Exhibit 99
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(US$000s except share amounts, CDN GAAP)
(Unaudited)
Three months ended May 31,
2001 2000
- ------------------------------------------------------------------------------------------------------
Revenue
Product license $ 43,104 $ 56,733
Product support 41,843 33,283
Services 23,069 18,682
- ------------------------------------------------------------------------------------------------------
Total revenue 108,016 108,698
- ------------------------------------------------------------------------------------------------------
Operating expenses
Cost of product license 1,106 1,729
Cost of product support 4,294 4,274
Selling, general, and administrative 90,793 74,295
Research and development 19,422 15,854
Investment tax credits (1,271) (1,338)
Business restructuring charges 12,798 --
- ------------------------------------------------------------------------------------------------------
Total operating expenses 127,142 94,814
- ------------------------------------------------------------------------------------------------------
Operating income (loss) (19,126) 13,884
Interest expense (84) (154)
Interest income 2,812 2,582
- ------------------------------------------------------------------------------------------------------
Income (loss) before taxes (16,398) 16,312
Income tax provision (benefit) (4,077) 5,397
- ------------------------------------------------------------------------------------------------------
Net income (loss) (12,321) 10,915
Retained earnings at beginning of the period 175,946 126,316
- ------------------------------------------------------------------------------------------------------
Retained earnings at end of the period $ 163,625 $ 137,231
======================================================================================================
Net income (loss) per share
Basic $ (0.14) $ 0.13
======================================================================================================
Diluted $ (0.14) $ 0.12
======================================================================================================
Weighted average number of shares (000s)
Basic 88,023 86,993
======================================================================================================
Diluted 88,023 91,527
======================================================================================================
(See accompanying notes)
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CONSOLIDATED BALANCE SHEETS
(US$000s, CDN GAAP)
May 31, February 28,
2001 2001
- ------------------------------------------------------------------------------------------------
Assets (Unaudited)
Current assets
Cash and cash equivalents $ 177,775 $ 115,293
Short-term investments 61,652 119,265
Accounts receivable 100,370 146,867
Inventories 567 730
Prepaid expenses 6,966 8,648
Income tax assets 8,392 --
- ------------------------------------------------------------------------------------------------
355,722 390,803
Fixed assets 74,462 74,208
Other assets 42,420 46,780
- ------------------------------------------------------------------------------------------------
$ 472,604 $ 511,791
================================================================================================
Liabilities
Current liabilities
Accounts payable $ 18,413 $ 28,256
Accrued charges 27,540 21,798
Salaries, commissions, and related items 29,110 28,822
Income taxes payable 1,316 17,548
Current portion of long-term debt 32 32
Deferred revenue 87,578 96,674
- ------------------------------------------------------------------------------------------------
163,989 193,130
Long-term liabilities 1,590 1,539
Deferred income taxes 15,350 16,402
- ------------------------------------------------------------------------------------------------
180,929 211,071
- ------------------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock
Common shares (May 31, 2001 - 88,205,258;
February 28, 2001 - 87,885,161) 138,937 134,791
Retained earnings 163,625 175,946
Accumulated other comprehensive income (10,887) (10,017)
- ------------------------------------------------------------------------------------------------
291,675 300,720
- ------------------------------------------------------------------------------------------------
$ 472,604 $ 511,791
================================================================================================
(See accompanying notes)
25
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$000s, CDN GAAP)
(Unaudited)
Three months ended
May 31,
- ----------------------------------------------------------------------------------------------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities
Net income (loss) $ (12,321) $ 10,915
Non-cash items
Depreciation and amortization 9,078 6,718
Amortization of deferred stock-based compensation 577 173
Amortization of other deferred compensation 666 345
Deferred income taxes (928) (598)
Loss on disposal of fixed assets 215 194
- ----------------------------------------------------------------------------------------------------------------
(2,713) 17,747
Change in non-cash working capital
Decrease in accounts receivable 46,163 14,633
Decrease in inventories 153 97
Decrease (increase) in prepaid expenses 1,499 (1,998)
Increase in income tax assets (8,392) --
Decrease in accounts payable (11,388) (775)
Increase in accrued charges 6,158 747
Increase (decrease) in salaries, commissions, and related items 819 (4,315)
Increase (decrease) in income taxes payable (16,131) 739
Decrease in deferred revenue (7,460) (2,928)
- ----------------------------------------------------------------------------------------------------------------
8,708 23,947
- ----------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities
Maturity of short-term investments 118,336 64,566
Purchase of short-term investments (60,606) (32,861)
Additions to fixed assets (6,813) (13,944)
- ----------------------------------------------------------------------------------------------------------------
50,917 17,761
- ----------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities
Issue of common shares 3,569 9,003
Repayment of long-term debt and long-term liabilities 96 251
- ----------------------------------------------------------------------------------------------------------------
3,665 9,254
- ----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (808) (1,064)
- ----------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 62,482 49,898
Cash and cash equivalents, beginning of period 115,293 132,435
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 177,775 182,333
Short-term investments, end of period 61,652 31,662
- ----------------------------------------------------------------------------------------------------------------
Cash, cash equivalents, and short-term investments, end of period $ 239,427 $ 213,995
================================================================================================================
(See accompanying notes)
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COGNOS INCORPORATED
CONDENSED NOTES TO THE CONSOLIDATED FINACIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with CDN GAAP)
1. Basis of Presentation
The accompanying unaudited 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") with respect
to the preparation of interim financial information. Accordingly, they do not
include all information and footnotes as required in the preparation of
annual consolidated financial statements. These unaudited condensed notes to
the consolidated financial statements should be read in conjunction with the
audited financial statements and notes included in the Annual Information
Form for the fiscal year ended February 28, 2001.
The preparation of these unaudited consolidated financial statements 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 unaudited consolidated financial statements
reflect all adjustments (which include only normal, recurring adjustments)
necessary to state fairly the results for the periods presented. Actual
results could differ from these estimates and the operating results for the
interim periods presented are not necessarily indicative of the results
expected for the full year.
All information is presented in thousands of U.S. dollars, unless otherwise
stated.
2. Accounting Change
Earnings per share
On March 1 2001 the Corporation adopted the recommendations issued by the
Canadian Institute of Chartered Accountants with respect to earnings per
share (Handbook section 3500). The section specifies the method of
calculation, presentation and disclosure for basic and diluted earnings per
share. The comparative financial statements have been restated to reflect
these changes. Diluted EPS for the quarter ended May 31, 2000 was restated to
$.12.
3. Revenue Recognition
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.
27
COGNOS INCORPORATED
CONDENSED NOTES TO THE CONSOLIDATED FINACIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with CDN GAAP)
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.
4. Income Taxes
The Corporation provides for income taxes in its quarterly unaudited
financial statements based on the estimated effective tax rate for the full
fiscal year.
5. Net Income (loss) per Share
The reconciliation of the numerator and denominator for the calculation of
basic and diluted net income (loss) per share is as follows: (000's except
per share amounts)
Three months ended
May 31,
---------------------------
2001 2000
------------ -----------
Basic Net Income (loss) per Share
Net income (loss) (12,321) $10,915
============ ===========
Weighted average number of shares
outstanding 88,023 86,993
============ ===========
Basic net income (loss) per share $ (0.14) $ 0.13
============ ===========
Diluted Net Income (loss) per Share
Net income (loss) (12,321) $ 10,915
============ ===========
Weighted average number of shares
outstanding 88,023 86,993
Dilutive effect of stock options Nil 4,534
------------ -----------
Adjusted weighted average number of
shares outstanding 88,023 91,527
============ ===========
Diluted net income (loss) per share $ (0.14) $ 0.12
============ ===========
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COGNOS INCORPORATED
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with CDN GAAP)
For the quarter ended May 31, 2001, the effect of converting stock options
was antidilutive as a result of net losses.
6. Comprehensive Income
Comprehensive Income (loss) includes net income (loss) and "other
comprehensive income (loss)." Other comprehensive income (loss) refers to
changes in the balances of revenues, expenses, gains and losses that are
recorded directly as a separate component of Stockholders' Equity and
excluded from net income.
For the quarter ended May 31, 2001, the Corporation had other comprehensive
expense of $870,000 compared to other comprehensive expense of $1,804,000
for the quarter ended May 31, 2000. These amounts relate to foreign
currency translation adjustments from those subsidiaries not using the U.S.
dollar as their functional currency, net of unrealized net derivative gains
(losses) which corresponds to the cumulative translation adjustment for
Canadian GAAP purposes.
7. Segmented Information
The Corporation has one reportable segment--computer software products.
8. Business Restructuring Charges
In connection with a restructuring plan to align the Corporation's cost
structure and operations to the current economic environment, the
Corporation recorded in the current fiscal quarter a pre-tax business
restructuring charge to earnings of $12,798,000. Business restructuring
charges primarily relate to involuntary employee separations for
approximately 300 employees, as well as asset write-downs, and accruals for
net costs of abandoning leases and related write-down of leasehold
improvements. The accrual is included on the balance sheet as accrued
charges and salaries, commissions and related items.
The employee separations impact all functional groups and geographic
regions of the Corporation. As of May 31, 2001, substantially all employee
separations under the restructuring plan had been completed and related
cash payments will be substantially issued in the next two quarters of
fiscal 2002.
29
COGNOS INCORPORATED
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with CDN GAAP)
The following table displays the status of the restructuring reserve at May
31, 2001: (000's)
Other
-----
Restructuring
Employee -------------
Separations Costs Total
----------- ----- ------
Restructuring charges in the quarter 9,660 3,138 12,798
Cash Payments (758) (758)
Asset write-downs (1,557) (1,557)
-------------------- ----------------- -------------
Balance as at May 31, 2001 8,902 1,581 10,483
9. 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 judgement that the Corporation is not
infringing the Complainant's patent and that the patent is invalid. As
these actions are in 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.
30