Cognos Reports Second Quarter Fiscal Year 2007 Financial Results

Ottawa, ON & Burlington, MA, September 21, 2006- 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 second quarter of fiscal year 2007, ended August 31, 2006.

Revenue for the second quarter was $229.9 million, compared with $212.0 million for the same period last fiscal year. License revenue was $78.0 million, compared with $78.6 million in the second quarter of last fiscal year.

Net income on a U.S. GAAP basis in the quarter was $23.8 million or $0.26 per diluted share, compared with $24.9 million or $0.27 per diluted share for the same period last fiscal year. Net income on a non-GAAP basis (excluding amortization of acquisition-related intangible assets and stock-based compensation expense) for the quarter was $30.0 million or $0.33 per diluted share, compared with $29.9 million or $0.32 per diluted share for the same period last fiscal year.

Revenue for the first six months of fiscal year 2007, ended August 31, 2006, was $446.9 million, compared with $412.1 million for the same period last fiscal year. Net income on a U.S. GAAP basis in the first six months was $38.3 million or $0.42 per diluted share, compared with $45.3 million or $0.48 per diluted share for the same period last fiscal year. Net income on a non-GAAP basis (excluding amortization of acquisition-related intangible assets and stock-based compensation expense) for the first six months of this fiscal year was $49.8 million or $0.55 per share, compared with $54.9 million or $0.59 per diluted share for the same period last fiscal year.

Second quarter non-GAAP results differ from results measured under U.S. GAAP as they exclude $1.7 million and $5.7 million of amortization of acquisition-related intangible assets and stock-based compensation expense, before taxes, respectively. This is an increase of $0.07 per share, in the aggregate, after the effect of taxes. Non-GAAP results for the first six months differ from results measured under U.S. GAAP as they exclude $3.4 million and $10.8 million of amortization of acquisition-related intangible assets and stock-based compensation expense, before taxes, respectively. This is an increase of $0.13 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.

“I am pleased with these results,” said Cognos president and chief executive officer, Rob Ashe. “Our solutions are strong. We have increased our sales capacity and taken action to streamline our organization. I believe we are very well positioned for the second half of the year and beyond.”

Mr. Ashe continued, “Our priorities for the second half of the year are to deliver improved revenue performance, margins and customer success as a result of the action we took on September 7.”

Business Outlook

The company’s outlook for the third quarter and full fiscal year 2007 assumes no significant changes in the economy, a U.S. GAAP tax rate of 24% and a Canadian dollar of $0.89 U.S. and a Euro of $1.27 U.S. for the year. It also includes third quarter restructuring charges of approximately $28 million, before taxes, associated with the company’s operating margin improvement plan announced September 7, 2006.

Management offers the following outlook for the third quarter of fiscal year 2007 ending November 30, 2006:

Expected non-GAAP diluted earnings per share for the quarter ending November 30, 2006 exclude approximately $1.7 million of amortization of acquisition-related intangible assets, approximately $5.9 million of stock-based compensation expense, and approximately $28.0 million of restructuring charges related to the company’s operating margin improvement plan announced September 7, 2006, before taxes. This is an increase of approximately $0.30 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:

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, approximately $23.3 million of stock-based compensation expense, and approximately $28.0 million of restructuring charges related to the company’s operating margin improvement plan announced September 7, 2006, before taxes. This is an increase of approximately $0.50 per share, in the aggregate, after the effect of taxes.

Cognos management will host a conference call to present results for the second quarter of fiscal year 2007 and business outlook at 5:15 p.m. Eastern Time, today, September 21, 2006.

Listeners can access the conference call at 416-640-1907 or via Webcast at http://www.cognos.com/company/investor/events/fy07q2. 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/fy07q2 following the conference call.

A replay of the conference call will be available from September 21 at 8:15 p.m. Eastern Time until October 5 at 11:59 p.m. Eastern Time. The replay can be accessed at 416-640-1917. The passcode for the replay is 21201976#.

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 third quarter of fiscal year 2007 and the full fiscal year 2007; 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, and third quarter restructuring charges; the amount and impact of amortization of acquisition-related intangible assets, stock-based compensation and restructuring charges related to our margin improvement plan; the company’s position and priorities for the second half of its fiscal year and beyond; the future modification of Non-GAAP Measures, as defined in “Discussion of Non-GAAP Financial Measures”; the exclusion of restructuring charges as part of Non-GAAP Measures in our fiscal third quarter ending November 30, 2006 and fiscal year ending February 28, 2007; 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: the impact on Cognos’ business of the delay in filing its annual and quarterly reports; Cognos’ transition to Cognos 8 and customer acceptance and implementation of Cognos 8; 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; 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 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 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 statement 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 revenues, operating margin percentage, net income and net income per diluted share, referred to respectively as “non-GAAP revenues”, “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, the amortization of acquisition-related intangible assets, the restructuring charges related to our margin improvement plan, and the impact on revenue of the write-down of acquired deferred revenue to fair value, as required by GAAP upon the acquisition of Applix, Inc., (collectively “Excluded Items”) as these items 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 revenues, expenses, gains and losses that it does not consider reflective of core operating performance in a particular period and may modify the Non-GAAP Measures by adjusting these revenues, expenses, gains and losses. Management makes these adjustments so that core operating performance reflects management’s business activities as well as changes within the software industry.

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. Management has excluded the effect of the deferred revenue adjustment to fair value upon the acquisition of Applix, Inc. as the adjustment will reduce the comparability of future periods performance when renewals occur, which will drive operating income. The Excluded Items are removed from our core operating performance because the decisions which gave rise to these revenues and 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 fiscal 2007, management also began excluding amortization of acquisition-related intangible assets when assessing appropriate adjustments for non-GAAP presentations. When we acquired Applix, Inc. in the third quarter of fiscal 2008 management began excluding the impact of charges relating to the write-down of deferred revenue when presenting our Non-GAAP Measures. While all of these items affect GAAP net income, management does not use them to assess the business’ operational performance for any particular period, and management’s short term compensation is not based on them because: each item affects multiple periods and is unrelated to business performance in a particular period; management is not able to change the items in any particular period; and the items do not contribute to the operational performance of the business for any particular period, or in the case of excluding the write-down of deferred revenue, the exclusion helps the user understand the future ongoing operational performance when the support is renewed.

In the case of stock-based compensation, as disclosed in our Annual Report on Form 10-K, Item 11, (which incorporates by reference the Corporation’s Proxy Statement, specifically the Compensation Discussion and Analysis) for the fiscal year ended February 28, 2007 (“2007 Form 10-K”), our compensation strategy is to use stock-based compensation as a key tool to align management “to make strategic decisions and to manage Cognos with a view to increasing shareholder value through an increase in Cognos’ share price over the medium and 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 at motivating or rewarding 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. 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.

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 reflected 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 Corporation’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 was intended to align our business model and expense structure to our position in the market we were experiencing, and expect to continue to experience, over the long term.

Management views the impact of the write-down of acquired deferred revenue to fair value, due to purchase accounting, as a non-recurring acquisition only adjustment, and it is not consistent with the method used by management to value the entity when it is acquired. This has the effect of increasing support revenue to the amounts that would have been recorded in the absence of the purchase accounting adjustments required by GAAP. Management’s view is that to exclude deferred revenue because of purchase accounting adversely impacts the ability to make comparisons between past and future reports of financial results, as the revenue reduction related to acquired deferred revenue will not recur when related annual software maintenance contracts are renewed in future periods. Management believes that the inclusion of the amount will render the financial statements easier for investors to understand.

Management also uses these Non-GAAP Measures to operate the business because the Excluded Items are not under the control of, and, accordingly, 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, acquisition-related deferred support revenue write-down 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, acquisition-related deferred support revenue write-down 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, the Excluded Items 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 adjusting revenues, expenses, gains and losses 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 the Excluded Items that are largely unrelated to the performance of our underlying revenue-generating operations during the period in which they 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:

Because 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.