UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
[X] ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended FEBRUARY 29, 2004
OR
[ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
OF 1934
For The Transition
Period From _________ To ________
Commission File Number 0-16006
COGNOS INCORPORATED
(Exact Name Of
Registrant As Specified In Its Charter)
| CANADA | 98-0119485 |
| (State Or Other Jurisdiction Of | (IRS Employer Identification No.) |
| Incorporation Or Organization) |
3755 Riverside Drive,
P.O. Box 9707, Station T, Ottawa, Ontario, Canada, K1G 4K9
(Address Of Principal Executive
Offices)
Registrant’s Telephone Number, including Area Code: (613) 738-1440
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant
to Section 12(g) of the Act:
Common Shares Without
Nominal Or Par Value
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934) YES X NO .
The aggregate market value of Common Shares held by non-affiliates of the registrant, based on the last reported sales price of the Common Shares on the Nasdaq National Market on August 29, 2003, the last business day before the end of our second quarter of fiscal 2004, was approximately US$2,740,000,000.
As of April 15, 2004, 90,077,179 Common Shares, without nominal or par value, were outstanding.
continued….
Portions of the Corporation’s Proxy Statement pursuant to Regulation 14A to be filed with the Securities and Exchange Commission and Canadian Securities regulators in connection with the solicitation of proxies for the Corporation’s Annual and Special Meeting of Shareholders to be held June 23, 2004 are incorporated by reference into Part III of this Form 10-K.
All financial information contained in this document is expressed in United States dollars, unless otherwise stated.
Cognos, the Cognos logo, Cognos Axiant, DecisionStream, Impromptu, NoticeCast, PowerHouse, PowerPlay, and ReportNet are trademarks or registered trademarks of Cognos Incorporated in the United States and/or elsewhere. All other trademarks or trade names referenced to in this Annual Report on Form 10-K are the property of their respective owners.
| Page |
| Item 1. | Business | 1-13 | |||
| Item 2. | Properties | 14 | |||
| Item 3. | Legal Proceedings | 14 | |||
| Item 4. | Submission of Matters to a Vote of Security Holders | 14 |
| Item 10. | Directors and Executive Officers of the Registrant | 85 | |||
| Item 11. | Executive Compensation | 85 | |||
| Item 12. | Security Ownership of Certain Beneficial Owners and Management | 85 | |||
| Item 13. | Certain Relationships and Related Transactions | 85 | |||
| Item 14. | Principal Accountant Fees and Services | 86 |
| Item 15. | Exhibits, Financial Statement Schedules, and Reports on Form 8-K | 87-90 | |||
| Signatures | 91 |
Cognos Incorporated, a Canadian corporation founded in 1969, is a global leader in business intelligence (BI) and corporate performance management (CPM) software solutions. Our solutions help improve business performance by enabling planned performance management, supported by effective decision-making at all levels of the organization through the consistent reporting and analysis of data derived from various sources. Using our software, customers can plan and manage the performance of all aspects of their business and gain valuable insights that can be used to improve operational effectiveness, enhance customer satisfaction, accelerate corporate response times and, ultimately, increase revenues and profits. Our integrated solutions consist of our suite of BI components, analytical applications, and performance management applications.
In fiscal 2004, we continued to invest in our BI solutions which are the foundation of our CPM vision. In May 2003, we shipped Cognos ReportNet™, our new enterprise reporting software that provides coverage for both production and business reporting. In July 2003, we announced Cognos Metrics Manager 2.0, our next-generation scorecarding software for metrics management and interactive scorecarding and, in February 2004, we shipped Cognos Metrics Manager 2.1. Also in February 2004, we announced Cognos Enterprise Planning Series Version 7.2, our solution for planning and budgeting.
Our customers can strategically apply our software solutions across their extended enterprise to address their need for CPM. By allowing timely analysis of data from disparate systems, CPM enables organizations to measure execution against business strategy to ensure the two are aligned at all levels. Our solution for CPM allows users to effectively manage the full business cycle with planning, budgeting, reporting, analysis, and scorecarding products.
Our integrated solutions provide a scalable and secure web-based environment that is easy to use and deploy across the extended enterprise, which includes the organization, its customers, suppliers, and partners. The component-based nature of our software allows customers to purchase functionality that fits their particular needs and allows them to easily expand their capabilities as required.
We focus on developing direct relationships with Global 3500 companies and large public sector organizations. Our direct sales force generated approximately 73% of our software license revenue for our fiscal year ended February 29, 2004. At yearend, we had 51 sales offices in 17 countries. In addition, we offer our customers a broad range of support and consulting services aimed at providing the highest level of customer satisfaction.
We have an extensive and expanding global customer base with over 22,000 customers located in more than 135 countries. In fiscal 2004, we had total revenue of $683.1 million, of which approximately 58% was derived from sales in The Americas, 33% from sales in our Europe Region, and 9% from sales in our Asia/Pacific Region. For financial information about geographic areas, see “Note 14. Segmented Information” in the Notes to the Consolidated Financial Statements contained in Item 8.
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Our integrated solutions consist of our suite of BI components, analytical applications, and performance management applications. These components are supported by software services for administration, deployment, integration, and extraction, transformation, and loading (ETL).
Our BI solution is comprised of highly-scalable component-based software that facilitates all BI activities, including reporting, query, analysis, visualization, and event management across the extended enterprise. Our BI components are based on proprietary applications which offer the following functions:
Query & Reporting. Cognos ReportNet is the newest component of our BI solution. Built on a new state of the art architecture, Cognos ReportNet is our next-generation web-based query and reporting product that has been developed to specifically satisfy all enterprise reporting requirements. It delivers production reports such as invoices and statements as well as ad hoc query, managed reports, and a broad range of business reports. This new architecture is designed to provide high scalability and openness integrating with and leveraging customer’s existing infrastructure. It is based on industry standards such as XML, SOAP, and WSDL and is the foundation for future solution component releases.
Our pre-existing reporting component is Impromptu® Web Reports. Customers can author, manage, and broadcast sales results, inventory figures, financial updates, and other regularly scheduled reports that are distributed to a large web-based community of users. Reports can be rendered and viewed by users in a variety of outputs, such as CSV, Excel, or Adobe PDF files.
Our pre-existing query component, Cognos Query, presents users with a simple view of various databases, allowing them to quickly and easily navigate corporate data. This engine allows users to run predefined queries or build ad hoc queries. The software uses hyperlinks to allow users to jump from query to query to see related information, such as customer details, sales orders, or detailed records.
Customers can continue to purchase Impromptu Web Reports and Cognos Query. We continue to update Impromptu Web Reports and Cognos Query, to reflect the changing requirements of our large customer base. For customers wanting to migrate their existing Impromptu Web Reports and Cognos Query reporting applications to Cognos ReportNet, we offer service packages and migration tools. From a licensing perspective, we have developed a migration program that enables supported customers to trade like-for-like functionality.
Analysis. Our analysis component is Cognos PowerPlay®, which delivers on-line analytical process (OLAP) reporting and analysis. Users can perform their own ad hoc analysis by investigating, in any combination and at any level, the critical success factors that drive their business. PowerPlay’s single application component architecture allows organizations to deploy and manage on-line analytical processes from a central point of control. Through the web, Windows, or Excel, users are able to access multidimensional data and use PowerPlay for analysis and reporting. Users can manipulate information by “drilling down” through layers of summary information in successively greater levels of detail and can present the information in multiple graphical displays. Cognos PowerPlay 7.2, which was released at the end of fiscal 2003, is fully integrated with Cognos ReportNet and uses the same user interface standards for a seamless user experience across our BI components.
Visualization. With Cognos Visualizer, our visualization component, users can see complex business relationships and the interplay between factors that drive a company’s business. This web-based component delivers advanced visualization graphics, Six Sigma charts, animation, and mapping for stand-alone use and for embedding in Cognos BI applications such as Cognos ReportNet dashboards.
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Event Management. Our event management component is Cognos NoticeCast®. Cognos NoticeCast can monitor changes to time critical content and then send an email notification to users. Users can define alert criteria themselves to monitor events such as changes in key performance indicators and operational data, and updates to reports. Along with the notification, users receive BI content that gives context to decision making.
A trend in the market for BI is the demand for pre-packaged solutions that shorten time to implementation and results. We have developed our analytical applications as an integrated set of applications to make it easy for customers to combine appropriate capabilities and to deploy them quickly. Our analytical applications are flexible and extendible because they are built upon the foundation of our BI components. Customers are able to change models, create new reports, and perform new analyses by using our BI components in conjunction with our analytical applications. These applications reduce the time, effort, and cost required for an organization to gain a competitive advantage from BI and can help it realize returns on investment from operational applications such as enterprise resource planning, customer relationship management, and supply chain management implementations more quickly.
With our analytical applications, users gain access to their organization’s key information through more than 50 areas of analysis, answers to more than 2,900 critical business questions, over 650 key performance indicators, and over 400 reports in seven areas of the business: accounts receivable, accounts payable, general ledger, inventory, procurement, production, and sales. These coordinated, departmental-specific analytical applications allow users to build an enterprise-wide view of their organization incrementally and strategically.
Our analytical applications are based upon our CPM foundation, which is a data source independent data warehouse model, designed through years of applying our best-practices approach. Our solution is designed to extend the value of a customer’s enterprise resource planning (ERP) system, transforming operational data into consistent, reliable information optimized for reporting and analysis. During fiscal 2004, we continued to invest in research and development activities for our analytical applications, including the release in December 2003 of Version 1.6 of our analytic applications. This release added support for metrics and integration with Cognos Metrics Manager, Cognos ReportNet, and Cognos Series 7 Version 2.
In our solution for CPM, we offer products that address the need for organizations to link reporting and analysis to organizational goals and strategy. These applications span company functions and processes and define the parameters for performance in scorecards, plans, and budgets.
Scorecarding. In July 2003, we announced Cognos Metrics Manager 2.0 which brought new functionality to our next generation scorecarding and metrics management software. In February 2004, we shipped a follow up version Cognos Metrics Manager 2.1. With Cognos Metric Manager, users can view and interact with scorecards that contain key performance metrics and can analyze each metric individually in order to understand the drivers of performance. By linking the company’s strategy and goals to execution through metrics, users get a clear picture of the performance of the whole business. In addition, metrics are linked to the BI layer for further reporting and analysis.
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Planning and Budgeting. In February 2004, we launched Cognos Enterprise Planning Series Version 7.2 with additional customer-driven functionality, technical enhancements, and further interoperability with our enterprise BI solution and scorecarding. The Cognos Enterprise Planning Series combines Cognos Enterprise Planning and Cognos Finance into one financial suite that delivers budgeting, planning, forecasting, accounting consolidation, and financial reporting. The solution delivers capabilities that help customers drive, monitor, and report on financial performance:
| • | flexible modeling for a variety of financial and non-financial planning based on business measures, ratios, and sophisticated calculations under the control of financial planners; |
| • | collaboration with workflow to extend the planning process across the organization, with business managers controlling their own business plans in the context of an overall corporate plan; and |
| • | high participation and ease of use so that users can enter, analyze, and adjust plan data and model parameters in any way, including top-down analysis or using break-back calculations, which fill in values to arrive at a set total. |
The solution enables business and financial managers to collaborate to define the scope of their plan, including restructuring and re-organizing, using zero-based budgeting or providing a starting point based on the previous year’s trends, as well as providing up-to-date results. Managers can collaborate and delegate planning details to lower-level managers to receive a complete and detailed financial view, making the process of gathering information and distributing it to relevant stakeholders easy to administer. In addition, the solution integrates up-to-date data when available from other systems with user-supplied forecasts and the overall enterprise plan. Through its consolidation engine, the solution supports global enterprises by providing a unified view of performance, in multiple currencies, and performs the necessary roll-up, eliminations, allocations, and adjustments required as a part of the consolidation and external financial reporting process.
Across our BI components, analytic applications, and performance management applications, we provide software services for administration, deployment, integration, and ETL to deliver highly integrated and expandable solutions. Customers who purchase one of our solution components are also provided with the software services for administering and deploying as integrated parts of the solution. With these software services, our customers can more quickly and easily deploy the server-based capabilities to users. In addition, this approach facilitates a customer’s ability to add new capabilities because additional components can be easily plugged into the existing software services. This flexibility is critical as customers’ requirements change and as we introduce new capabilities to our solutions. Our software services consists of the following:
| • | administration services; |
| • | deployment services; |
| • | integration services; and |
| • | data ETL services. |
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These services operate in an integrated environment. The scalability of the architecture allows organizations to deliver BI applications to a large and broad user community across the extended enterprise.
Administration Services. Our administration services allow IT managers to manage and maintain installation and configuration of our servers. In addition, we provide data modeling that drives consistency and adaptability of our solution. Our modeling is designed to present information stored in corporate databases in a consistent format. This ensures that every manager has a common foundation for evaluating business performance and making key business decisions. Each manager can be provided with a personalized view of information, as well as a common view of business performance that permits the rapid coordination of management decisions and actions. In addition, common business rules, calculations, and goals, such as the definitions of profitability, cash flow, and return on investment, are visible and shared by all users, which ensures that every manager has a consistent view of the business.
Deployment Services. Our deployment services provide security and content delivery and management for users across the extended enterprise. With our security, IT managers can address both authentication, which confirms the user’s identity, and authorization, which determines what information users have the right to view. And with open security standards, Cognos security can be easily integrated with other enterprise security systems. Our own portal services for content delivery and management can be customized to fit seamlessly in an existing company portal or intranet/extranet environment and is designed to ensure that each user views only the content they have authority to access. It can be customized to present application content in a format that is familiar and appropriate to each user and also allows for sharing of information and collaboration among many users.
Integration Services. Our integration services provide the ability to integrate with and leverage customers’ existing applications and infrastructure. Based on web-services, leveraging industry standards including XML, SOAP, and WSDL, we provide an open environment for external enterprise application integration, customization, and automation of many aspects of our solution. Standards-driven, fully-documented application program interfaces allow customers to customize their applications to best serve their users’ needs.
ETL Services. Our ETL service, Cognos DecisionStream™, is optimized for modeling, transforming, and creating high-speed, scalable analytical data warehouses that have embedded knowledge of the BI applications they will serve, thereby enabling faster deployment and user acceptance of these applications. Our ETL services and BI components work together to ensure that many of the calculations and analytic operations can be performed at the database level, which can dramatically improve response time and network traffic loads. Companies can build analytical data warehouses that span the extended enterprise, ensuring consistency and rapid adoption of changes. This service forms the basis for our analytic applications and is the critical component for information consistency for CPM.
We have a legacy line of products based on application development products marketed under the PowerHouse®, PowerHouse Web, and Axiant® names, which represented approximately 4.3% of our total revenue for the fiscal year ended February 29, 2004. PowerHouse is an application development environment that enables customers to quickly develop complex business applications. We believe there has been a fundamental shift over the past several years away from application development environments towards packaged solutions. The large majority of organizations now choose to buy their next generation of business systems, rather than attempt to build these corporate applications internally. Our strategy for this mature part of our business is focused on maintaining the product and supporting our existing customers. Product support is the largest source of revenue from these customers, and as a result, we expect to continue to update our application development products to reflect the changing requirements of our customers. We expect our revenue from application development tools to continue to decline as customers focus on the next generation of our CPM solution.
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Support, consulting, and training services are a critical part of our BI, analytic applications, and performance management solutions. We offer a wide variety of packaged and on-demand services to assist our customers with the installation, deployment, and effective use of our solutions. As customers increase the deployment of our products throughout the extended enterprise, we believe that our customers will increasingly demand additional services. Growth in our services revenue is highly correlated with increases in our license revenue, and our ability to deliver services in a timely and effective manner is a large and expanding part of our complete solution.
We offer our customers a broad range of support, consulting, and training services aimed at providing the highest level of customer satisfaction. These services include:
Support services consist primarily of implementation resolution, product configurations, documentation, and support for product problem resolution. Telephone support and web-based customer self-service support are key to customer satisfaction and are available worldwide. Our web-based support service provides our customers with online answers to their product questions, 24 hours a day.
We offer a variety of consulting services to assist our customers with project management and planning, architecture design, training needs assessment, and successful deployment. These service offerings are billed on a daily basis at competitive rates or are provided as packaged services for a particular project or task over a specific time frame. Our consulting services are aimed at guiding our customers from early stages of a Cognos project through the solution implementation process. In addition, we have specific consulting services offerings for our largest enterprise customers with customized senior engagement management. Engagement managers work onsite with large customers to ensure that optimal application and deployment strategies are put in place and that customers can make maximum use of our existing and emerging products and services, with the aim of delivering the highest degree of success and return on investment.
Customers typically require specific training when they purchase our solution. In addition, we believe that customer training helps maximize the potential productivity gains from our products. We provide classroom training at Cognos training centers and on-site at customer locations. We also offer a suite of e-learning courses available for download from our Global Customer Support web portal, or for delivery to customers on CD. We offer courses on individual product components as well as courses on a solution approach. All of our training products can be customized to incorporate a customer’s corporate data to enhance and accelerate their learning experience.
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Over 22,000 customers located in more than 135 countries have deployed our BI, analytic application, and performance management solutions. Our primary target market is Global 3500 companies and large public sector organizations. We also license our products to a broad base of small and medium-size organizations.
Although our software solution is a complete solution for the extended enterprise, our customers typically purchase in stages. The first stage usually involves the purchase of a component of our solution to address a particular departmental requirement. The second stage usually involves purchases by other departments within that organization, often for applications that are closely related to the initial purchase, or purchases of additional components by the same department, or the addition of more users of the initial implementation. In many cases, there are a number of purchases in several departments of an organization before a customer makes the decision to standardize and deploy our solution on an enterprise-wide basis. Sometimes these tactical purchases involve product from other vendors. Companies are realizing a total cost of ownership opportunity by standardizing on a single vendor. Throughout the sales cycle, we work closely with our customers in the design of new products and the evolution of existing solutions.
We view our large customer base as a significant asset. Because our services make it easy for customers to add new capabilities to the established infrastructure, our current customer base represents a significant market for additional BI, analytical application, and performance management sales. Typically, customers deploy our solution to a limited number of potential users in the first stage, providing significant revenue opportunities for additional sales.
Our solution can be deployed across all industries. Data-intensive businesses, such as financial services, insurance, healthcare, and government, as well as industries that are under competitive pressure to continually improve their business processes, such as retail, automotive, consumer packaged goods, and other manufacturing companies, have been the leaders in adopting enterprise-wide solutions. We have a broad customer base with no single customer accounting for 10% or more of our total revenue in any of the last three fiscal years.
We use an international, multi-tiered channel distribution system to reach customers on a cost–effective basis. We support these channels with an extensive organization of pre-sales and post-sales technical specialists. Our worldwide sales and marketing organizations are managed from our Burlington, Massachusetts location.
The principal elements of our distribution system are as follows:
Direct Sales. We use a direct sales force in all major markets as the primary channel for distribution. Our direct sales force generated approximately 73% of our software license revenue for fiscal 2004. We believe our quota-carrying direct sales force increases our visibility and market penetration, ensures long-term customer contact, and facilitates sales of additional products. As the demand for enterprise-wide BI solutions grows, we intend to increase our targeting of the senior executives of organizations as purchasing decisions for our products are often made at the senior level. We believe that a direct sales force is more effective than third-party sales channels because of the importance executive officers place on relationships when making purchasing decisions. As of February 29, 2004, we employed approximately 304 sales representatives in 51 sales offices located in 17 countries.
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Third Parties. In order to extend our coverage, we market our products through third-party channels, which include resellers, value-added resellers, original equipment manufacturers (OEMs), system integrators, and distributors. Examples include:
| • | OEMs such as CODA, Deltek, Fujitsu, Manugistics, MAPICS, Onyx, PeopleSoft, Sungard, and Teradata. |
| • | Systems Integrators such as IBM Global Services, Deloitte Consulting, Accenture, Cap Gemini Ernst &Young, and BearingPoint. |
| • | Solution Providers such as CD Group, Fidelity Information Services, ITT Fiserv, John Daniel Associates, and PWC (Real Estate Practice). |
Telesales. We use telesales representatives in certain areas to sell products, support, and services, primarily to our installed customer base.
We support our sales channels with lead generation and marketing programs, including direct mail, public relations, advertising, telemarketing, web-based programs, promotional seminars, and participation in trade shows and user group meetings.
Cooperative marketing arrangements with hardware and other software vendors provide us with additional visibility in the marketplace. These relationships permit our sales force to work closely with the sales representatives of these vendors and enable prospective customers to evaluate software applications, services and, in certain instances, hardware together as a complete solution. Our marketing relationships can be classified into three broad categories:
Technology Partners. Our technology partners consist of industry-leading database, server, OLAP server, internet, and connectivity technology companies, including Ascential, Hewlett-Packard, IBM, Microsoft, Oracle, Sun, and Teradata. We also engage with enterprise application partners such as PeopleSoft and SAP. We partner with these companies to ensure that our solution is compatible with their products.
Consulting Partners. Our services partners consist of accounting firms, large consulting firms, system integrators, information technology consulting organizations, and certified resellers, including: IBM Global Systems, Accenture, Deloitte Consulting, Cap Gemini Ernst & Young, and BearingPoint. These companies implement BI and data warehousing solutions.
These marketing and technology relationships also provide us with the opportunity to market our products together with other packaged solutions. We believe that solution-selling can shorten sales cycles and increase our sales opportunities.
We also participate in cooperative marketing and technology programs with hardware, software, and database vendors, including the following program roles: Hewlett-Packard Developer and Solution Partner Program, IBM PartnerWorld for Developers member, Microsoft Data Warehousing Alliance Partner, Microsoft Certified Partner, Oracle Partner Network Certified Level Partner, SAP Technology and Content Partner Program, SAP Software Partner Program with Certified Integration, PeopleSoft Partner Connection Certified Software Partner, Plumtree Technology Partner, Blackberry ISV Partner, Macromedia ISV/Alliance Partner, BEA Star Partner Program, Sun Developer Connection Partner Program, SunTone Certified, Sun iForce Partner Program, and Sybase Open Solutions CODE Partner.
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We recognize the importance of a complete and focused marketing effort. We divide our marketing organization between corporate marketing and field marketing. These two groups are coordinated to provide a consistent market message and presence and effective market coverage for Cognos, which includes targeted marketing and programs to vertical industry and functional departments such as IT and Finance. Our corporate marketing focuses on increasing “Cognos” brand awareness and visibility through advertising, events, sponsorship, our corporate website, and sales collateral. This team also has responsibility for sales effectiveness programs including sales training, competitive analysis, and our strategic account programs. These corporate functions are managed from our Burlington, Massachusetts office, with the majority of staff in Ottawa, Ontario, Canada. We have deployed our field marketing organization throughout the world. This group is responsible for sales lead generation and local marketing programs, such as trade shows, seminars, direct mail programs, and user group meetings and conferences, to help ensure local visibility and healthy sales pipelines.
We believe that our talented and experienced research and development staff is one of our core strengths. Our research and development efforts are aimed at enhancing and extending our existing BI solution, our performance management solution, and creating new products. As of February 29, 2004, our research and development staff consisted of more than 800 employees. Research and development is undertaken primarily at our corporate headquarters in Ottawa, Ontario, Canada, and also at our facilities in Minneapolis, Minnesota; Princeton, New Jersey; and London, Twickenham, Guilford, and York in the United Kingdom. We had research and development costs of $91.2 million, $78.1 million, and $74.6 million in fiscal 2004, 2003, and 2002, respectively.
During fiscal 2005, we are investing in the research and development of corporate performance management solutions, particularly those solutions that support our strategy of meeting the needs of the extended enterprise. These investments will include our next-generation application architecture, the development of new BI, planning, and scorecarding products, and application packages. We will continue the development of business-to-business solutions using Corporate Performance Management to extend the enterprise to incorporate the supply chain and the relationship with an enterprise’s customers.
Our software solutions were developed primarily through internal resources. In support of the development of our products, we have acquired or licensed specialized products and technologies from other software firms, and we have undertaken further development to integrate these products into our offerings. Most of the third-party licenses are non-exclusive and do not preclude third parties from entering into similar agreements with our competitors.
The CPM market is highly competitive. Our competitors include other BI vendors; vendors of performance management solutions; and vendors of enterprise application systems. Because the CPM market is composed of many market segments, we compete with large diversified vendors who offer products in numerous market segments; and other companies that may in the future announce offerings of CPM products. Factors that affect our competitive position include the method of distribution, functionality, support and service, ease of use, price, training, vendor stability, and experience. Due to the breadth of our BI solution, we encounter many competitors who focus on one or more areas within our overall offering. Our products compete directly and indirectly against various products, depending on user needs and computing environments.
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There are several broad categories of competitors:
Vendors of Enterprise BI Suites. These vendors manufacture and sell a set of BI products covering reporting, query, analysis, scorecarding, dashboarding, and alerts/event notification and include Business Objects and Hyperion Solutions.
Vendors of Production Reporting Environments. These vendors manufacture and sell products that are designed to execute and distribute large numbers of complex reports to many users. Competitors in this area include Actuate and Microsoft.
Vendors of Multidimensional Analysis Tools. These vendors manufacture and sell products that enable users to view, explore, and analyze a summarized view of their business using OLAP technology, and include Hyperion Solutions and MicroStrategy.
Database Management Vendors. Some database vendors have tools that are included with their database environment that can be used for query and reporting, as well as some OLAP functionality. These vendors include Informatica, Oracle, and Microsoft.
Vendors of Performance Management Solutions. These vendors manufacture and sell tools that enable companies to manage business performance through dashboard and scorecarding applications, and include CorVu, PBViews, Hyperion Solutions, and Open Ratings.
Vendors of Financial Planning and Budgeting Software. These vendors manufacture and sell products that automate the planning and budgeting process and include Hyperion Solutions, GEAC, Cartesis, Longview, and OutlookSoft.
Vendors of Enterprise Application Systems. As the Enterprise Application software market’s growth slows, Enterprise Application vendors are looking for other areas to extend the value of their customers’ investments. Some Enterprise Application vendors are introducing product lines as extensions of their ERP and CRM systems in the areas of analytics and performance management. These vendors include SAP, Oracle, PeopleSoft, and Siebel.
Our products are complementary with the products of many of the above-named competitors, and as a result, we have cooperative marketing relationships with some of these vendors, including Oracle, SAP, and Microsoft. We expect that both our current competitors and new competitors will continue to improve the performance of their products and to introduce new products or new technologies that reduce costs and improve performance characteristics.
In accordance with industry practice, we rely upon a combination of contract provisions and patent, copyright, trademark, and trade secret laws to protect our proprietary rights in our products. We license the use of our products to our customers rather than transferring title to them. These licenses contain terms and conditions prohibiting the unauthorized reproduction, disclosure, or transfer of our products. In addition, we attempt to protect our trade secrets and other proprietary information through agreements with customers, suppliers, employees, and consultants. Although we intend to protect our rights vigorously, there can be no assurance that these measures will, in all cases, be successful.
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The source code versions of our products are protected as trade secrets and, in all major markets, as unpublished copyright works. However, effective copyright protection may not be available in some countries in which we license or market our products. We recognize that patent law may offer effective protection for our current and future products, and we have embarked on a program to identify and seek patent protection for appropriate elements of our products. There can be no assurance that any patentable elements will be identified or, if identified, that patent protection will be obtained. We have also obtained or applied for trademark registration of most of our product names, as well as the name “Cognos”, in all of our major markets. While the duration of trademark and copyright protections varies from country to country, we believe that the duration of this protection will be adequate to protect our products during the periods of their economic value.
However, we believe that, due to the rapid pace of innovation within our industry, technological and creative skills of our personnel are even more important to establishing and maintaining a technology and product leadership position within the industry than are the various legal protections of our technology.
As of February 29, 2004, we had 2,904 full-time permanent employees. We believe that our future success will depend, in part, on our ability to continue to identify, hire, motivate, and retain skilled and experienced personnel. In the software industry, notwithstanding the recent overall downturn in the economy, there is a high demand for such employees. Historically, we have been successful in recruiting and retaining sufficient numbers of qualified personnel.
We have formalized education for sales, technical, and research and development personnel to ensure that new staff are fully productive as soon as possible. In addition, there are formalized skills renewal programs for staff to ensure that they are employing state-of-the-art techniques for software development, customer support, sales, marketing, administration, and management.
We are also committed to developing strong management and leadership skills in our personnel and have established formal management and leadership development programs that promote effective management techniques and excellence in leadership.
None of our employees is represented by a labor union.
The following table sets out the name; age; position with the Corporation; and the principal occupation, business or employment during the last five years of each executive officer of the Corporation.
| NAME | AGE | POSITION | |||
| Renato (Ron) Zambonini | 57 | Chief Executive Officer and Director | |||
| Robert G. Ashe | 45 | President and Chief Operating Officer | |||
| Tom Manley | 45 | Senior Vice President, Finance & Administration and Chief Financial Officer | |||
| Peter Griffiths | 40 | Senior Vice President, Products | |||
| David Laverty | 48 | Senior Vice President, Global Marketing | |||
| Tony Sirianni | 44 | Senior Vice President, Worldwide Field Operations | |||
| Jack Thomas | 49 | Senior Vice President, Asia Pacific Field Operations | |||
| Ad Voogt | 47 | Senior Vice President, European Field Operations |
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Mr. Zambonini was appointed Chief Executive Officer (CEO) of Cognos in September 1995. Mr. Zambonini has also served as President from January 1993 until April 2002 and was elected to the Board of Directors in June 1994. Mr. Zambonini previously served as Chief Operating Officer of Cognos from January 1993 to September 1995. Mr. Zambonini joined Cognos in September 1989. Mr. Zambonini has announced that he will be retiring from his CEO position effective at Cognos’ annual meeting of shareholders on June 23, 2004. He will be nominated for reelection to the Cognos Board of Directors at the June 23, 2004 shareholders meeting and, upon his reelection, the Board intends to appoint Mr. Zambonini as Chairman of the Board of Directors.
Mr. Ashe was appointed President and Chief Operating Officer on April 10, 2002. Mr. Ashe previously served as Senior Vice President, Chief Corporate Officer of Cognos from May 2001 until April 2002; as Senior Vice President, Worldwide Customer Services from July 1999 to May 2001; as Senior Vice President, Products from May 1997 to July 1999; and as Senior Vice President, Application Development Tools from April 1996 to May 1997. Mr. Ashe joined Cognos in September 1984. Mr. Ashe will become CEO effective June 23, 2004 following the retirement of Mr. Zambonini. Mr. Ashe will also be nominated for election to the Cognos Board of Directors at the June 23, 2004 shareholders meeting.
Mr. Manley was appointed Senior Vice President, Finance & Administration and Chief Financial Officer in August 2001. Prior to joining Cognos, Mr. Manley was with Nortel Networks Corporation and served as Chief Financial Officer High Performance Optical Component Solutions from April 2001 to August 2001; Senior Vice President, Finance and Vice President, Finance, Carrier Packet Solutions from 1998 to April 2001; and Vice President, Finance, Broadband Networks from 1997 to 1998.
Mr. Griffiths was appointed Senior Vice President, Products in April 2002. Mr. Griffiths served as Senior Vice President, Research and Development from February 2002 to April 2002; as Vice President, Research and Development from January 2001 to February 2002; and as Vice President, Decision Platform from June 2000 to January 2001. Prior to joining Cognos in 1998, Mr. Griffiths was Chief Executive Officer of Relational Matters, a company acquired by Cognos in 1998.
Mr. Laverty was appointed Senior Vice President, Global Marketing in February 2002. Prior to joining Cognos, Mr. Laverty was with Surebridge Inc. as Vice President, Marketing from May 2000 until February 2002. He was with Lotus Development Corporation (a subsidiary of IBM) from 1990 until 2000 in a number of senior marketing roles, most recently as Vice President, Marketing – North America from 1997 to 2000.
Mr. Sirianni was appointed Senior Vice President, Worldwide Field Operations in March 2003. He served as Senior Vice President, North American Field Operations from June 2000 to February 2003. He served as Vice President, North American Field Operations from April 1999 to May 2000; as Area Vice President, North American Partner Channels from December 1997 to March 1999; and Director, Desktop Partner Channels from March 1995 to November 1997. Mr. Sirianni joined Cognos in March 1994.
Mr. Thomas was appointed Senior Vice President, Asia Pacific Field Operations in March 2003. He served as Vice President, Asia Pacific Field Operations from March 2000 to February 2003. He served as Vice President, North America Direct Sales from January 1998 to February 2000 and as Vice President, North America Partner Channels from March 1987 to December 1997. Mr. Thomas joined Cognos in 1984.
Mr. Voogt was appointed Senior Vice President, European Field Operations in September 2001. He served as Vice President, European Operations from July 2000 to September 2001; and Vice President, Northern Europe from September 1995 to July 2000. Mr. Voogt joined Cognos in 1986.
Officers are appointed annually by, and serve at the discretion of, the Board of Directors.
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We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to these reports, available, free of charge, through our website, www.cognos.com. We make these reports available on our website as soon as reasonably practicable after we have electronically filed such material with, or furnish it to, the U.S. Securities and Exchange Commission (SEC), and we have confirmation that it has been made public by the SEC.
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Cognos owns the buildings located at 3755 Riverside Drive, Ottawa, Canada, Cognos’ corporate headquarters. The total square footage of the Riverside facility is 269,000. The facility is located on approximately six acres of land which also includes a 220,000 square foot parking garage.
Cognos also conducts its operations from leased facilities totaling approximately 129,000 square feet in Canada, 246,000 square feet in the United States and Latin America, 178,000 square feet in Europe, and 46,000 square feet in Asia/Pacific.
Cognos is not a party to any legal proceedings that, if resolved or determined adversely to Cognos, would have a material adverse effect on Cognos’ business, financial condition, and results of operation. Cognos, however, may become subject to claims and litigation in the ordinary course of business. In the event that any such claims or litigation are resolved against Cognos, such outcomes or resolutions could have a material adverse effect on Cognos’ business, financial condition, or results of operations.
During the fourth quarter of fiscal 2004, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.
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PRINCIPAL MARKETS
The Toronto Stock Exchange and The Nasdaq National Market are the principal markets on which our shares are traded.
Our common shares were first listed on The Toronto Stock Exchange on August 21, 1986, on The Nasdaq Stock Market on July 1, 1987, and on Nasdaq’s National Market on September 15, 1987. The stock symbol of our common shares on The Toronto Stock Exchange is CSN and on Nasdaq is COGN.
The following table sets forth the high and low sale prices, as well as the trading volume, for the common shares for the fiscal periods shown below:
| Nasdaq National Market | The Toronto Stock Exchange | ||||||||||||
| High | Low | Volume | High | Low | Volume | ||||||||
| (US$) | (US$) | (000s) | (Cdn$) | (Cdn$) | (000s) | ||||||||
| Fiscal 2003 | |||||||||||||
| First Quarter | 30 | .75 | 20 | .60 | 43,256 | 48 | .62 | 32 | .31 | 19,063 | |||
| Second Quarter | 24 | .26 | 15 | .90 | 40,557 | 37 | .07 | 25 | .10 | 17,357 | |||
| Third Quarter | 25 | .53 | 14 | .02 | 67,538 | 40 | .10 | 22 | .37 | 21,571 | |||
| Fourth Quarter | 26 | .18 | 20 | .22 | 61,704 | 40 | .75 | 32 | .00 | 19,932 | |||
| Fiscal 2004 | |||||||||||||
| First Quarter | 28 | .05 | 22 | .08 | 66,776 | 40 | .00 | 32 | .43 | 17,184 | |||
| Second Quarter | 32 | .48 | 25 | .77 | 66,880 | 43 | .91 | 35 | .53 | 15,949 | |||
| Third Quarter | 36 | .17 | 29 | .65 | 51,857 | 48 | .00 | 40 | .12 | 12,871 | |||
| Fourth Quarter | 34 | .66 | 28 | .49 | 58,455 | 45 | .05 | 38 | .01 | 17,068 | |||
| Fiscal 2005 | |||||||||||||
| First Quarter | 33 | .05 | 27 | .98 | 32,764 | 44 | .50 | 37 | .26 | 7,401 | |||
| (through April 8, 2004) | |||||||||||||
SHAREHOLDERS
As of April 8, 2004, there were approximately 1,728 registered shareholders.
DIVIDEND POLICY
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.
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Five-Year Summary
The following Selected Consolidated Financial Data has been derived from our 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, 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 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
| 2004 | 2003 | 2002 | 2001 | 2000 | |||||||
| (US$000s except share amounts, U.S. GAAP) | |||||||||||
| Statement of Income Data | |||||||||||
| Revenue | $683,117 | $551,036 | $491,302 | $495,652 | $385,640 | ||||||
| Operating income | 116,959 | 98,773 | 19,787 | 79,718 | 74,952 | ||||||
| Net income | $100,897 | $ 73,144 | $ 19,408 | $ 64,260 | $ 58,815 | ||||||
| Net income per share | |||||||||||
| Basic | $1.13 | $0.83 | $0.22 | $0.74 | $0.68 | ||||||
| Diluted | $1.10 | $0.81 | $0.21 | $0.70 | $0.67 | ||||||
| Weighted average number of shares (000s) | |||||||||||
| Basic | 89,325 | 87,936 | 87,807 | 87,324 | 85,972 | ||||||
| Diluted | 91,959 | 90,531 | 90,461 | 91,973 | 88,100 | ||||||
| Balance Sheet Data (at end of period) | |||||||||||
| Working capital | $259,502 | $128,864 | $227,573 | $197,673 | $166,455 | ||||||
| Total assets | 827,471 | 658,551 | 522,152 | 495,592 | 377,803 | ||||||
| Total debt | |||||||||||