COGN Cognos (MM)

- 24 percent license revenue growth drives Q3 revenue and earnings performance - OTTAWA & Burlington, Mass., Dec. 20 /PRNewswire-FirstCall/ -- Cognos Incorporated (NASDAQ:COGN) (TSX: CSN) (all figures in U.S. dollars), the world leader in business intelligence (BI) and performance management solutions, today announced financial results for its third quarter of fiscal year 2007, ended November 30, 2006. Revenue for the third quarter was $247.8 million, compared with $212.3 million for the same period last fiscal year, an increase of 17 percent. License revenue was $94.0 million, compared with $75.5 million in the third quarter of last fiscal year, an increase of 24 percent. Net income in the quarter on a U.S. GAAP basis was $16.5 million or $0.18 per diluted share, compared with $24.0 million or $0.26 per diluted share for the same period last fiscal year. Net income in the quarter on a non-GAAP basis (excluding amortization of acquisition-related intangible assets, stock- based compensation expense and restructuring charges) was $43.1 million or $0.48 per diluted share, compared with $29.5 million or $0.32 per diluted share for the same period last fiscal year. Revenue for the first nine months of fiscal year 2007, ended November 30, 2006, was $694.7 million, compared with $624.4 million for the same period last fiscal year, an increase of 11 percent. License revenue for the nine- month period was $245.7 million, compared with $225.3 million for the same period last fiscal year, an increase of 9 percent. Net income on a U.S. GAAP basis in the nine-month period was $54.8 million or $0.61 per diluted share, compared with $69.3 million or $0.74 per diluted share for the same period last fiscal year. Net income for the nine-month period on a non-GAAP basis (excluding amortization of acquisition-related intangible assets, stock-based compensation expense and restructuring charges) was $93.0 million or $1.03 per share, compared with $84.4 million or $0.91 per diluted share for the same period last fiscal year. Third quarter non-GAAP results differ from results measured under U.S. GAAP as they exclude $1.7 million of amortization of acquisition-related intangible assets, $7.1 million of stock-based compensation expense and $26.9 million of restructuring charges, before taxes. Compared to the GAAP results, this is an increase of $0.30 per share, in the aggregate, after the effect of taxes. Non-GAAP results for the first nine months differ from results measured under U.S. GAAP as they exclude $5.1 million of amortization of acquisition-related intangible assets, $18.0 million of stock-based compensation expense and $26.9 million of restructuring charges, before taxes. Compared to the GAAP results, this is an increase of $0.42 per share, in the aggregate, after the effect of taxes. A reconciliation of U.S. GAAP to non- GAAP results is included at the end of this press release. Cognos' balance sheet remains strong. Third quarter operating cash flow was $23.5 million. As a result, the company exited the quarter with $599.3 million in cash, cash equivalents, and short-term investments. Days sales outstanding (DSOs) for accounts receivable were also strong at 61 days in the quarter. "I am pleased with the performance of our team this quarter," said Cognos president and chief executive officer, Rob Ashe. "In particular, 24 percent license revenue growth, significantly improved margins and earnings, and continued strong momentum for our product and solution set is a testament to the hard work and focus of the entire Cognos team." Recent Highlights: * 24 percent license revenue growth in the third quarter, driven by strong Cognos 8 performance * 11 contracts greater than $1 million in the third quarter, reflecting continued strong large deal performance * IBM selected Cognos 8 Workforce Performance for its Human Resources Business Transformation Outsourcing (BTO) Workforce Analytics solution - the second multi-million dollar contract for this product with a leading Business Process Outsourcer * Announced Cognos 8 Go! Mobile Mr. Ashe continued, "We enter our fourth quarter with a continued commitment to customer success, a healthy pipeline, a strong solution set led by Cognos 8, and an expanding Performance Management market opportunity. I feel very good about our business and our opportunity moving forward." Business Outlook The company's outlook for the fourth quarter and full fiscal year 2007 assumes no significant changes in the economy, a U.S. GAAP tax rate of 22.5 percent and a Canadian dollar of $0.87 U.S. and a Euro of $1.32 U.S. for the remainder of the year. Management offers the following outlook for the fourth quarter of fiscal year 2007 ending February 28, 2007: * Revenue is expected to be in the range of $270 million to $280 million * U.S. GAAP diluted earnings per share are expected to be in the range of $0.54 to $0.60 * Non-GAAP diluted earnings per share are expected to be in the range of $0.61 to $0.67 Expected non-GAAP diluted earnings per share for the quarter ending February 28, 2007 exclude approximately $1.7 million of amortization of acquisition-related intangible assets and approximately $6.7 million of stock- based compensation expense, before taxes. This is an increase of approximately $0.07 per share, in the aggregate, after the effect of taxes. Management offers the following outlook for the full fiscal year 2007 ending February 28, 2007: * Revenue is expected to be in the range of $965 million to $975 million * U.S. GAAP diluted earnings per share are expected to be in the range of $1.14 to $1.20 * Non-GAAP diluted earnings per share are expected to be in the range of $1.64 to $1.70 Expected non-GAAP diluted earnings per share for fiscal year 2007 ending February 28, 2007, exclude approximately $6.8 million of amortization of acquisition-related intangible assets and approximately $24.7 million of stock-based compensation expense, and $26.9 million of restructuring charges, before taxes. This is an increase of approximately $0.50 per share, in the aggregate, after the effect of taxes. The company's current planning parameters for fiscal year 2008 include 10 percent revenue growth and operating margins of approximately 16 percent on a GAAP basis and approximately 20 percent on a non-GAAP basis. Cognos management will host a conference call to present results for the third quarter of fiscal year 2007 and business outlook at 5:15 p.m. Eastern Time, today, December 20, 2006. Listeners can access the conference call at 416-640-1907 or via Webcast at http://www.cognos.com/company/investor/events/fy07q3. Presentation slides for the call can be accessed at the Investor Relations area of the Cognos Web site approximately 15 minutes prior to the start of the call. An archive of the Webcast can be accessed at http://www.cognos.com/company/investor/events/fy07q3 following the conference call. A replay of the conference call will be available from December 20 at 8:15 p.m. Eastern Time until January 3 at 11:59 p.m. Eastern Time. The replay can be accessed at 416-640-1917. The passcode for the replay is 21211370#. Safe Harbor for Forward-Looking Statements Certain statements made in this press release that are not based on historical information (including those in the section entitled "Business Outlook") are forward-looking statements which are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 and Section 138.4(9) of the Ontario Securities Act. Such forward-looking statements relate to, among other things, the company's expectations with respect to revenue and earnings per share (on both a GAAP and non-GAAP basis) for the fourth quarter of fiscal year 2007 and the full fiscal year 2007; planning parameters for fiscal year 2008 revenue and operating margins; the assumptions set out in the "Business Outlook" including those relating to the economy, U.S. GAAP tax rate, the exchange rate for the Canadian dollar and Euro in U.S. currency; the amount and impact of amortization of acquisition- related intangible assets, stock-based compensation and restructuring charges; the company's pipeline, market opportunity and drivers of its market; and other matters. Certain assumptions were applied in making the forward-looking statements, such as the business outlook, and material assumptions are set out above in the section entitled "Business Outlook." These forward-looking statements are neither promises nor guarantees, but involve risks, factors and uncertainties that may cause actual results to differ materially from those in the forward-looking statements. Factors that may cause such differences include, but are not limited to: a continuing increase in the number of larger customer transactions and the related lengthening of sales cycles and challenges in executing on these sales opportunities; Cognos' transition to Cognos 8 and customer acceptance and implementation of Cognos 8; the incursion of enterprise resource planning and other major software companies into the BI market; continued BI and software market consolidation and other competitive changes in the BI and software market; currency fluctuations; the company's ability to identify, hire, train, motivate, and retain highly qualified management/other key personnel (including sales personnel) and its ability to manage changes and transitions in management/other key personnel; the impact of the implementation of SFAS No. 123R; the company's ability to predict the impact of its margin improvement plan on expenses, employee retention and other matters; the company's ability to develop, introduce and implement new products as well as enhancements or improvements for existing products that respond to customer/product requirements and rapid technological change; the impact of global economic conditions on the company's business; the company's ability to maintain or accurately forecast revenue or to anticipate and accurately forecast a decline in revenue from any of its products or services; the company's ability to compete in an intensely competitive market; new product introductions and enhancements by competitors; the company's ability to select and implement appropriate business models, plans and strategies and to execute on them; fluctuations in the company's quarterly and annual operating results; fluctuations in the company's tax exposure; the impact of natural disasters on the overall economic condition of North America; unauthorized use or misappropriation of the company's intellectual property; claims by third parties that the company's software infringes their intellectual property; the risks inherent in international operations, such as the impact of the laws, regulations, rules and pronouncements of foreign jurisdictions and their interpretation by foreign courts, tribunals, regulatory and similar bodies; the company's ability to identify, pursue, and complete acquisitions with desired business results; the existence of regulatory barriers to integration; the impact of the implementation of changes in the application of accounting pronouncements and interpretations; as well as the risk factors discussed in the company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, filed with the United States Securities and Exchange Commission ("SEC") and the Canadian Securities Administrators ("CSA"), as well as other periodic reports filed with the SEC and the CSA. Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date they are made. The company disclaims any obligation to publicly update or revise any such statements to reflect any change in its expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. Discussion of Non-GAAP Financial Measures In addition to our GAAP results, Cognos discloses adjusted operating margin percentage, net income and net income per share, referred to respectively as "non-GAAP operating margin percentage," "non-GAAP net income," and "non-GAAP net income per diluted share." These items, which are collectively referred to as "Non-GAAP Measures," exclude the impact of stock- based compensation and the amortization of acquisition-related intangible assets. The Non-GAAP measures also exclude the restructuring charges related to our margin improvement plan announced September 7, 2006 as these charges are considered non-recurring. From time to time, subject to the review and approval of the audit committee of the Board of Directors, management may make other adjustments for expenses and gains that it does not consider reflective of core operating performance in a particular period and may modify the Non- GAAP Measures by excluding these expenses and gains. Management defines its core operating performance to be the revenues recorded in a particular period and the expenses incurred within that period which management has the capability of directly affecting in order to drive operating income. Non-cash stock-based compensation, amortization of acquisition-related intangible assets and restructuring charges are excluded from our core operating performance because the decisions which gave rise to these expenses were not made to drive revenue in a particular period, but rather were made for our long term benefit over multiple periods. While strategic decisions, such as the decisions to issue stock-based compensation, to acquire a company or to restructure the organization, are made to further our long term strategic objectives and do impact our income statement under GAAP, these items affect multiple periods and management is not able to change or affect these items within any particular period. Therefore, management excludes these impacts in its planning, monitoring, evaluation and reporting of our underlying revenue-generating operations for a particular period. Prior to the adoption of FAS 123R on March 1, 2006, the beginning of our fiscal year 2007, management's practice was to exclude stock-based compensation internally to evaluate performance. With the adoption of FAS 123R, management concluded that the Non-GAAP Measures could provide relevant disclosure to investors as contemplated by Staff Accounting Bulletin 107. As of the beginning of our current fiscal year, management also began excluding amortization of acquisition-related intangible assets when assessing appropriate adjustments for non-GAAP presentations. While both of these items are recurring and affect GAAP net income, management does not use them to assess the business' operational performance for any particular period because: each item affects multiple periods and is unrelated to business performance in a particular period; management is not able to change either item in any particular period; and neither item contributes to the operational performance of the business for any particular period. In the case of stock-based compensation, as disclosed in our Annual Report on Form 10-K for the fiscal year ended February 28, 2006 ("2006 Form 10-K"), our compensation strategy is to use stock-based compensation "as a key tool for ensuring that key employees and executives are engaged and motivated to remain at the Company for the long term." Whether the grant of stock options or Restricted Share Units are part of a Key Employee grant, are merit based or are granted based on meeting specific performance criteria in a measurement period, these grants vest over time and are aimed at long-term employee retention, rather than to motivate or reward operational performance for any particular period. Thus, stock-based compensation expense varies for reasons that are generally unrelated to operational performance in any particular period. As further discussed in our 2006 Form 10-K, we use annual cash bonus payouts for executives and other employees to motivate and reward annual operational performance in the areas of revenue and operating margin achievement. Since the beginning of fiscal year 2007, operating margin achievement has been measured on a non-GAAP basis, excluding stock-based compensation and amortization of acquisition-related intangible asset expenses. Management views amortization of acquisition-related intangible assets, such as the amortization of an acquired company's research and development efforts, customer lists and customer relationships, as items arising during the time that preceded the acquisition. It is a cost that is determined at the time of the acquisition. While it is continually viewed for impairment, amortization of the cost is a static expense, one that is typically not affected by operations during any particular period and does not contribute to operational performance in any particular period. The margin improvement plan reflects a fundamental realignment of our business, including significant personnel reductions within higher levels of management. The restructuring charges are excluded in our Non-GAAP Measures because they are significantly different in magnitude and character from routine personnel adjustments that management makes when monitoring and conducting the Company's core operations during any particular period. The restructuring decision and related expenses are not related to operating performance for any particular period, and are not subject to change by management in any particular period. Instead, the restructuring is intended to align our business model and expense structure to our position in the market we are experiencing, and expect to experience, over the long term. Management also uses these Non-GAAP Measures to operate the business because the excluded expenses are not under the control of, and accordingly are not used in evaluating the performance of, operations personnel within their respective areas of responsibility. In the case of stock-based compensation expense, the award of stock options is governed by the human resources and compensation committee of the Board of Directors. With respect to acquisition-related intangible assets and charges associated with the margin improvement plan, these charges arise from acquisitions and a restructuring that are the result of strategic decisions which are not the responsibility of most levels of operational management. The restructuring charges, like our stock-based compensation charges and amortization of acquisition-related intangible assets, are excluded in management's internal evaluations of our operating results and are not considered for management compensation purposes. Ultimately, stock-based compensation, amortization of acquisition-related intangible assets and restructuring expenses are incurred to further our long- term strategic objectives, rather than to achieve operational performance objectives for any particular period. As such, supplementing GAAP disclosure with non-GAAP disclosure using the Non-GAAP Measures provides management with an additional view of operational performance by excluding expenses that are not directly related to performance in any particular period. Further, management considers this supplemental information to be beneficial to shareholders because it shows our operating performance without the impact of charges that are largely unrelated to the performance of our underlying revenue-generating operations during the period in which the charges are recorded. Including such disclosure in our filings also provides investors with greater transparency on period-to-period performance and the manner in which management views, conducts and evaluates the business. Because the Non-GAAP Measures are not calculated in accordance with GAAP, they are used by management as a supplement to, and not an alternative to, or superior to, financial measures calculated in accordance with GAAP. There are a number of limitations on the Non-GAAP Measures, including the following: * The Non-GAAP Measures do not have standardized meanings and may not be comparable to similar non-GAAP measures used or reported by other software companies. * The Non-GAAP Measures do not reflect all costs associated with our operations determined in accordance with GAAP. For example: - Non-GAAP operating margin performance and non-GAAP net income do not include stock-based compensation expense related to equity awards granted to our workforce. Cognos' stock incentive plans are important components of our employee incentive compensation arrangements and are reflected as expenses in our GAAP results under FAS 123R. While we include the dilutive impact of such equity awards in weighted average shares outstanding, the expense associated with stock-based awards is excluded from our Non-GAAP Measures. - While amortization of acquisition-related intangible assets does not directly impact our current cash position, such expense represents the declining value of the technology or other intangible assets that we have acquired. These assets are amortized over their respective expected economic lives or impaired, if appropriate. The expense associated with this decline in value is excluded from our non-GAAP disclosures and therefore our Non-GAAP Measures do not include the costs of acquired intangible assets that supplement our research and development. - Restructuring charges primarily represent severance charges associated with our margin improvement plan which was announced September 7, 2006. These charges are a significant expense from a GAAP perspective and the costs associated with the restructuring would be operational in nature absent the margin improvement plan. Most of the charges are cash expenditures which are excluded from our Non-GAAP Measures. * Excluded expenses for stock-based compensation and amortization of acquisition-related intangible assets will recur and will impact our GAAP results. While restructuring costs are non-recurring activities, their occasional occurrence will impact GAAP results. As such, the Non-GAAP Measures should not be construed as an inference that the excluded items are unusual, infrequent or non-recurring. As a result of these limitations, management recognizes that the Non-GAAP Measures should not be considered in isolation or as an alternative to our results as reported under GAAP. Management compensates for theses limitations by relying on the Non-GAAP Measures only as a supplement to our GAAP results. About Cognos: Cognos, the world leader in business intelligence and performance management solutions, provides world-class enterprise planning and BI software and services to help companies plan, understand and manage financial and operational performance. Cognos brings together technology, analytical applications, best practices, and a broad network of partners to give customers a complete performance system. The Cognos performance system is an open and adaptive solution that leverages an organization's ERP, packaged applications, and database investments. It gives customers the ability to answer the questions - How are we doing? Why are we on or off track? What should we do about it? - and enables them to understand and monitor current performance while planning future business strategies. Cognos serves more than 23,000 customers in more than 135 countries, and its top 100 enterprise customers consistently outperform market indexes. Cognos performance management solutions and services are also available from more than 3,000 worldwide partners and resellers. For more information, visit the Cognos Web site at http://www.cognos.com/. Cognos and the Cognos logo are trademarks or registered trademarks of Cognos Incorporated in the United States and/or other countries. All other names are trademarks or registered trademarks of their respective companies. SUPPLEMENTARY INFORMATION (unaudited): FY 2006 FY 2007 Q3 Q4 Q1 Q2 Q3 Total License Revenue ($000s) 75,510 117,942 73,735 78,005 93,994 Year-Over-Year License Revenue Growth (18)% (9)% 4 % (1)% 24 % Geographic Distribution: Total Revenue ($000s) Americas 122,171 147,560 129,913 137,155 140,783 Europe 72,972 87,474 72,225 72,311 85,788 Asia/Pacific 17,111 18,095 14,902 20,424 21,228 % of Total Americas 58 % 58 % 60 % 60 % 56 % Europe 34 % 35 % 33 % 31 % 35 % Asia/Pacific 8 % 7 % 7 % 9 % 9 % Year-Over-Year Revenue Growth - Total Americas 1 % 5 % 12 % 12 % 15 % Europe 5 % (7)% 9 % 7 % 18 % Asia/Pacific (12)% (14)% (18)% (7)% 24 % Year-Over-Year Revenue Growth - In Local Currency Americas 0 % 3 % 11 % 11 % 15 % Europe 14 % 4 % 11 % 2 % 8 % Asia/Pacific (10)% (9)% (15)% (7)% 20 % Orders (License, Support, Services) > $1M 7 18 13 10 11 > $200K 115 242 118 120 140 > $ 50K 737 1,241 728 819 806 Average Selling Price (License Orders Only) ($000s) > $ 50K 157 192 186 181 222 New vs Existing License Revenue - % of Total New 29% 27% 29% 31% 23% Existing 71% 73% 71% 69% 77% Channel - License Revenue - % of Total Direct 72% 77% 70% 72% 73% Third Party 28% 23% 30% 28% 27% Other Statistics Cash, cash equivalents, and short-term investments ($000s) 483,259 551,002 610,184 618,084 599,273 Days sales outstanding 66 77 58 57 61 Total employees 3,566 3,574 3,622 3,662 3,494 COGNOS INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (US$000s except share amounts, U.S. GAAP) (Unaudited) Three months ended Nine months ended November 30, November 30, 2006 2005 2006 2005 Revenue Product license $ 93,994 $ 75,510 $245,734 $225,305 Product support 107,771 94,430 311,214 274,997 Services 46,034 42,314 137,781 124,069 Total revenue 247,799 212,254 694,729 624,371 Cost of revenue Cost of product license 1,773 1,732 4,975 4,363 Cost of product support 12,977 9,192 35,588 27,102 Cost of services 44,586 33,120 121,907 98,122 Total cost of revenue 59,336 44,044 162,470 129,587 Gross margin 188,463 168,210 532,259 494,784 Operating expenses Selling, general, and administrative 137,663 110,753 373,236 325,795 Research and development 36,436 28,287 103,584 87,572 Amortization of acquisition-related intangible assets 1,701 1,684 5,104 4,958 Total operating expenses 175,800 140,724 481,924 418,325 Operating income 12,663 27,486 50,335 76,459 Interest and other income, net 6,567 3,788 17,794 9,619 Income before taxes 19,230 31,274 68,129 86,078 Income tax provision 2,687 7,264 13,288 16,796 Net income $ 16,543 $ 24,010 $ 54,841 $ 69,282 Net income per share Basic $0.19 $0.27 $0.61 $0.76 Diluted $0.18 $0.26 $0.61 $0.74 Weighted average number of shares (000s) Basic 89,373 90,410 89,662 90,744 Diluted 90,187 92,288 90,412 92,997 COGNOS INCORPORATED CONSOLIDATED BALANCE SHEETS (US$000s, U.S. GAAP) (Unaudited) November 30, February 28, 2006 2006 Assets Current assets Cash and cash equivalents $ 258,277 $ 398,634 Short-term investments 340,996 152,368 Accounts receivable 169,036 216,850 Income taxes receivable 7,363 1,363 Prepaid expenses and other current assets 22,497 31,978 Deferred tax assets 11,686 12,936 809,855 814,129 Fixed assets, net 75,406 75,821 Intangible assets, net 17,338 22,125 Other assets 6,035 6,096 Deferred tax assets 7,292 6,928 Goodwill 224,383 225,709 $1,140,309 $1,150,808 Liabilities Current liabilities Accounts payable $27,776 $33,975 Accrued charges 37,971 30,799 Salaries, commissions, and related items 90,407 73,229 Income taxes payable 4,913 6,009 Deferred income taxes 5,871 4,118 Deferred revenue 197,672 246,562 364,610 394,692 Deferred income taxes 32,578 30,344 397,188 425,036 Stockholders' Equity Capital stock Common shares and additional paid-in capital(November 30, 2006 - 89,380,506; February 28, 2006 - 89,826,706) 489,193 439,680 Treasury shares (November 30, 2006 - 558,204; February 28, 2006 - 55,970) (19,471) (1,563) Retained earnings 268,948 283,168 Accumulated other comprehensive income 4,451 4,487 743,121 725,772 $1,140,309 $1,150,808 COGNOS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (US$000s, U.S. GAAP) (Unaudited) Three months ended Nine months ended November 30, November 30, 2006 2005 2006 2005 Cash flows from operating activities Net income $ 16,543 $ 24,010 $ 54,841 $69,282 Non-cash items Depreciation and amortization 8,101 7,304 22,701 21,709 Amortization of deferred stock-based compensation 5,523 5,055 15,266 13,695 Deferred income taxes 1,669 2,053 6,437 (39) Loss (gain) on disposal of fixed assets (200) 82 316 355 31,636 38,504 99,561 105,002 Change in non-cash working capital Decrease (increase) in accounts receivable (23,191) (16,851) 53,084 28,113 Increase in income tax receivable (184) - (5,976) - Decrease in prepaid expenses and other current assets 3,206 862 10,619 1,699 Increase (decrease) in accounts payable 3,313 4,470 (6,683) (4,554) Increase (decrease) in accrued charges 4,444 (352) 5,702 (5,726) Increase (decrease) in salaries, commissions, and related items 23,517 (1,919) 14,922 (32,437) Increase (decrease) in income taxes payable (2,439) 502 (1,588) (18,789) Decrease in deferred revenue (16,846) (15,900) (57,414) (39,546) Net cash provided by operating activities 23,456 9,316 112,227 33,762 Cash flows from investing activities Maturity of short-term investments 142,608 86,244 519,577 332,779 Purchase of short-term investments (281,429) (216,233) (705,551) (414,356) Additions to fixed assets (4,263) (6,157) (15,178) (17,074) Additions to intangible assets (366) (216) (1,062) (657) Decrease (increase) in other assets 87 235 (132) 115 Acquisition costs, net of cash and cash equivalents - (4,677) - (4,546) Net cash used in investing activities (143,363) (140,804) (202,346) (103,739) Cash flows from financing activities Issue of common shares 27,298 8,463 40,809 26,049 Purchase of treasury shares (15,913) - (18,458) (177) Repurchase of shares (50,075) (24,435) (75,073) (73,383) Net cash used in financing activities (38,690) (15,972) (52,722) (47,511) Effect of exchange rate changes on cash (625) (522) 2,484 (3,730) Net decrease in cash and cash equivalents (159,222) (147,982) (140,357) (121,218) Cash and cash equivalents, beginning of period 417,499 405,112 398,634 378,348 Cash and cash equivalents, end of period 258,277 257,130 258,277 257,130 Short-term investments, end of period 340,996 226,129 340,996 226,129 Cash, cash equivalents, and short-term investments, end of period $599,273 $483,259 $599,273 $483,259 Cognos Incorporated Unaudited Reconciliation of Non-GAAP Adjustments (US$000s except share amounts, U.S. GAAP) The following tables reflect selected Cognos' non-GAAP results reconciled to GAAP results: Three months ended Nine months ended November 30, November 30, 2006 2005 2006 2005 Operating Income GAAP Operating Income $12,663 $27,486 $ 50,335 $ 76,459 Plus: Amortization of acquisition-related intangible assets 1,701 1,684 5,104 4,958 Stock-based compensation expense 7,126 5,056 17,961 13,696 Restructuring charge 26,898 - 26,898 - Non-GAAP Operating Income $48,388 $34,226 $100,298 $ 95,113 Operating Margin Percentage GAAP Operating Margin Percentage 5.1% 12.9% 7.2% 12.2% Plus: Amortization of acquisition-related intangible assets 0.7 0.8 0.7 0.8 Stock-based compensation expense 2.9 2.4 2.6 2.2 Restructuring charge 10.8 - 3.9 - Non-GAAP Operating Margin Percentage 19.5% 16.1% 14.4% 15.2% Net Income GAAP Net Income $16,543 $24,010 $ 54,841 $69,282 Plus: Amortization of acquisition-related intangible assets 1,701 1,684 5,104 4,958 Stock-based compensation expense 7,126 5,056 17,961 13,696 Restructuring charge 26,898 - 26,898 - Less: Income tax effect of amortization of acquisition-related intangible assets (645) (624) (1,916) (1,873) Income tax effect of stock-based compensation expense (2,108) (605) (3,567) (1,638) Income tax effect of restructuring charge (6,371) - (6,371) - Non-GAAP Net Income $43,144 $29,521 $ 92,950 $ 84,425 Net Income per diluted share GAAP Net Income per diluted share $ 0.18 $0.26 $ 0.61 $ 0.74 Plus: Amortization of acquisition-related intangible assets 0.02 0.02 0.05 0.05 Stock-based compensation expense 0.08 0.06 0.20 0.15 Restructuring charge 0.30 - 0.30 - Less: Income tax effect of amortization of acquisition-related intangible assets (0.01) (0.01) (0.02) (0.02) Income tax effect of stock-based compensation expense (0.02) (0.01) (0.04) (0.01) Income tax effect of restructuring charge (0.07) - (0.07) - Non-GAAP Net Income per diluted share $0.48 $0.32 $1.03 $ 0.91 Shares used in computing diluted net income per share 90,187 92,288 90,412 92,997 The following table shows the classification of stock-based compensation expense: Three months ended Nine months ended November 30, November 30, 2006 2005 2006 2005 Cost of Product Support $94 $130 $255 $361 Cost of Services 214 249 560 650 Selling, General and Administrative 6,311 3,616 15,716 9,739 Research and Development 507 1,061 1,430 2,946 Total $7,126 $5,056 $17,961 $13,696 The following table shows the classification of the restructuring charge: Three months ended November 30, 2006 Cost of Product Support $ 1,351 Cost of Services 5,361 Selling, General and Administrative 15,256 Research and Development 4,930 Total $26,898 COGNOS INCORPORATED Reconciliation of U.S. GAAP to Non-GAAP Diluted Earnings per Share for Business Outlook (Unaudited) Three Months ending Twelve Months ending February 28, 2007 February 28, 2007 Projected US GAAP Diluted Earnings per Share $0.54 - $0.60 $1.14 - $1.20 Plus: Amortization of acquisition-related intangible assets 0.02 0.08 Stock-based compensation expense 0.07 0.27 Restructuring Charge - 0.30 Less: Income tax effect of non-GAAP adjustments (0.02) (0.15) Projected non-GAAP Diluted Earnings per Share $0.61 - $0.67 $1.64 - $1.70 Reconciliation of U.S. GAAP to Non-GAAP Projected Operating Margin Percentage (Unaudited) Twelve Months ending February 28, 2008 Projected US GAAP Operating Margin Percentage 16.0% Plus: Amortization of acquisition-related intangible assets 1.0% Stock-based compensation expense 3.0% Projected non-GAAP Operating Margin Percentage 20.0% DATASOURCE: Cognos Incorporated CONTACT: Web site: http://www.cognos.com/

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