Exhibit 99
COGNOS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(US$000s except share amounts, CDN GAAP)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
- --------------------------------------------------------------------------------
2001 2000 2001 2000
- --------------------------------------------------------------------------------
Revenue
Product license.................... $ 59,114 $ 64,832 $152,835 $183,050
Product support.................... 44,578 37,635 129,005 106,610
Services........................... 20,489 22,171 66,670 61,889
- --------------------------------------------------------------------------------
Total revenue........................ 124,181 124,638 348,510 351,549
- --------------------------------------------------------------------------------
Operating expenses
Cost of product license............ 847 1,925 2,915 5,367
Cost of product support............ 3,825 4,551 11,981 12,896
Selling, general, and administra-
tive.............................. 86,863 83,109 264,887 235,005
Research and development........... 17,579 16,854 55,424 49,215
Investment tax credits............. (1,099) (2,765) (3,659) (5,400)
Business restructuring costs....... -- -- 12,798 --
- --------------------------------------------------------------------------------
Total operating expenses............. 108,015 103,674 344,346 297,083
- --------------------------------------------------------------------------------
Operating income..................... 16,166 20,964 4,164 54,466
Interest expense..................... (88) (230) (257) (540)
Interest income...................... 1,947 3,355 7,167 9,034
- --------------------------------------------------------------------------------
Income before taxes.................. 18,025 24,089 11,074 62,960
Income tax provision................. 5,957 8,697 5,441 21,210
- --------------------------------------------------------------------------------
Net income........................... $ 12,068 $ 15,392 $ 5,633 $ 41,750
Retained earnings at beginning of the
period.............................. 160,512 150,699 175,946 126,316
Repurchase of shares................. (8,955) -- (17,954) (1,975)
- --------------------------------------------------------------------------------
Retained earnings at end of the peri-
od.................................. $ 163,625 $ 166,091 $163,625 $166,091
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Net income per share
Basic.............................. $ 0.14 $ 0.17 $ 0.06 $ 0.48
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diluted............................ $ 0.13 $ 0.17 $ 0.06 $ 0.45
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Weighted average number of shares
(000s)
Basic.............................. 87,488 88,249 87,840 87,647
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diluted............................ 89,456 92,646 89,980 92,170
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(See accompanying notes)
27
Exhibit 99
COGNOS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(US$000s, CDN GAAP)
NOVEMBER 30, FEBRUARY 28,
2001 2001
------------ ------------
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents........................... $154,236 $115,293
Short-term investments.............................. 113,881 119,265
Accounts receivable................................. 100,130 146,867
Inventories......................................... 518 730
Prepaid expenses.................................... 6,566 8,648
Income tax assets................................... 5,525 --
- --------------------------------------------------------------------------------
380,856 390,803
Fixed assets.......................................... 65,127 74,208
Other assets.......................................... 33,761 46,780
- --------------------------------------------------------------------------------
$479,744 $511,791
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable.................................... $ 23,980 $ 28,256
Accrued charges..................................... 31,349 21,798
Salaries, commissions, and related items............ 34,447 28,822
Income taxes payable................................ 672 17,548
Current portion of long-term debt................... 32 32
Deferred revenue.................................... 85,003 96,674
- --------------------------------------------------------------------------------
175,483 193,130
Long-term liabilities................................. 766 1,539
Deferred income taxes................................. 11,834 16,402
- --------------------------------------------------------------------------------
188,083 211,071
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock
Common shares (November 30, 2001--87,277,837;
February 28, 2001--87,885,161)...................... 141,484 134,791
Retained earnings..................................... 163,625 175,946
Accumulated other comprehensive items................. (13,448) (10,017)
- --------------------------------------------------------------------------------
291,661 300,720
- --------------------------------------------------------------------------------
$479,744 $511,791
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(See accompanying notes)
28
Exhibit 99
COGNOS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$000s, CDN GAAP)
(Unaudited)
THREE MONTHS
ENDED NOVEMBER NINE MONTHS ENDED
30, NOVEMBER 30,
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------
Cash provided by (used in) operating
activities
Net income.......................... $ 12,068 $ 15,392 $ 5,633 $ 41,750
Non-cash items
Depreciation and amortization..... 9,972 7,876 28,340 21,565
Amortization of deferred stock-
based compensation............... 504 173 1,658 519
Amortization of other deferred
compensation..................... 606 345 1,938 1,035
Deferred income taxes............. (1,010) 1,364 (4,232) 178
Loss on disposal of fixed assets.. 43 2 583 215
- -------------------------------------------------------------------------------
22,183 25,152 33,920 65,262
Change in non-cash working capital
Decrease (increase) in accounts re-
ceivable........................... (6,116) (23,765) 51,080 (25,579)
Decrease (increase) in inventory.... 48 (77) 192 (58)
Decrease (increase) in prepaid ex-
penses............................. 366 256 1,911 (1,667)
Decrease (increase) in income tax
assets............................. 2,768 -- (5,526) --
Increase (decrease) in accounts pay-
able............................... (1,631) 3,297 (10,045) 3,131
Increase (decrease) in accrued
charges............................ 3,911 1,660 9,989 5,993
Increase (decrease) in salaries,
commissions, and related items 3,410 3,380 5,944 1,736
Increase (decrease) in income taxes
payable............................ (144) 918 (16,747) 3,607
Increase (decrease) in deferred rev-
enue............................... (2,123) 176 (10,693) (559)
- -------------------------------------------------------------------------------
22,672 10,997 60,025 51,866
Cash provided by (used in) investing
activities
Maturity of short-term investments.. 56,557 47,249 236,788 139,069
Purchase of short-term investments.. (83,144) (117,608) (232,035) (193,207)
Additions to fixed assets........... (2,026) (16,404) (10,401) (42,998)
Acquisition costs................... -- (10,406) -- (11,260)
- -------------------------------------------------------------------------------
(28,613) (97,169) (5,648) (108,396)
- -------------------------------------------------------------------------------
Cash provided by (used in) financing
activities
Issue of common shares.............. 1,645 4,136 7,073 20,014
Repurchase of shares................ (9,994) -- (19,992) (2,053)
Repayment of long-term debt and
long-term liabilities.............. (806) (2,800) (645) (2,414)
- -------------------------------------------------------------------------------
(9,155) 1,336 (13,564) 15,547
- -------------------------------------------------------------------------------
Effect of exchange rate changes on
cash................................. (977) (846) (1,870) (1,598)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents..................... (16,073) (85,682) 38,943 (42,581)
Cash and cash equivalents, beginning
of period............................ 170,309 175,536 115,293 132,435
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of pe-
riod................................. 154,236 89,854 154,236 89,854
Short-term investments, end of period. 113,881 116,534 113,881 116,534
- -------------------------------------------------------------------------------
Cash, cash equivalents, and short-term
investments, end of period $268,117 $206,388 $268,117 $206,388
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(See accompanying notes)
29
COGNOS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars)
(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 (CDN) 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.
2. 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.
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.
30
COGNOS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars)
(In accordance with CDN GAAP)
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.
3. 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.
4. Net Income per Share
The reconciliation of the numerator and denominator for the calculation of
basic and diluted net income per share is as follows: (000's except per
share amounts)
THREE MONTHS NINE MONTHS
ENDED NOVEMBER ENDED NOVEMBER
30, 30,
--------------- --------------
2001 2000 2001 2000
------- ------- ------ -------
BASIC NET INCOME PER SHARE
Net income................................ $12,068 $15,392 $5,633 $41,750
======= ======= ====== =======
Weighted average number of shares out-
standing................................. 87,488 88,249 87,840 87,647
======= ======= ====== =======
Basic net income per share................ $ 0.14 $ 0.17 $ 0.06 $ 0.48
======= ======= ====== =======
DILUTED NET INCOME PER SHARE
Net income................................ $12,068 $15,392 $5,633 $41,750
======= ======= ====== =======
Weighted average number of shares out-
standing 87,488 88,249 87,840 87,647
Dilutive effect of stock options.......... 1,968 4,397 2,140 4,523
------- ------- ------ -------
Adjusted weighted average number of shares
outstanding 89,456 92,646 89,980 92,170
======= ======= ====== =======
Diluted net income per share.............. $ 0.13 $ 0.17 $ 0.06 $ 0.45
======= ======= ====== =======
31
COGNOS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars)
(In accordance with CDN GAAP)
5. Comprehensive Income
Comprehensive income includes net income and "other comprehensive income."
Other comprehensive income refers to changes in the balances of revenues,
expenses, gains and losses that are recorded directly as a separate
component of Stockholders' Equity and excluded from net income.
For the quarter ended November 30, 2001, the Corporation had other
comprehensive expense of $1,555,000 compared to other comprehensive expense
of $2,985,000 for the quarter ended November 30, 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). Total comprehensive income was $10,513,000 and
$12,407,000 for the quarters ended November 30, 2001 and 2000,
respectively.
The Corporation had other comprehensive expense of $3,431,000 for the nine
months ended November 30, 2001 and other comprehensive expense of
$4,211,000 for the nine months ended November 30, 2000. Total comprehensive
income was $2,202,000 for the nine months ended November 30, 2001 and total
comprehensive income was $37,539,000 for the nine months ended November 30,
2000.
6. Segmented Information
The Corporation has one reportable segment--computer software products.
7. 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 quarter ended May 31, 2001 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 remaining 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 November 30, 2001, all employee
separations under the restructuring plan had been completed and related
cash payments will be substantially completed throughout the remainder of
fiscal 2002.
32
COGNOS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars)
(In accordance with CDN GAAP)
The following table displays the status of the restructuring reserve at
November 30, 2001: (000's)
OTHER
EMPLOYEE RESTRUCTURING
SEPARATIONS COSTS TOTAL
----------- ------------- -------
RESTRUCTURING CHARGES IN
Q1 FISCAL 2002......... $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
Cash Payments........... (4,443) (970) (5,413)
Asset write-downs....... -- -- --
------ ------ -------
BALANCE AS AT AUGUST 31,
2001................... 4,459 611 5,070
Cash Payments........... (884) (197) (1,081)
Asset write-downs....... -- -- --
------ ------ -------
BALANCE AS AT NOVEMBER
30, 2001............... $3,575 $ 414 $ 3,989
8. 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 the Complainant's patent and that the patent is invalid. A trial
date has been set for May 2002. 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.
33
COGNOS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in U.S. dollars)
(In accordance with CDN GAAP)
9. Recent Pronouncements
In June 2001, the Canadian Institute of Chartered Accountants issued new
Handbook sections 1581, Business Combinations and 3062, Goodwill and Other
Intangible Assets ("the pronouncements"), effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill (and
intangible assets deemed to have indefinite lives) will no longer be
amortized but will be subject to annual impairment tests in accordance with
the pronouncements. Other intangible assets will continue to be amortized
over their useful lives.
The Corporation will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of fiscal 2003.
Application of the non-amortization provisions of the pronouncements is
expected to result in an increase in net income of $4,000,000 ($0.04 per
share) for fiscal 2003. During fiscal 2003, the Corporation will perform
the required impairment tests of goodwill and indefinite lived intangible
assets as of March 1, 2002 and has not yet determined what the effect of
these tests will be on the earnings and financial position of the
Corporation.
In October 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-
Lived Assets" ("SFAS 144"), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This
Statement supersedes SFAS 121, and the accounting and reporting provisions
of APB 30, for the disposal of a segment of a business. The provisions of
SFAS 144 are required to be adopted by March 1, 2002. The Corporation
believes that the adoption of SFAS 144 will not have a material effect on
the business, results of operations, and financial condition.
34