EX-99 2 dex99.txt CANADIAN GAAP 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) 24 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) 26 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 ============ =========== 28 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