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					    Cognos, Inc.
      (NYSE: COGN)

     Analyst Report
             by

     Geoff Munger
Manager, Student Managed Fund
     MBA Class of 2004
  University of Connecticut
Highlights

Sector: Information Technology
Industry: Computer Software and Services
Valueline: Timeliness 3, Safety 3, Technical 4
Beta: 1.20
Market Cap: $3.111 Billion (Mid-Cap)

Updated: October 29, 2003

                                                            Cognos, Inc.
Data Sources:                                               3755 Riverside Drive
Bloomberg                                                   Ottawa, Ontario
Valueline Investment Survey                                 Canada K1G 4K9
www.moneycentral.com                                        Ticker Symbol:
www.smartmoney.com                                          COGN
www.quicken.com                                             Listed Exchanges:
www.investopedia.com                                        New York Stock Exchange (NYSE)
www.investorwords.com                                       Toronto Stock Exchange (TSX)
http://finance.yahoo.com/?u                                 Business Listings:
                                                            Employees:
                                                            2,926




      2002 Top 12 Most Influential Enterprise Software Companies by Intelligent Enterprise
       Magazine

      Selected as an index component of the Dow Jones Sustainability World Indexes for 2002.
       DJSI World was established to track the performance of the top 10% of the biggest 2500
       companies in the Dow Jones Global Index which lead their field in terms of corporate
       sustainability.

      Metagroup (leading provider of IT research) ranked Cognos one of the 19 leading
       companies in business intelligence in a report dated April 2003. The leaders were
       selected based on their robust product lines and financial strength in the market.
   1-Year Cumulative Returns Chart for COGN (compared to the S&P 500)




Last trade          34.75 (10/29/03)        Volume               485,962
Change              +0.31 (+.90%)           Average volume       848,100
Bid/Ask             NA                      Mkt. Cap (million)   $3.111 Billion
Open                34.26                   P/E                  38.70
Previous close      34.44                   Div. yield           NA
Day’s range         34.16 – 34.95           Annual Div./share    NA
52-week range       19.50 – 35.33           Market               NYSE



Morningstar Stock Grades
  Growth                                A
  Profitability                        A+
  Financial Health                      A
Morningstar Recommendations
  Buy                                  10
  Outperform                           15
  Hold                                 13
  Underperform                          1
  Sell                                  1
Analyst Ratings
  Adams Harkness              Buy
  SG Cowen                    Strong Buy
  WR Hambrecht                Buy
  Pacific Crest               Buy
Company Overview


Cognos Incorporated is a global provider of business intelligence software. The Company's
solution helps 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 its 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. Its integrated solution
consists of its suite of business intelligence components, analytical applications and performance
management applications.

Cognos is the only company to support all of these key management activities with a complete
solution that spans all of the essential components of CPM—enterprise planning, scorecarding,
and business intelligence. Business intelligence solutions make up 90% of Cognos’ revenue.

Recent News___________________________________________

Earnings
Cognos reported net income of $18.2 million, or 20 cents per share, for the quarter ended Aug.
31, up 32% from the same period a year ago. Sales were up 23% year over year to $158.2
million. In addition, Cognos has met or exceeded its earnings estimates in each of the past 5
quarters.

Acquisition
Cognos, Inc. acquired Adaytum, Inc. on January 10, 2003. The acquisition enhances its
enterprise planning offering, an essential component of Corporate Performance Management
(CPM) for large companies. Leveraging enterprise business intelligence with enterprise planning
completes the Cognos vision for CPM. The ability to offer the full closed-loop CPM (planning,
budgeting, monitoring, analysis, and reporting) cycle from a single vendor strengthens the value
of our product offering and enhances the execution of our CPM strategy. This was a significant
acquisition, but it had a minimal impact on the operating results during fiscal 2003, as it closed
only seven weeks prior to the fiscal year end. Cognos anticipates that during fiscal 2004 and
beyond, the acquisition will have a more significant impact upon operations.

New Product
On September 9 of this year, Cognos announced the worldwide launch of ReportNet, an all-in-
one reporting software. Cognos ReportNet offers a Web-based report and query authoring
environment, extensive multi-lingual support and Web Services-based architecture to meet the
needs of today's multi-national, diversified enterprises and to dramatically reduce total cost of
ownership.

ReportNet has strengthened the relationship between Cognos and IBM and was selected within
three weeks of its launch by IBM, Alfred Publishing, Pfizer Japan, First Citizens Bank, and
Fujisawa, among others.
For more information on ReportNet, see the following link:
http://www.cognos.com/products/businessintelligence/reporting/index.html


                                                                                Cognos has more than 22,000 customers
             Global Customer Base 2002
         (percent of revenue from each area)                                    located in more than 135 countries. The
                                                                                numbers to the left are the percentages of
                   7%                                                           fiscal year 2003 revenues of $551 million
                                                       North America
                                                                                in each of three major regions.
        31%                                            Europe Region

                                   62%                 Asian/Pacific
                                                       Region




                            COGNOS BUSINESS SYSTEM ANALYSIS


   Product Design          Development                     Usability                  Marketing                 Sales and
                                                                                                                Distribution



                                                      •Conducts formal
  •World Leader in BI      •Future Success
                                                      usability testing in state   •Complete and focused      •Use an international,
  and Performance          hinges on the ability
                                                      of the art Usability Lab     marketing effort divided   multi-tiered channel
  Planning Software        to continue to identify,
                                                                                   into two groups:           distribution system to
                           hire, motivate and         •Ensures products are
  •Customers in over                                                               Corporate Marketing        reach customers on a
                           retain skilled and         tested by participating
  135 different                                                                    and Field Marketing        cost effective basis
                           experienced                customers in their
  countries                                                                        •Increasing Cognos         •Support the channels
                           personnel                  environments prior to
  •Offers a unique one-                               sale                         brand awareness and        with an extensive
                           •Formalized
  stop shopping                                                                    visibility through         organization of pre-
  solution for all key
                           education practices in     •Unparalleled customer       advertising, events,       and post- sales
                           order to ensure new        service accompanies          sponsorship, website,      specialists
  management
                           staff are fully            any purchase from
  activities (CPM –                                                                and sales collateral
                                                                                                              •Sales channels
                           productive as soon as      Cognos (awarded as
  Corporate
                           possible                   one of the 10 best web       •Marketing staff also      include: Direct Sales
  Performance
                                                      sites in North America       responsible for sales      (Primary target =
  Management)              •Continued high
                                                      for superior customer        lead generation and        Global 3500
                           investment in R&D to
  •Allows companies to                                support)                     local marketing            Companies), Third-
                           keep up with rapid                                      programs such as trade     Parties, and
  manage their full
  business cycle from
                           change in the industry     •Software is simple to       shows, seminars, and       Telesales
                                                      manage, scalability to
  planning and             •Aim at enhancing                                       conferences.
                                                      support hundreds of
  budgeting to reporting   and extending their BI
  and analysis.            solution and creating      thousands of users and
                           new products               can be easily integrated
                                                      with any application or
                                                      environment
Competition___________________________________________________

Company                            Ticker           Timeliness       Safety        Technical          Beta     Scouter
                                                                                                               Ranking
Cognos             COGN              3               3           4                                      1.20      10
Incorporated
Microsoft          MSFT              3               2           3                                      1.15        8
Corporation
Oracle             ORCL              3               3           4                                      1.25        7
Corporation
PeopleSoft         PSFT              --              3           --                                     1.50        6
Incorporated
Siebel Systems SEBL                  3               3           3                                      1.70        6
Inc.
Timeliness, Safety, and Technical Ratings gathered from www.valueline.com.
Beta information gathered from www.valueline.com.
The Scouter Ranking information gathered from www.moneycentral.com.


Growth Trends

Revenue and Net Income:
                                                                                  Revenue has been increasing steadily,
                    Cognos Revenue and Net Income (over past 5
                                     years)                                       with the exception of a 1% decrease in
                                                                                  fiscal 2002. Net Income has likewise
                   600                                       551
                                           495.7    491.3
                                                                                  been increasing, except in 2002 when it
                   500
                                                                                  dipped significantly from $64.3 Million
                                  385.6
   (in millions)




                   400
                         301.1                                                    to $19.4 Million.
                                                                     Revenue
                   300
                                                                     Net Income
                   200
                                                                                  The results for fiscal 2002 include
                           58.4     58.8     64.3             73.1
                   100
                                                      19.4                        special charges of $33.4 million. These
                    0
                                                                                  special charges include a net business
                          1999     2000     2001     2002    2003
                                                                                  restructuring charge of $10.2 million
and a $23.2 million charge for settlement of a patent litigation action. Excluding the effect of
these items, net income for fiscal 2002 would have been $43.4 million.
Net Profit Margin

                    Cognos Net Profit Margin                           Although Net Profit Margin declined
                      (over past 5 years)
                                                                       during the years 1999-2002, the trend
   25.0%                                                               has turned around. Cognos continues to
              19.4%
   20.0%                    15.2%
   15.0%
                                      13.0%                  13.3%     show strong performance in fiscal 2004.
   10.0%
                                                  3.9%
    5.0%
    0.0%
              1999          2000      2001        2002        2003
                                      Year




Earnings per Share (EPS):

                                                                     Cognos    is   expected   to   significantly
               Projected 5-Year Grow th Rate
                                                                     outperform its major competitors over the
  20.0%    18.2%                                     18.8%
  18.0%                                                              next 5 years.      Its EPS has increased
  16.0%                              13.7%
  14.0%             11.9%                    11.7%
                                                                     steadily, with the exception of fiscal year
                             11.0%
  12.0%
  10.0%                                                       7.4%
                                                                     2002. EPS is projected to increase from
   8.0%
   6.0%                                                              .81 in fiscal 2003 to .94 in fiscal 2004 and
   4.0%
   2.0%                                                              1.12 in fiscal 2005.
   0.0%
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Management Performance

Note when looking at the following charts:

December 21, 2000
Cognos, Inc. reported weak fiscal third quarter earnings and warned that earnings for the fourth
quarter of fiscal 2001 and for all of fiscal 2002 will be below expectations. The Company
trimmed its profit outlook for each period by approximately 10%, citing decreased visibility as
the primary reason for the anticipated shortfall.


This significant announcement caused the stock price to plummet from $26.94 to $19.50 in one
day. In addition, the numbers from fiscal 2002 were negatively affected by both an overall
downturn in the software industry and the $33.4 million one-time charges incurred during that
year.


Return on Equity (ROE)                      (should be 2003)


            2002 ROE (com pared w ith com petitors)                      Cognos    was    second    among     its   major

  40.00%              37.00%                                             competitors in ROE in fiscal 2003, with a
  35.00%
  30.00%
                                                                         return significantly higher than that of the
  25.00% 19.40%
  20.00%        16.20%                                                   industry as well. Contrast this number with
  15.00%                                 11.50%
  10.00%                     5.90%
                                                7.90%                    Cognos’ ROA, which lags behind both Oracle
   5.00%                           0.00%
   0.00%                                                                 and Microsoft, though still outperforming the
                                                                         industry. This can be explained in part by the
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                                                                         low level of liabilities (including zero long- or
short-term debt). ROE is therefore a more accurate depiction of Cognos’ return.


                                                                     The declining trend in ROE from 1999 to 2002 is
                        Cognos ROE
                     (over past 5 years)                             not as negative as it appears, and that trend has
  40.0%     35.9%                                                    reversed itself. Cognos experienced decreases in
                         27.3%
  30.0%                            21.4%              19.4%
                                                                     net income as a percentage of revenue in fiscal
  20.0%
                                               6.6%
                                                                     2001 and 2000 due to increased investment in its
  10.0%
   0.0%
                                                                     sales channels to focus on revenue growth and
             1999        2000       2001       2002       2003       expand global market coverage. During fiscal
                                    Year
                                                                     2001 the decrease in net income as a percentage
of revenue was the result of increases in selling, general, and administrative expenses and the write-
off of in-process technology acquired on the purchase of NoticeCast Software Ltd. during the third
quarter. Finally, fiscal 2002 was negatively affected by an overall downturn in the software industry,
but the results were exaggerated by the $33.4 million one time charges incurred in that year.
Return on Assets (ROA) (should be 2003)


                         2002 ROA                                                              Cognos ROA
                (com pared w ith com petitors)
                                                                                            (over past 5 years)

  25.00%                  21.40%
                                                                            25.0%   20.2%
  20.00%
                                                                            20.0%            15.5%
  15.00% 11.90%12.40%                                                       15.0%                     12.6%              11.1%
  10.00%                                            7.90%                   10.0%
                                                                                                                  3.7%
                                   4.20%                                    5.0%
   5.00%
                                                            1.30%
                                           -2.70%                           0.0%
   0.00%
                                                                                    1999      2000     2001       2002   2003
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ROA is significantly lower than ROE because of the low level of liabilities held by Cognos.
ROA exhibited the same negative trend during the years 1999 to 2002 as did ROE, with the same
explanation.


Return on Invested Capital (ROIC)
2003                 2002                  2001                     2000
18.5%                11.6%                 20.7%                    26.9%


Free Cash Flow (in millions):
2003                 2002                  2001                     2000
379                  52.5                  -21.2                    27.8


Interest Coverage:
Interest Coverage is 146.4, while the Industry average is -97.7. This is due to the fact that Cognos
has no debt, either short- or long-term.




Stock Valuation: Updated 2/1/04____________________________________
P/E Ratio:
P/E Ratio is currently 32.5, compared to the Industry average of 47.5. This can indicate that the
stock is undervalued, and that its profits are rising disproportionately to its price, especially
considering the high projected growth over the next 5 years. Alternatively, however, a lower P/E
can also indicate that investors do not have confidence in the stock’s potential for future growth. In
this case, the former is more likely due to the strong performance of Cognos over the past two years
and the increasingly positive news regarding its product line and growth potential.


PEG
COGN            MSFT             ORCL            PSFT             SEBL             INDUSTRY
1.87            1.94             2.6             1.78             3.35             8.74
The PEG ratio (price-to-earnings growth) is calculated by dividing a stock's forward P/E by its
projected three- to five-year annual EPS growth rate. It is used to find companies that are trading at
a discount to their projected growth. A PEG ratio of less than one is considered a sign that a stock
is a good value. Generally speaking, the higher the PEG, the pricier the stock. Though Cognos does
not have a PEG of less than one, its PEG is lower than that of its competitors (other than PSFT)
and of the industry.


Financial Health

Capital Structure:
Cognos has no short or long term debt.
                 Equity Capital Structure                     Debt Capital Structure

             Market Capitalization = $3.111 Bn                  Short-term debt = 0

                       Preferred equity = 0                      Long-term debt = 0

                  Common Weight = 100%                        Short Debt Weight = 0%

                   Preferred Weight = 0%                      Long Debt Weight = 0%


Cost of Equity (CAPM Model)
CAPM = Rf + beta(Rm-Rf)
Rf = risk free rate (5 year treasury bond rate) = 3.27 (www.forecasts.org 2/1/04)
Rm = 7.90%
Rm - Rf = historical long term equity risk premium (market risk) = 4.63
Beta = 1.25
CAPM = 3.27 + 1.25(4.63) = 9.06%
Cost of Equity for COGN = 9.06%
Cost of Debt for COGN = %0
Cost of Preferred Stock for COGN = 0.0%
WACC = (% of equity*cost of equity) + (% of debt*cost of debt) = 9.06%
ROIC = 18.5%
SPREAD = 18.5% - 9.06% = 9.44%




Average Annual Compound Growth Rates

 10-year EPS growth                                            24.98%

 10-year DPS growth                                               N/A


Earnings growth fell drastically in 2002 but has recovered and posted even stronger growth than
it had shown prior to Cognos’ significant one-time charges incurred in 2002. Dividend growth is
not relevant as the company has never declared dividends.


Average Plowback, Payout, and ROE (10-year)

 Average Payout                                         0.0%
 Average Plowback                                    100.0%
 Average ROE                                         21.10%




Growth Rate
 10-year EPS                                         24.98%
 10-year DPS                                             N/A
 ROE*b                                                21.10%
 Average of 2 growth rates                            23.04%


P/E Valuation Model

 Avg. P/E                                               40.60               BUY
 Projected Earnings 2004                                  .95
 Projected Price                                        38.57


COGN is currently trading at just above $30. Thus, the P/E Model implies that the stock is
undervalued.


ValuePro.net
Intrinsic Value
For the time being, intrinsic value was taken off of ValuePro.com, using the following
assumptions:
Growth Rate:                           18.2%
10-year Treasury Yield:                5.0%
Beta                                   1.20
Current Price                          30.22
                                                             BUY
Intrinsic Value                        38.45


According to this calculation, despite the stock’s rapid growth in the past year, there is still room
to continue to see increases in price. ValuePro’s default settings value COGN at $46.44.




Stock Rankings
                   Timeliness      Safety        Technical       Beta
Valueline                2              3            3            1.25



MoneyCentral StockScouter Rating:                          7
MoneyCentral Average Analyst Recommendation:               Moderate Buy
Yahoo!Finance Average Analyst Recommendation:              Hold




The Company Board

Board of Directors      1 linked, 7 independent
John Caldwell – Independent: Independent  Consultant since November 2002. Consultant to
GEAC Computer Corporation Limited, from December 2001 to October 2002. President and Chief
Executive Officer of GEAC, from October 2000 to December 2001. Private Investor from
October 1999 to October 2000, and President and Chief Executive Officer, CAE Inc., from
June 1993 to October 1999. Currently a Director of Faro
Technologies Inc., Mosaic Group Inc., SMTC Corporation and Stelco Inc.


Paul Damp- Independent: Managing    Partner, Kestrel Capital Partners, an investment firm,
since January 1990. Vice-Chairman of AIT Advanced Information Technologies, Inc., a
provider of systems for the issuance of machine-readable travel documents, from September
1999 to July 2002 Non-executive Chairman, Architel Systems Corporation, a
telecommunications software provider, from June 1998 to June 2000. Chairman and Chief
Executive Officer, Accugraph Corporation, a telecommunications software provider, from
October 1996 to June 1998. Currently a Director and non-executive Chairman of Davis and
Henderson Income Fund and Director of Home Equity Income Trust.


Pierre Ducros- Independent: Private   Investor since June 1996.Chairman and Chief
Executive Officer, DMR Group Inc., from February 1973 to June 1996. Currently a Director of
BCE Emergis, National Bank Financial, Manulife Financial, eNGENUITY
Technologies and nStein Technologies.


Robert Korthals- Independent: Chairman,  Ontario Teachers Pension Plan Board since
January 2000 and Chairman, Gerda Ameristeel Inc.(formerly Co-Steel Inc.), since
June 1997. Currently a Director of Jannock Properties Limited, Mulvihill Premium Global
Telecom Corp., Mulvihill Premium Split Shares Corp., Mulvihill Premium
Canadian Bank Corp., Rogers Communications Inc., RTO Enterprises Inc., and
Suncor Energy Inc.


John Rando- Independent: Chairman,      Storability Software Inc. since January 2002,
Chairman    ecora Software Corporation since March 2000, and Chairman, @Stake, Inc. since
November    1999. Partner, Flagship Venture Partners, NewcoGen Group, from November 1999 to
November    2002. Senior Vice President and Group General Manager, Compaq Services at Compaq
Computer    Corporation, from June 1998 to July 1999. Senior Vice President, Worldwide
Services    at Digital Equipment Corporation, from January 1993 to June 1998. Currently a
Director    of ePresence Inc.


William Russell- Independent: Vice  President, Global Alliances, Hewlett-Packard
Company, since May 2002. General Manager, Software Solutions Organization, from
September 1999 to May 2002 Vice President and General Manager, Enterprise Systems
Group, from May 1997 to September 1999.
James Tory- Independent: Board   Chair of the Corporation since September 1995
Chair Emeritus and Counsel, Torys LLP, lawyers, New York and Toronto, since March 1995 and
previously a partner in that firm. Currently a Director of Inmet Mining
Corporation.


Renato Zambonini- Linked:    Chief Executive Officer of the Corporation since
September 1995 and President from January 1993 to April 2002. Currently a Director of The
Reynolds and Reynolds Company.




Risk Analysis

Insider Trading:
No insider trades dating back five years.


Current Risk Factors:
      Unexpected changes in regulatory requirements for software
      Social, political, labor or economic conditions in a specific country or region (including
       foreign exchange rates)
      Difficulty in staffing and managing foreign operations
      High competition for skilled employees in the software industry
      Increase in unlawful copying and distribution of software
      Increasing competition and rapid technological change in the software industry
      Lawsuits that could potentially have an adverse effect on the business – declines in revenues,
       operating margins, and net income
      Short sales cycle therefore limited order backlog – quarterly results can vary significantly
      Heavy reliance on business intelligence revenues

				
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