,109 92,627
Research and development 12,197 12,845 13,574 14,932 15,854 16,507 16,854 18,049
Investment tax credits (1,167) (1,163) (2,177) (1,700) (1,338) (1,297) (2,765) (1,290)
----------------------------------------- ------------------------------------------
Total operating expenses 68,657 72,282 79,644 90,578 94,814 98,595 103,674 116,258
----------------------------------------- ------------------------------------------
Operating income $12,988 $15,846 $18,109 $ 27,536 $ 13,884 $ 19,618 $ 20,964 $ 27,845
========================================= ==========================================
Net income $ 9,796 $11,768 $12,782 $ 20,196 $ 10,915 $ 15,443 $ 15,392 $ 20,986
========================================= ==========================================
Net income per share
Basic $ 0.11 $ 0.14 $ 0.15 $ 0.23 $ 0.13 $ 0.18 $ 0.17 $ 0.24
========================================= ==========================================
Fully diluted $ 0.11 $ 0.14 $ 0.15 $ 0.23 $ 0.13 $ 0.17 $ 0.17 $ 0.23
========================================= ==========================================
Our sales cycle may span nine months or more, depending on factors such as the
size of the transaction, the product involved, the length of the customer
relationship, the timing of our new product introductions and product
introductions by 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 we take 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).
50
COGNOS INCORPORATED
REPORT OF MANAGEMENT
The Corporation's management is responsible for preparing the accompanying
consolidated financial statements in conformity with Canadian generally accepted
accounting principles. 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 stockholders, 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 stockholders, 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, 2001
51
COGNOS INCORPORATED
AUDITORS' REPORT
To the Board of Directors and Stockholders of Cognos Incorporated:
We have audited the consolidated balance sheets of Cognos Incorporated as at
February 28, 2001 and February 29, 2000 and the consolidated statements of
income, stockholders' equity, and cash flows for each of the years in the three-
year period ended February 28, 2001. 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 Canadian and United States 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 28,
2001 and February 29, 2000, and the results of its operations and its cash flows
for each of the years in the three-year period ended February 28, 2001, in
accordance with Canadian generally accepted accounting principles.
On March 30, 2001, we reported separately to the Board of Directors and
Stockholders of Cognos Incorporated on financial statements for the same
periods, prepared in accordance with United States generally accepted accounting
principles.
/s/ Ernst & Young LLP
Ottawa, Canada Ernst & Young LLP
March 30, 2001 Chartered Accountants
52
CONSOLIDATED STATEMENTS OF INCOME
(US$000s except share amounts, CDN GAAP)
Years Ended the Last Day of February
Note 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------
Revenue
Product license $262,766 $203,299 $158,393
Product support 147,589 118,061 93,311
Services 85,297 64,280 49,421
- --------------------------------------------------------------------------------------------------------------
Total revenue 495,652 385,640 301,125
- --------------------------------------------------------------------------------------------------------------
Operating expenses
Cost of product license 7,315 5,235 5,738
Cost of product support 17,820 13,758 11,166
Selling, general, and administrative 327,632 244,827 178,295
Research and development 67,264 53,548 42,274
Investment tax credits (6,690) (6,207) (14,880)
- --------------------------------------------------------------------------------------------------------------
Total operating expenses 413,341 311,161 222,593
- --------------------------------------------------------------------------------------------------------------
Operating income 82,311 74,479 78,532
Interest expense 6 (786) (718) (527)
Interest income 12,386 7,454 6,430
- --------------------------------------------------------------------------------------------------------------
Income before taxes 93,911 81,215 84,435
Income tax provision 9 31,175 26,673 26,313
- --------------------------------------------------------------------------------------------------------------
Net income $ 62,736 $ 54,542 $ 58,122
==============================================================================================================
Net income per share 10
Basic $ 0.72 $ 0.63 $ 0.66
==============================================================================================================
Fully diluted $ 0.71 $ 0.62 $ 0.65
==============================================================================================================
Weighted average number of shares (000s) 10
Basic 87,324 85,972 87,416
==============================================================================================================
Fully diluted 92,495 92,082 93,404
==============================================================================================================
(See accompanying notes)
53
CONSOLIDATED BALANCE SHEETS
(US$000s, CDN GAAP)
February 28, February 29,
Note 2001 2000
- ------------------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 8 $115,293 $132,435
Short-term investments 8 119,265 64,284
Accounts receivable 2 146,867 107,823
Inventories 730 806
Prepaid expenses 8,648 8,470
- ------------------------------------------------------------------------------------------------------------
390,803 313,818
Fixed assets 3 74,208 44,835
Other assets 4 46,780 37,445
- ------------------------------------------------------------------------------------------------------------
$511,791 $396,098
============================================================================================================
Liabilities
Current liabilities
Accounts payable $ 28,256 $ 22,908
Accrued charges 21,798 17,540
Salaries, commissions, and related items 28,822 24,024
Income taxes payable 17,548 3,548
Current portion of long-term debt 6 32 2,176
Deferred revenue 96,674 77,167
- ------------------------------------------------------------------------------------------------------------
193,130 147,363
Long-term liabilities 5 1,539 2,699
Deferred income taxes 9 16,402 21,730
- ------------------------------------------------------------------------------------------------------------
211,071 171,792
- ------------------------------------------------------------------------------------------------------------
Commitments and Contingencies 5, 7, 13
Stockholders' Equity
Capital stock
Common shares
(2001 - 87,885,161; 2000 - 86,168,680) 10 134,791 104,223
Retained earnings 175,946 126,316
Accumulated other comprehensive income (10,017) (6,233)
- ------------------------------------------------------------------------------------------------------------
300,720 224,306
- ------------------------------------------------------------------------------------------------------------
$511,791 $396,098
============================================================================================================
(See accompanying notes)
On behalf of the Board:
/s/ Douglas C. Cameron /s/ James M. Tory
Douglas C. Cameron, Director James M. Tory, Chairman
54
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(US$000s except share amounts, CDN GAAP)
Accumulated
Other
Common Stock Retained Comprehensive
--------------------------------
Shares Amount Earnings Income Total
- -------------------------------------------------------- -----------------------------------------------------------------
(000s)
- ------------------------------------------------------------------------------------------------------------------------------
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
Deferred stock-based compensation (489) (3,467) (3,467)
Amortization of deferred stock-based
compensation 61 61
Repurchase of shares (3,006) (3,005) (31,132) (34,137)
Income tax effect related to stock options 522 522
- ------------------------------------------------------------------------------------------------------------------------------
86,362 88,579 37,207 (6,752) 119,034
- ------------------------------------------------------------------------------------------------------------------------------
Net income 58,122 58,122
Other comprehensive income
Foreign currency translation adjustments (1,960) (1,960)
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 58,122 (1,960) 56,162
- ------------------------------------------------------------------------------------------------------------------------------
Balances, February 28, 1999 86,362 $ 88,579 $ 95,329 $ (8,712) $175,196
Issuance of stock
Stock option plans 1,973 15,420 15,420
Stock purchase plans 120 1,095 1,095
Amortization of deferred stock-based
compensation 693 693
Repurchase of shares (2,286) (2,458) (23,555) (26,013)
Income tax effect related to stock options 894 894
- ------------------------------------------------------------------------------------------------------------------------------
86,169 104,223 71,774 (8,712) 167,285
- ------------------------------------------------------------------------------------------------------------------------------
Net income 54,542 54,542
Other comprehensive income
Foreign currency translation adjustments 2,479 2,479
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 54,542 2,479 57,021
- ------------------------------------------------------------------------------------------------------------------------------
Balances, February 29, 2000 86,169 $104,223 $126,316 $ (6,233) $224,306
Issuance of stock
Stock option plans 1,816 18,574 18,574
Stock purchase plans 73 2,018 2,018
Business acquisitions 253 9,070 9,070
Deferred stock-based compensation 154 (2,656) (2,656)
Amortization of deferred stock-based
compensation 1,233 1,233
Repurchase of shares (580) (881) (13,106) (13,987)
Income tax effect related to stock options 3,210 3,210
- ------------------------------------------------------------------------------------------------------------------------------
87,885 134,791 113,210 (6,233) 241,768
- ------------------------------------------------------------------------------------------------------------------------------
Net income 62,736 62,736
Other comprehensive income
Foreign currency translation adjustments (3,784) (3,784)
- ------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 62,736 (3,784) 58,952
- ------------------------------------------------------------------------------------------------------------------------------
Balances, February 28, 2001 87,885 $134,791 $175,946 $(10,017) $300,720
==============================================================================================================================
(See accompanying notes)
55
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$000s, CDN GAAP)
Years Ended the Last Day of February
2001 2000 1999
- ------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities
Net income $ 62,736 $ 54,542 $ 58,122
Non-cash items
Depreciation and amortization 30,754 24,228 17,602
Amortization of deferred stock-based compensation 1,233 693 61
Amortization of other deferred compensation 1,809 1,351 295
Deferred income taxes (6,426) 4,756 (3,685)
Loss on disposal of fixed assets 561 148 185
- ------------------------------------------------------------------------------------------------------------
90,667 85,718 72,580
Change in non-cash working capital
Increase in accounts receivable (39,824) (32,818) (12,805)
Decrease (increase) in inventories 37 31 (267)
Increase in prepaid expenses (731) (1,422) (2,772)
Increase in accounts payable 4,320 3,930 3,526
Increase in accrued charges 3,145 1,004 2,568
Increase in salaries, commissions, and related items 5,630 4,394 5,806
Increase (decrease) in income taxes payable 14,262 (3,993) 5,624
Increase in deferred revenue 21,467 26,374 10,358
- ------------------------------------------------------------------------------------------------------------
98,973 83,218 84,618
- ------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities
Maturity of short-term investments 138,803 138,796 96,860
Purchase of short-term investments (195,386) (146,238) (116,093)
Acquisition costs (11,377) (2,146) (9,174)
Additions to fixed assets (51,963) (28,096) (21,147)
Proceeds from the sale of fixed assets 759 24 12
- ------------------------------------------------------------------------------------------------------------
(119,164) (37,660) (49,542)
- ------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities
Issue of common shares 23,802 17,409 5,509
Repurchase of shares (13,987) (26,013) (34,137)
Repayment of long-term debt and long-term liabilities (5,293) (467) (107)
- ------------------------------------------------------------------------------------------------------------
4,522 (9,071) (28,735)
- ------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (1,473) 2,331 (2,338)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (17,142) 38,818 4,003
Cash and cash equivalents, beginning of period 132,435 93,617 89,614
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 115,293 132,435 93,617
Short-term investments, end of period 119,265 64,284 56,074
- ------------------------------------------------------------------------------------------------------------
Cash, cash equivalents, and short-term investments, end
of period $ 234,558 $ 196,719 $ 149,691
============================================================================================================
(See accompanying notes)
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
Cognos Incorporated (the "Corporation") is a global provider of business
intelligence software solutions. The Corporation develops, markets, and supports
an integrated business intelligence platform that allows customers, as well as
their partners, customers, and suppliers, to analyze and report data from
multiple perspectives. The Corporation markets and supports these solutions 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 Canadian generally accepted
accounting principles (GAAP), 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 net assets from transactions and other
events, and circumstances other than transactions with stockholders. These
changes are recorded directly as a separate component of Stockholders' Equity
and excluded from net income. The only comprehensive income 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. The financial statements of the foreign subsidiaries are measured
using local currency as the functional currency. 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
57
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, and that would not have been incurred but for the
acquisition of that contract, are deferred and expensed in the period the
related revenue is recognized. These costs include commissions payable on sales
of support contracts.
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. Building improvements are
amortized using the straight line method over the life of the improvement.
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.
58
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.
Other Assets
This category includes acquired technology, goodwill, and other deferred
compensation 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 estimated fair 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.
Other deferred compensation includes cash consideration associated with
acquisitions made by the Corporation. Other deferred compensation is recorded
when its future payment is determinable and is payable contingent upon the
continued tenure of the principals of the acquired companies who have become
employees of the Corporation. Under generally accepted accounting principles,
these amounts are accounted for as compensation rather than as a component of
purchase price.
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. The Corporation did not capitalize any costs of internally-developed
computer software to be sold, licensed or otherwise marketed in each of fiscal
2001, 2000, and 1999.
Income Taxes
The liability method is used in accounting for income taxes. 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.
2. Accounts Receivable
Accounts receivable include an allowance for doubtful accounts of $6,056,000 and
$4,734,000 as of February 28, 2001 and February 29, 2000, respectively.
59
3. Fixed Assets
2001 2000
---------------------------------- ----------------------------------
Accumulated Accumulated
Depreciation Depreciation Depreciation/
and and Amortization
Cost Amortization Cost Amortization Rate
-------------- --------------- -------------- --------------- -------------------
($000s) ($000s)
Computer equipment and
software $ 72,100 $47,991 $ 63,334 $43,370 33%
Office furniture 27,756 12,538 21,602 11,317 20%
Building and Life of
Leasehold improvements 17,438 5,350 8,160 3,726 Improvement/
Lease Term
Land 775 - 820 - -
Building 23,521 1,503 7,198 1,243 2.5%
Construction in progress - - 3,377 - -
-------------- --------------- -------------- ---------------
141,590 $67,382 104,491 $59,656
=============== ===============
(67,382) (59,656)
-------------- --------------
Net book value $ 74,208 $ 44,835
============== ==============
Depreciation and amortization of fixed assets was $18,475,000, $13,898,000, and
$10,760,000 in each of fiscal 2001, 2000, and 1999, respectively.
4. Other assets
Other assets as at February 28, 2001, and February 29, 2000, include acquired
technology, goodwill, and other deferred compensation, and are disclosed net of
amortization.
The Corporation recorded $23,421,000 of acquired technology, goodwill,
workforce, and other deferred compensation in fiscal 2001, and $2,352,000 of
goodwill and other deferred compensation in fiscal 2000. Amortization of other
assets was $14,088,000, $11,681,000, and $7,082,000 in each of fiscal 2001,
2000, and 1999, 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 2001,
2000, and 1999, and recorded $0, $0, and $55,000 of corresponding amortization,
respectively.
5. Acquisitions
Fiscal 2001 Acquisitions
On June 1, 2000, the Corporation acquired Powerteam OY, the Corporation's
distributor in Finland. The shareholders of Powerteam OY will receive
approximately $2,258,000 in cash over two years and could also receive cash
payments not to exceed $500,000 over the next three years. The Corporation has
conditioned a portion of the consideration on the continued tenure of certain
employees. Under generally accepted accounting principles, these amounts are
accounted for as compensation rather than as a component of purchase price.
60
On September 21, 2000, the Corporation acquired NoticeCast Software Ltd., based
in Twickenham, United Kingdom. NoticeCast's Enterprise Event Management Software
monitors business processes and delivers timely business intelligence
notifications to business users across the enterprise via e-mail on their
personal computer, hand-held or wireless device. The shareholders of NoticeCast
Software Ltd. received approximately $9,000,000 in cash on closing and will
receive 148,468 shares of the Corporation's common stock valued at approximately
$4,820,000. The shares are being held in escrow by the Corporation and will be
released on the second anniversary of the closing of the transaction.
On November 1, 2000, the Corporation completed the acquisition of Johnson &
Michaels, Inc. (JAMI), a leading provider of business intelligence consulting
services. The shareholders of JAMI will receive total cash consideration of
approximately $3,915,000 over three years and 104,230 shares of the
Corporation's common stock valued at $4,250,000 over the same period.
Approximately $1,406,000 was paid and 39,085 shares were issued on closing; the
remaining shares, all of which were issued, are being held in escrow by the
Corporation and will be released on the first (33%), second (33%), and third
(34%) anniversaries of the closing of the transaction. The Corporation has
conditioned a portion of the overall consideration on the continued tenure of
certain employees. Under generally accepted accounting principles, these amounts
are accounted for as compensation rather than as a component of purchase price.
The deferred shares, valued at $2,656,000, are accounted for as an offset to
capital stock.
The scheduled aggregate annual payments for the long-term liabilities related to
these acquisitions are $921,000 and $1,539,000 in fiscal 2002 and 2003,
respectively. Amounts due within twelve months are included in accrued charges.
The acquisitions have been accounted for using the purchase method. The results
of operations of all three acquired companies prior to the acquisitions were not
material, and thus pro forma information has not been provided. The results of
the acquired companies have been combined with those of the Corporation from the
date of the acquisition.
61
Total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date as follows: ($000s)
Powerteam NoticeCast Johnson &
OY Software Inc. Michaels, Inc. Total
---------------- ------------------ ------------------ ----------------
Assets acquired
Acquired technology $ - $ 5,000 $ - $ 5,000
Other assets 3,906 450 814 5,170
---------------- ------------------ ------------------ ----------------
3,906 5,450 814 10,170
Liabilities assumed (2,502) (1,580) (922) (5,004)
Deferred tax credits - (2,000) - (2,000)
---------------- ------------------ ------------------ ----------------
Net assets acquired 1,404 1,870 (108) 3,166
Goodwill 854 11,950 3,545 16,349
---------------- ------------------ ------------------ ----------------
Purchase price $ 2,258 $ 13,820 $ 3,437 $ 19,515
================ ================== ================== ================
Purchase price consideration
Cash $ 971 $ 9,000 $ 1,406 $ 11,377
Deferred payment 1,287 - 437 1,724
Shares - 4,820 1,594 6,414
---------------- ------------------ ------------------ ----------------
$ 2,258 $ 13,820 $ 3,437 $ 19,515
================ ================== ================== ================
Other consideration
Deferred cash - - 2,072 2,072
Deferred shares - - 2,656 2,656
---------------- ------------------ ------------------ ----------------
Total consideration $ 2,258 $ 13,820 $ 8,165 $ 24,243
================ ================== ================== ================
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 $60,000 will be paid in fiscal 2002 relating to fiscal 2001
results, and approximately $120,000 was paid in fiscal 2001 relating to fiscal
2000 results. The Corporation has conditioned a portion of the overall
consideration on the continued tenure of certain employees. Under generally
accepted accounting principles, these amounts are accounted for as compensation
rather than as a component of 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.
62
Total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date as follows: ($000s)
Cognos Far
Information East Pte
Tools AG Limited Total
------------------ ------------------ ------------------
Assets acquired $ 683 $ - $ 683
Liabilities assumed (570) - (570)
------------------ ------------------ ------------------
Net assets acquired 113 - 113
Goodwill 544 1,688 2,232
------------------ ------------------ ------------------
Purchase price $ 657 $ 1,688 $ 2,345
================== ================== ==================
Purchase price consideration
Cash $ 458 $ 1,688 $ 2,146
Deferred payment 199 - 199
------------------ ------------------ ------------------
$ 657 $ 1,688 $ 2,345
================== ================== ==================
Other consideration
Deferred cash 180 - 180
------------------ ------------------ ------------------
Total consideration $ 837 $ 1,688 $ 2,525
================== ================== ==================
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
$7,550,000 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, were placed in escrow on the closing of the transaction by the
Corporation. A portion (40%) were released on the second anniversary of the
closing of the transaction and the remainder (60%) will be released on the third
anniversary of the closing of the transaction. The Corporation has conditioned a
portion of the overall consideration on the continued tenure of certain
employees. Under generally accepted accounting principles, these amounts are
accounted for as compensation rather than as a component of purchase price. The
deferred shares, valued at $1,823,000, are accounted for as an offset to capital
stock.
On February 24, 1999, the Corporation completed the acquisition of LEX2000 Inc.,
a developer of financial reporting, consolidation, budgeting, and forecasting
systems, 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, were placed in escrow on the closing of
the transaction by the Corporation. A portion (50%) were released on the second
anniversary of the closing of the transaction and the remainder (50%) will be
released on the third anniversary of the closing of the transaction. The
Corporation has conditioned a portion of the overall consideration on the
continued tenure of certain employees. Under generally accepted accounting
principles, these amounts are accounted for as compensation rather than as a
component of purchase price. The deferred shares, valued at $1,644,000 are
accounted for as an offset to capital stock.
The scheduled aggregate annual payments for the long-term liabilities related to
these two acquisitions are $2,893,000 in fiscal 2002. Amounts due within twelve
months are included in accrued charges.
63
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 as follows: ($000s)
Relational
Matters LEX2000 Total
----------------- ------------------ -----------------
Assets acquired
Acquired technology $ 4,431 $ 12,640 $ 17,071
Other assets 25 1,501 1,526
----------------- ------------------ -----------------
4,456 14,141 18,597
Liabilities assumed (37) (2,869) (2,906)
Deferred tax credits - (6,201) (6,201)
----------------- ------------------ -----------------
Net assets acquired 4,419 5,071 9,490
Goodwill - - -
----------------- ------------------ -----------------
Purchase price $ 4,419 $ 5,071 $ 9,490
================= ================== =================
Purchase price consideration
Cash $ 4,419 $ 4,755 $ 9,174
Deferred payment - 20 20
Shares - 296 296
----------------- ------------------ -----------------
$ 4,419 $ 5,071 $ 9,490
================= ================== =================
Other consideration
Deferred cash $ 3,131 $ 2,669 $ 5,800
Deferred shares 1,823 1,644 3,467
----------------- ------------------ -----------------
Total consideration $ 9,373 $ 9,384 $ 18,757
================= ================== =================
6. Long-term Debt
2001 2000
------------------- -----------------
($000s)
Mortgage at 12.5% per annum, repayable in blended
monthly installments of principal and interest of
Cdn $45,200 to October 2000 $ - $ 2,142
Other 32 34
------------------- -----------------
32 2,176
Less current portion (32) (2,176)
------------------- -----------------
$ - $ -
=================== =================
Interest expense on long-term debt was $166,000, $264,000, and $271,000 in
fiscal 2001, 2000, and 1999, respectively.
64
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
2001, 2000, and 1999, was $14,715,000, $12,205,000, and $9,219,000,
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)
2002 $13,810
2003 10,735
2004 7,352
2005 5,743
2006 3,141
Thereafter 6,693
8. Financial Instruments
Foreign Exchange Forward Contracts
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. Foreign exchange forward contracts are recorded at their estimated
fair value. 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 $84,878,000) 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 28, 2001, the Corporation had foreign exchange forward contracts,
with maturity dates ranging from March 29, 2001 to July 26, 2001, to exchange
various foreign currencies in the amount of $15,173,000 (the estimated fair
value was $15,353,000). 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
(the estimated fair value was $6,428,000).
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.
65
Included in cash, cash equivalents, and short-term investments as of February
28, 2001 and February 29, 2000 were corporate debt amounts of $44,058,000 and
$73,805,000, respectively. The corporate debt amounts as of February 28, 2001
and February 29, 2000 were with three and two distinct issuers, respectively.
These amounts were repaid, in full, at maturity in March of their respective
years. All the Corporation's short-term investments as of February 28, 2001 and
February 29, 2000 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 $9,794,000),
subject to certain covenants. As of February 28, 2001 and February 29, 2000,
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. Foreign exchange
forward contracts are recorded at their estimated fair value.
9. Income Taxes
Details of the income tax provision (recovery) are as follows: ($000s)
2001 2000 1999
------- ------- -------
Current
Canadian $27,357 $16,880 $15,581
Foreign 12,707 9,943 9,228
------- ------- -------
40,064 26,823 24,809
------- ------- -------
Deferred
Canadian (5,727) 1,765 3,274
Foreign (3,162) (1,915) (1,770)
------- ------- -------
(8,889) (150) 1,504
------- ------- -------
Income tax provision $31,175 $26,673 $26,313
======= ======= =======
66
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)
2001 2000 1999
-------- -------- --------
Expected Canadian tax rate 44.0% 44.0% 44.0%
======== ======== ========
Expected tax provision $ 41,320 $ 35,735 $ 37,151
Foreign tax rate differences (14,603) (10,422) (10,906)
Net change in valuation allowance and other
income tax benefits earned (1,910) (2,680) (1,064)
Non-deductible expenses and non-taxable income 4,121 2,876 193
Withholding tax on foreign income 1,774 1,179 987
Other 473 (15) (48)
-------- -------- --------
Reported income tax provision $ 31,175 $ 26,673 $ 26,313
======== ======== ========
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 28, 2001 and February 29, 2000 are as follows:
($000s)
2001 2000
------- -------
Deferred tax assets
Net operating tax loss carryforwards $ 3,822 $ 4,460
Investment tax credits - 1,404
Deferred revenue 2,811 2,490
Other 3,409 2,186
------- -------
Total deferred tax assets 10,042 10,540
Valuation allowance for deferred tax assets (3,022) (4,460)
------- -------
Net deferred tax assets 7,020 6,080
------- -------
Deferred tax liabilities
Book and tax differences on assets 14,737 16,069
Reserves and allowances 6,141 7,484
Income tax credits 3,925 5,346
Other (1,381) (1,089)
------- -------
Total deferred tax liabilities 23,422 27,810
------- -------
Net deferred income tax liability $16,402 $21,730
======= =======
The net change in the total valuation allowance for the years ended February 28,
2001 and February 29, 2000 was a decrease of $1,438,000 and $1,047,000,
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 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.
67
As of February 28, 2001, the Corporation had tax loss carryforwards of
approximately $8,872,000 available to reduce future years' income for tax
purposes. These losses expire as follows: ($000s)
2005-2011 $2,625
Indefinitely 6,247
---------
$8,872
=========
Income before taxes attributable to all foreign operations was $41,232,000,
$37,215,000, and $39,219,000, in each of fiscal 2001, 2000, and 1999,
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 $13,537,000, $18,658,000, and $8,201,000, in each of
fiscal 2001, 2000, and 1999, 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.
On April 6, 2000, the Corporation's Board of Directors authorized a two-for-one
stock split, effected in the form of a stock dividend, payable on or about April
27, 2000 to stockholders of record at the close of business on April 20, 2000.
Share and per-share amounts have been adjusted retroactively for this split.
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 2001 were part of two open market share
repurchase programs. The program adopted in October 1999 expired on October 8,
2000. Under this program the Corporation repurchased 150,000 of its shares; all
repurchased shares were cancelled. In October 2000, the Corporation adopted a
new program that will enable it to purchase up to 4,403,510 common shares (not
more than 5% of those issued and outstanding) between October 9, 2000 and
October 8, 2001. This program does not commit the Corporation to make any share
repurchases. Purchases will be made on the Nasdaq National Market at prevailing
open market prices and paid out of general corporate funds. All repurchased
shares will be cancelled.
68
The details of the share repurchases were as follows:
2001 2000 1999
------------------------------- -------------------------------- -----------------------------
Shares Cost Shares Cost Shares Cost
------------- ------------- ------------- -------------- ------------ -------------
(000s) ($000s) (000s) ($000s) (000s) ($000s)
October 1997 program - $ - - $ - 2,030 $23,463
October 1998 program - - 2,186 24,689 976 10,674
October 1999 program 50 2,041 100 1,324 - -
October 2000 program 530 11,946 - - - -
------------- ------------- ------------- -------------- ------------ -------------
580 $13,987 2,286 $26,013 3,006 $34,137
============= ============= ============= ============== ============ =============
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 28, 2001, the Corporation had stock options outstanding under two
plans: 5,858,000 pertain to the 1997-2002 Stock Option Plan and 1,711,000
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. In June 2000, options were awarded to employees,
executive officers, and directors. These options vest equally in April 2001,
April 2002, April 2003, and April 2004, and expire in April 2008. There were
7,266,000 options available for grant under the Plan as of February 28, 2001.
Under the 1993-1998 Stock Option Plan, options were awarded to directors,
officers, and employees. For the options outstanding as of February 28, 2001,
the vesting dates extend to September 2001 and the expiry dates range from April
2003 to September 2005. In April 1996, options were awarded to certain key
officers under an executive option award. These options vested 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.
69
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 Option and Stock Purchase Plans
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 $20,106,000, $9,096,000, and $8,239,000,
reduced basic net income per share by $0.23, $0.11, and $0.09, and reduced fully
diluted net income per share by $0.22, $0.10, and $0.09 in fiscal 2001, 2000,
and 1999, respectively.
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 2001, 2000, and 1999, respectively: risk-free interest rates of 6.1%,
5.8%, and 5.5%, expected life of the options of 3.0 years, 2.8 years, and 2.9
years, expected volatility of 54%, 55%, and 56%, and for all years, a dividend
yield of zero.
Activity in the stock option plans for fiscal 2001, 2000, and 1999 was as
follows:
2001 2000 1999
------------------------ --------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------ --------------------------- --------------------------
(000s) (000s) (000s)
Outstanding, beginning of year 7,270 $ 11.17 6,769 $ 9.72 6,571 $ 8.29
Granted 2,537 34.02 2,772 11.18 1,935 13.33
Exercised (1,816) 10.23 (1,973) 7.81 (1,054) 3.94
Cancelled (422) 18.21 (298) 11.73 (683) 9.52
---------- ------------- -------------
Outstanding, end of year 7,569 17.81 7,270 11.17 6,769 9.72
========== ============= =============
Options exercisable at year end 1,607 1,234 1,460
========== ============= =============
Weighted average per share fair
value of options granted during
the year calculated using the
Black-Scholes option pricing model $ 14.07 $ 4.59 $ 5.54
======== ======== ======
The following table summarizes significant ranges of outstanding and exercisable
options held by directors, officers, and employees as of February 28, 2001:
70
Options Outstanding Options Exercisable
-------------------------------------------------- --------------------------------
Weighted Weighted Weighted
Range of Exercise Average Average Average
Prices Options Remaining Life Exercise Price Options Exercise Price
- --------------------- ----------- ----------------- ------------------ ----------- ------------------
(000s) (000s)
$ 8.30 - $ 9.96 1,096 3.2 years $ 8.48 392 $ 8.49
$10.33 - $10.45 2,754 5.6 10.34 726 10.34
$10.53 - $13.11 1,140 5.2 12.74 393 12.70
$16.63 - $26.44 355 7.3 19.07 60 18.20
$26.54 - $32.48 177 7.2 29.24 22 31.46
$33.95 - $34.18 1,882 7.1 33.95 14 33.95
$35.26 - $46.29 165 7.5 40.25 - -
------- ------
7,569 5.7 $17.81 1,607 $11.27
======= ======
Deferred Stock-based Compensation
The Corporation recorded aggregate deferred stock-based compensation of
$2,656,000, $0, and $3,467,000 in fiscal 2001, 2000, and 1999, respectively. In
each year deferred stock-based compensation was recorded in connection with
acquisitions made by the Corporation in which stock was issued to principals of
the acquired companies, but held in escrow to be released on condition of
continued tenure. Under generally accepted accounting principles, these amounts
are accounted for as compensation rather than as a component of purchase price.
Net Income per Share
Net income per share is based on the weighted average number of shares
outstanding during each year.
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)
2001 2000 1999
--------- --------- ---------
Net Income per Share
Net income $ 62,736 $ 54,542 $ 58,122
========= ========= =========
Weighted average number of shares outstanding 87,324 85,972 87,416
========= ========= =========
Net income per share $ 0.72 $ 0.63 $ 0.66
========= ========= =========
Fully Diluted Net Income per Share
Net income $ 62,736 $ 54,542 $ 58,122
Imputed interest 2,496 2,941 2,571
--------- --------- ---------
Adjusted net income $ 65,232 $ 57,483 $ 60,693
========= ========= =========
Weighted average number of shares outstanding 87,324 85,972 87,416
Dilutive effect of stock options* and deferred stock-based
compensation 5,171 6,110 5,988
--------- --------- ---------
Adjusted weighted average number of shares outstanding 92,495 92,082 93,404
========= ========= =========
Fully diluted net income per share $ 0.71 $ 0.62 $ 0.65
========= ========= =========
* All anti-dilutive options have been excluded.
71
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 2001, 2000, and 1999 were $4,248,000, $3,839,000,
and $2,744,000, respectively.
12. Segmented Information
The Corporation operates in one business segment--computer software solutions.
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 solutions that are designed to satisfy enterprise-wide business-
critical needs. The Corporation's business intelligence software solutions allow
customers, as well as their partners, customers, and suppliers, to analyze and
report data from multiple perspectives. 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, to 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)
2001 2000 1999
--------- --------- ---------
Revenue to external customers*
U.S.A. $ 281,907 $ 204,730 $ 153,827
Canada 35,890 30,120 24,040
United Kingdom 44,381 44,972 41,563
Europe 101,888 77,778 60,502
Asia/Pacific 31,586 28,040 21,193
--------- --------- ---------
$ 495,652 $ 385,640 $ 301,125
========= ========= =========
* Revenues are attributed to countries based on location of customer
72
Fixed assets
Canada $55,466 $31,055
U.S.A. 9,510 8,659
Other countries 9,232 5,121
------------- --------------
$74,208 $44,835
============= ==============
Other assets
Canada $24,232 $11,740
U.S.A. 22,548 25,705
------------- --------------
$46,780 $37,445
============= ==============
13. Litigation
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. On May 30, 2000 the Corporation
answered the complaint, denying all material allegations, and counterclaimed
against the Complainant for a declaratory judgment that the Corporation is not
infringing on the Complainant's patent and that the patent is invalid. As these
actions are at the 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. Comparative Results
Certain of the prior years' figures have been reclassified in order to conform
to the presentation adopted in the current year.
73
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, 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.
Years Ended the Last Day of February
- -------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
(US$000s except share amounts, Canadian GAAP)
Statement of Income Data
Revenue $495,652 $385,640 $301,125 $244,834 $198,185
- -------------------------------------------------------------------------------------------------------------------------
Operating expenses
Cost of product license 7,315 5,235 5,738 3,828 3,266
Cost of product support 17,820 13,758 11,166 9,694 9,634
Selling, general, and administrative 327,632 244,827 178,295 143,493 114,617
Research and development 67,264 53,548 42,274 33,530 28,951
Investment tax credits (6,690) (6,207) (14,880) (9,432) (3,683)
- -------------------------------------------------------------------------------------------------------------------------
Total operating expenses 413,341 311,161 222,593 181,113 152,785
- -------------------------------------------------------------------------------------------------------------------------
Operating income 82,311 74,479 78,532 63,721 45,400
Interest expense (786) (718) (527) (481) (427)
Interest income 12,386 7,454 6,430 5,340 4,524
- -------------------------------------------------------------------------------------------------------------------------
Income before taxes 93,911 81,215 84,435 68,580 49,497
Income tax provision 31,175 26,673 26,313 19,638 12,708
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 62,736 $ 54,542 $ 58,122 $ 48,942 $ 36,789
=========================================================================================================================
Net income per share
Basic $ 0.72 $ 0.63 $ 0.66 $ 0.55 $ 0.43
Fully diluted $ 0.71 $ 0.62 $ 0.65 $ 0.54 $ 0.41
Weighted average number of shares (000s)
Basic 87,324 85,972 87,416 88,414 86,298
Fully diluted 92,495 92,082 93,404 96,082 95,390
Balance Sheet Data (at end of period)
Working capital $197,673 $166,455 $123,343 $112,846 $103,727
Total assets 511,791 396,098 311,235 246,334 189,748
Total debt 32 2,176 2,612 2,457 2,655
Stockholders' equity 300,720 224,306 175,196 147,305 115,912
74