---



---



---

FORM 10-Q

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended November 30, 2002

OR

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE 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
(State Or Other Jurisdiction Of

Incorporation Or Organization)                                             | 98-0119485
(IRS Employer Identification No.)
|------------------------------------------------------------------------------------------------------------------ | --------------------------------------------
|                                                                                                                   |                                             
|3755 Riverside Drive,

P. O. Box 9707, Station T,

Ottawa, Ontario, Canada(Address Of Principal Executive Offices) | K1G 4K9
(Zip Code)                          

(613) 738-1440(Registrant's Telephone Number, Including Area Code)

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.  YESXNO

The number of shares outstanding of the registrant's only class of
Common Stock as of December 31, 2002, was87,931,142.  1


---

COGNOS INCORPORATED

INDEX

|                               |    |                                                                                                                     | PAGE
|------------------------------ | -- | ------------------------------------------------------------------------------------------------------------------- | ----
|PART I - FINANCIAL INFORMATION
|Item 1.                        |    | Consolidated Financial Statements                                                                                   |     
|                               |    |                                                                                                                     |     
|                               |    | Consolidated Statements of Income for the three and nine months
  ended November 30, 2002 and November 30, 2001     | 3   
|                               |    |                                                                                                                     |     
|                               |    | Consolidated Balance Sheets as of November 30, 2002
  and February 28, 2002                                         | 4   
|                               |    |                                                                                                                     |     
|                               |    | Consolidated Statements of Cash Flows for the three and nine months
  ended November 30, 2002 and November 30, 2001 | 5   
|                               |    |                                                                                                                     |     
|                               |    | Condensed Notes to the Consolidated Financial Statements                                                            | 6   
|                               |    |                                                                                                                     |     
|Item 2.                        |    | Management's Discussion and Analysis of Financial Condition

  and Results of Operations                            | 12  
|                               |    |                                                                                                                     |     
|Item 3.                        |    | Quantitative and Qualitative Disclosure about Market Risk                                                           | 25  
|                               |    |                                                                                                                     |     
|Item 4.                        |    | Controls and Procedures                                                                                             | 25  
|                               |    |                                                                                                                     |     
|PART II - OTHER INFORMATION   
|                               |    |                                                                                                                     |     
|Item 1.                        |    | Legal Proceedings                                                                                                   | 26  
|                               |    |                                                                                                                     |     
|Item 6.                        |    | Exhibits and Reports on Form 8-K                                                                                    | 26  
|                               |    |                                                                                                                     |     
|Signature                      | 27
|                               |    |                                                                                                                     |     
|Certifications                 | 28

2

---

PART I - FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

COGNOS INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

(US$000s except share amounts, U.S. GAAP)

(Unaudited)

|                                         | Three months ended

November 30, | Nine months ended

November 30,
|---------------------------------------- | -------------------------------- | -------------------------------
|                                        
|                                         | 2002                             | 2001                           
|                                        
|Revenue                                  |                                  |                                
|Product license                          | $ 62,223                         | $ 59,114                       
|Product support                          | 52,853                           | 44,578                         
|Services                                 | 22,998                           | 20,489                         
|                                        
|Total revenue                            | 138,074                          | 124,181                        
|                                        
|Operating expenses                       |                                  |                                
|Cost of product license                  | 722                              | 847                            
|Cost of product support                  | 5,240                            | 3,825                          
|Selling, general, and administrative     | 85,850                           | 84,943                         
|Research and development                 | 18,264                           | 17,579                         
|Special charges                          | -                                | -                              
|                                        
|Total operating expenses                 | 110,076                          | 107,194                        
|                                        
|Operating income                         | 27,998                           | 16,987                         
|Interest expense                         | (211)                            | (88)                           
|Interest income                          | 1,521                            | 1,947                          
|                                        
|Income before taxes                      | 29,308                           | 18,846                         
|Income tax provision                     | 9,379                            | 5,560                          
|                                        
|Net income                               | $ 19,929                         | $   13,286                     
|                                        
|Net income per share                     |                                  |                                
|Basic                                    | $0.23                            | $0.15                          
|                                        
|Diluted                                  | $0.22                            | $0.15                          
|                                        
|Weighted average number of shares (000s) |                                  |                                
|Basic                                    | 87,845                           | 87,488                         
|                                        
|Diluted                                  | 89,882                           | 89,456                         
|                                        

(See accompanying notes)

3

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COGNOS INCORPORATED


CONSOLIDATED BALANCE SHEETS

(US$000s, US GAAP)

|                                                                                                                    | November 30,
2002 | February 28,
2002
|------------------------------------------------------------------------------------------------------------------- | ----------------- | -----------------
|                                                                                                                   
|Assets                                                                                                              | (Unaudited)       |                  
|Current assets                                                                                                      |                   |                  
|Cash and cash equivalents                                                                                           | $176,542          | $192,900         
|Short-term investments                                                                                              | 161,561           | 121,629          
|Accounts receivable                                                                                                 | 102,397           | 114,059          
|Inventories                                                                                                         | 566               | 537              
|Prepaid expenses                                                                                                    | 6,285             | 6,765            
|Deferred tax assets                                                                                                 | 5,759             | 6,404            
|                                                                                                                   
|                                                                                                                    | 453,110           | 442,294          
|Fixed assets                                                                                                        | 58,586            | 59,008           
|Goodwill                                                                                                            | 15,523            | 15,230           
|Intangible assets                                                                                                   | 3,262             | 5,620            
|                                                                                                                   
|                                                                                                                    | $530,481          | $522,152         
|                                                                                                                   
|Liabilities                                                                                                         |                   |                  
|Current liabilities                                                                                                 |                   |                  
|Accounts payable                                                                                                    | $ 22,678          | $ 26,387         
|Accrued charges                                                                                                     | 25,771            | 34,210           
|Salaries, commissions, and related items                                                                            | 39,780            | 37,453           
|Income taxes payable                                                                                                | 2,936             | 6,167            
|Deferred revenue                                                                                                    | 99,607            | 110,504          
|                                                                                                                   
|                                                                                                                    | 190,772           | 214,721          
|Long-term liabilities                                                                                               | 3,440             | 9,131            
|Deferred income taxes                                                                                               | 6,687             | 3,127            
|                                                                                                                   
|                                                                                                                    | 200,899           | 226,979          
|                                                                                                                   
|Stockholders Equity                                                                                                |                   |                  
|Capital stock                                                                                                       |                   |                  
|Common shares     (November
30, 2002  87,863,382;

               
               
February 28, 2002 - 87,997,220) | 160,373           | 151,637          
|Retained earnings                                                                                                   | 183,962           | 158,762          
|Accumulated other comprehensive income                                                                              | (14,753)          | (15,226)         
|                                                                                                                   
|                                                                                                                    | 329,582           | 295,173          
|                                                                                                                   
|                                                                                                                    | $530,481          | $522,152         
|                                                                                                                   

(See accompanying notes)

4

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COGNOS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS(US$000s, U.S. GAAP)(Unaudited)

|                                                                  | Three months ended

November 30, | Nine months ended

November 30,
|----------------------------------------------------------------- | -------------------------------- | -------------------------------
|                                                                 
|                                                                  | 2002                             | 2001                           
|                                                                 
|Cash provided by (used in) operating activities                   |                                  |                                
|Net income                                                        | $ 19,929                         | $  13,286                      
|Non-cash items                                                    |                                  |                                
|Depreciation and amortization                                     | 5,242                            | 8,053                          
|Amortization of deferred stock-based compensation                 | 148                              | 504                            
|Amortization of other deferred compensation                       | 119                              | 606                            
|Deferred income taxes                                             | 4,389                            | (309)                          
|Loss on disposal of fixed assets                                  | 8                                | 43                             
|                                                                 
|                                                                  | 29,835                           | 22,183                         
|Change in non-cash working capital                                |                                  |                                
|Decrease (increase) in accounts receivable                        | (18,157)                         | (6,116)                        
|Decrease (increase) in inventory                                  | 203                              | 48                             
|Decrease in prepaid expenses                                      | 1,484                            | 366                            
|Decrease (increase) in income tax assets                          | -                                | 2,768                          
|Increase (decrease) in accounts payable                           | 4,259                            | (1,631)                        
|Increase (decrease) in accrued charges                            | (355)                            | 3,911                          
|Increase in salaries, commissions, and related items              | 3,390                            | 3,410                          
|Increase (decrease) in income taxes payable                       | 154                              | (144)                          
|Decrease in deferred revenue                                      | (5,484)                          | (2,123)                        
|                                                                 
|                                                                  | 15,329                           | 22,672                         
|                                                                 
|Cash provided by (used in) investing activities                   |                                  |                                
|Maturity of short-term investments                                | 19,851                           | 56,557                         
|Purchase of short-term investments                                | (139,146)                        | (83,144)                       
|Additions to fixed assets                                         | (3,559)                          | (2,026)                        
|                                                                 
|                                                                  | (122,854)                        | (28,613)                       
|                                                                 
|Cash provided by (used in) financing activities                   |                                  |                                
|Issue of common shares                                            | 4,106                            | 1,645                          
|Repurchase of shares                                              | (6,850)                          | (9,994)                        
|Increase in long-term debt and long-term liabilities              | (2,361)                          | (806)                          
|                                                                 
|                                                                  | (5,105)                          | (9,155)                        
|                                                                 
|Effect of exchange rate changes on cash                           | 72                               | (977)                          
|                                                                 
|Net increase (decrease) in cash and cash equivalents              | (112,558)                        | (16,073)                       
|Cash and cash equivalents, beginning of period                    | 289,100                          | 170,309                        
|                                                                 
|Cash and cash equivalents, end of period                          | 176,542                          | 154,236                        
|Short-term investments, end of period                             | 161,561                          | 113,881                        
|                                                                 
|Cash, cash equivalents, and short-term investments, end of period | $338,103                         | $268,117                       
|                                                                 

(See accompanying notes)

5

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COGNOS INCORPORATED



CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in United States dollars, unless otherwise stated)

(In accordance with U.S. GAAP)

|1. |  | Basis
of Presentation
|-- |  | ---------------------

| | The
accompanying unaudited consolidated financial statements have been prepared by the
Corporation in United States (U.S.) dollars and in accordance with generally accepted
accounting principles (GAAP) in the U.S. with respect to interim financial statements,
applied on a consistent basis. Accordingly, they do not include all of the information and
footnotes required for compliance with GAAP in the U.S. for annual financial statements.
These unaudited condensed notes to the consolidated financial statements should be read in
conjunction with the audited financial statements and notes included in the
Corporations Annual Report for the fiscal year ended February 28, 2002.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
preparation of these unaudited consolidated financial statements requires management to
make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and the accompanying notes. In the opinion of Management, these
unaudited consolidated financial statements reflect all adjustments (which include only
normal, recurring adjustments) necessary to state fairly the results for the periods
presented. Actual results could differ from these estimates and the operating results for
the interim periods presented are not necessarily indicative of the results expected for
the full year.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
information is presented in U.S. dollars, unless otherwise stated. Consolidated financial
statements prepared in accordance with Canadian GAAP, in U.S. dollars, are made available
to all shareholders, and filed with various regulatory authorities.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | Revenue
Recognition
|-- |  | -------------------

| | The
Corporation recognizes revenue in accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition, issued by the American Institute of Certified Public
Accountants.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Substantially
all of the Corporations product license revenue is earned from licenses of
off-the-shelf software requiring no customization. Revenue from these licenses is
recognized when all of the following criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectibility is probable. If a license includes the right to return the product for
refund or credit, revenue is recognized net of an allowance for estimated returns provided
all the requirements of SOP 97-2 have been met.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
from product support contracts is recognized ratably over the life of the contract.
Incremental costs directly attributable to the acquisition of product support contracts,
and that would not have been incurred but for the acquisition of that contract, are
deferred and expensed in the period the related revenue is recognized. These costs
include commissions payable on sales of support contracts.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

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COGNOS INCORPORATED



CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in United States dollars, unless otherwise stated)

(In accordance with U.S. GAAP)

| | Revenue
from education, consulting, and other services is recognized at the time such services
are rendered.
| | ------------------------------------------------------------------------------------------------------------

| | For
contracts with multiple obligations (e.g. deliverable and undeliverable products, support
obligations, education, consulting, and other services), the Corporation allocates revenue
to each element of the contract based on objective evidence, specific to the Corporation,
of the fair value of the element.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Goodwill
|-- |  | --------

| | During
the three and nine months ended November 30, 2002 there were additions to goodwill of
$115,000 and $293,000, respectively, related to additional consideration paid to the
former shareholders of Teijin Cognos Incorporated (TCI). This additional consideration was
based on the net revenue of TCI during each quarter.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
SFAS 142 Goodwill and Other Intangible Assets, which the Corporation implemented March 1,
2002, goodwill will no longer be amortized but will be subject to an annual impairment
test. The Corporation performed the required impairment tests of goodwill as of March 1,
2002. The effect of these tests was not material on the earnings and financial position of
the Corporation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in United States dollars, unless otherwise stated)

(In accordance with U.S. GAAP)

If the non-amortization provision of
SFAS Nos. 142 had been in effect beginning March 1, 2001 the effect would have been as
follows (000s except per share amounts):

|                                   | Three months ended

November 30, |  | Nine months ended

November 30,
|---------------------------------- | -------------------------------- |  | -------------------------------
|                                   | 2002                             |  | 2001                           
|                                   |                                 
|Reported net income                | $19,929                          |  | $13,286                        
|Goodwill amortization              | -                                |  | 1,089                          
|                                   |                                  |  |                                
|Adjusted net income                | $19,929                          |  | $14,375                        
|                                   |                                  |  |                                
|Basic net income per share:        |                                  |  |                                
|Reported net income:               | $0.23                            |  | $0.15                          
|Goodwill amortization              | -                                |  | 0.01                           
|                                   |                                  |  |                                
|Adjusted net income                | $0.23                            |  | $0.16                          
|                                   |                                  |  |                                
|Diluted net income per share:      |                                  |  |                                
|Reported net income:               | $0.22                            |  | $0.15                          
|Goodwill amortization              | -                                |  | 0.01                           
|                                   |                                  |  |                                
|Adjusted net income                | $0.22                            |  | $0.16                          
|                                   |                                  |  |                                
|Weighted average number of shares: |                                  |  |                                
|Basic                              | 87,845                           |  | 87,488                         
|                                   |                                  |  |                                
|Diluted                            | 89,882                           |  | 89,456                         
|                                   |                                  |  |                                



8

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COGNOS INCORPORATED



CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in United States dollars, unless otherwise stated)

(In accordance with U.S. GAAP)

|4. |  | Intangible
Assets
|-- |  | -----------------

|                      | As at November 30,

2002 |  | As at February 28,

2002 |  |            
|--------------------- | ------------------------ |  | ------------------------ |  | -----------
|                      |                          |  |                          |  |            
|                      | Cost                     |  | Accumulated
Amortization |  | Cost       
|                      |                          |  |                          |  |            
|                      | ($000s)                  |  | ($000s)                  |  |            
|Acquired Technology   | $  13,681                |  | $ 10,664                 |  | $   13,681 
|Deferred Compensation | 8,945                    |  | 8,700                    |  | 8,945      
|                      |                          |  |                          |  |            
|                      | 22,626                   |  | $ 19,364                 |  | 22,626     
|                      |                          |  |                          |  |            
|                      | (19,364)                 |  |                          |  | (17,006)   
|                      |                          |  |                          |  |            
|Net book value        | $    3,262               |  |                          |  | $     5,620
|                      |                          |  |                          |  |            

| | Amortization
of intangible assets was $759,000 and $1,290,000 in the quarters ended November 30, 2002
and November 30, 2001, respectively, and was $2,358,000 and $3,993,000 in the nine months
ended November 30, 2002 and November 30, 2001, respectively. The estimated amortization
expense related to intangible assets is as follows ($000s):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2003 (Q4) | $  680
|--------- | ------
|2004      | 2,575 
|2005      | 7     

|5. |  | Income
Taxes
|-- |  | ------------

| | The
Corporation provides for income taxes in its quarterly unaudited financial statements
based on the estimated effective tax rate for the full fiscal year.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

COGNOS INCORPORATED



CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in United States dollars, unless otherwise stated)

(In accordance with U.S. GAAP)

|6. |  | Net
Income per Share
|-- |  | --------------------

| | The
reconciliation of the numerator and denominator for the calculation of basic and diluted
net income per share is as follows: (000s except per share amounts)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                       | Three months ended

November 30, |  | Nine months ended

November 30,
|------------------------------------------------------ | -------------------------------- |  | -------------------------------
|                                                       |                                  |  |                                
|                                                       | 2002                             |  | 2001                           
|                                                       |                                  |  |                                
|Basic Net Income per Share                             |                                  |  |                                
|Net income                                             | $19,929                          |  | $13,286                        
|                                                       |                                  |  |                                
|Weighted average number of shares outstanding          | 87,845                           |  | 87,488                         
|                                                       |                                  |  |                                
|Basic net income per share                             | $0.23                            |  | $0.15                          
|                                                       |                                  |  |                                
|                                                       |                                  |  |                                
|Diluted Net Income per Share                           |                                  |  |                                
|Net income                                             | $19,929                          |  | $13,286                        
|                                                       |                                  |  |                                
|Weighted average number of shares outstanding          | 87,845                           |  | 87,488                         
|Dilutive effect of stock options                       | 2,037                            |  | 1,968                          
|                                                       |                                  |  |                                
|Adjusted weighted average number of shares outstanding | 89,882                           |  | 89,456                         
|                                                       |                                  |  |                                
|Diluted net income per share                           | $0.22                            |  | $0.15                          
|                                                       |                                  |  |                                

|7. |  | Comprehensive
Income
|-- |  | --------------------

| | Comprehensive
income includes net income and other comprehensive income (OCI). OCI refers to changes in
net assets from transactions and other events, and circumstances other than transactions
with stockholders. These changes are recorded directly as a separate component of
Stockholders Equity and excluded from net income. The only other comprehensive
income item for the Corporation relates to foreign currency translation adjustments
pertaining to those subsidiaries not using the U.S. dollar as their functional currency
net of derivative gains or losses.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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COGNOS INCORPORATED



CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in United States dollars, unless otherwise stated)

(In accordance with U.S. GAAP)

The
components of comprehensive income were as follows ($000s):

|                                         | Three months ended

November 30, |  | Nine months ended

November 30,
|---------------------------------------- | -------------------------------- |  | -------------------------------
|                                         |                                  |  |                                
|                                         | 2002                             |  | 2001                           
|                                         |                                  |  |                                
|Net income                               | $19,929                          |  | $13,286                        
|Other comprehensive income (expense):    |                                  |  |                                
|Foreign currency translation adjustments | (286)                            |  | (1,555)                        
|                                         |                                  |  |                                
|Comprehensive income                     | $19,643                          |  | $11,731                        
|                                         |                                  |  |                                

|8. |  | Segmented
Information
|-- |  | ---------------------

| | The
Corporation has one reportable segmentcomputer software products.
| | ----------------------------------------------------------------------

|9. |  | Secondary
Offering
|-- |  | ------------------

| | On
July 16, 2002 the Corporation filed a final registration statement with the United States
Securities and Exchange Commission and a Canadian prospectus with Canadian securities
regulators for a secondary offering of 3,600,000 common shares at a price to the public of
$17.50 per share. All of the common shares in the offering were sold by certain entities
affiliated with Michael U. Potter. The Corporation did not receive any proceeds from the
sale of the shares. The Corporation incurred costs related to the filing of this secondary
offering and those costs were expensed during the quarter ended August 31, 2002. Under
this secondary offering, the Corporation repurchased 180,000 of its own shares at an
aggregate purchase price of $3,150,000.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10. |  | Subsequent
Event
|--- |  | ----------------

| | On
January 10, 2003, subsequent to the quarter ended November 30, 2002, the Corporation
completed the acquisition of privately-held Adaytum, Inc. (Adaytum), based in
Minneapolis, Minnesota. Adaytum is a leading global provider of enterprise performance
planning software. The Corporation entered into an Agreement and Plan of Reorganisation
dated December 19, 2002 (the Merger Agreement). The total merger consideration
is approximately $157 million, after adjustments provided for in the Merger
Agreement. In addition, the Corporation assumed certain stock options that were outstanding
under Adaytums stock option plan.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

---

Item 2.

COGNOS INCORPORATED

MANAGEMENTS
DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

(in United States
dollars, unless otherwise indicated, and in accordance with U.S. GAAP)

The following information should be
read in conjunction with the unaudited Consolidated Financial Statements and Notes
included in Item 1 of this Quarterly Report and can also be read in conjunction with the
audited Consolidated Financial Statements and Notes, and Managements Discussion and
Analysis of Financial Condition and Results of Operations contained in our Annual Report
for the fiscal year ended February 28, 2002 (fiscal 2002).

OVERVIEW

Cognos is a leading global provider
of business intelligence software. Our solution helps improve business performance by
enabling 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 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 solution consists of our suite
of business intelligence components, analytical applications, and performance management
applications. To complement this solution, on January 10, 2003, subsequent to the quarter
ended November 30, 2002, we acquired privately-held Adaytum, Inc., a leading global
provider of enterprise performance planning software.

Our customers can strategically apply
our software solution across the extended enterprise to address their need for corporate
performance management (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.

RESULTS OF OPERATIONS

Revenue for the quarter ended
November 30, 2002 was $138.1 million, an 11% increase from revenue of $124.2 million
for the same quarter last year. Pretax income for the quarter ended November 30, 2002
was $29.3 million, compared to pretax income of $18.8 million in the same quarter last
year. Net income for the current quarter was $19.9 million, compared to net income of
$13.3 million for the same quarter last year. Diluted net income per share was $0.22 for
the current quarter, compared to diluted net income per share of $0.15 for the same
quarter last year. Basic net income per share was $0.23 and $0.15 for the quarters ending
November 30, 2002 and November 30, 2001, respectively.

Revenue for the nine months ended
November 30, 2002 was $387.3 million, an 11% increase from revenue of $348.5 million for
the same period last year. Pretax income for the nine months ended November 30, 2002 was
$64.1 million, compared to pretax income of $13.2 million in the

12

---

same period last year.
Net income for the current nine months was $43.6 million compared to net income of $9.3
million for the same period last year. Diluted net income per share was $0.48 for the nine
months ended November 30, 2002, compared to $0.10 for the same period last year. Basic net
income per share was $0.50 for the nine-month period ending November 30, 2002 compared to
$0.11 for the same period last year. The results for the nine months ended November 30,
2001 included a special charge of $12.8 million. During the quarter ended May 31, 2001
uncertain economic conditions affected our customers information technology spending
in our principal markets and therefore we undertook a restructuring plan to align our cost
structure and operations to the economic environment prevalent at that time. Excluding the
effect of this special charge, pro-forma net income for the nine months ended November 30,
2001 would have been $18.3 million. This pro-forma information is provided for
comparability regarding our on-going operating performance and is unlikely to be
comparable to any similar measures in the financial information filed by other issuers.
Management uses this pro-forma measure to analyze our on-going operations and believes
that it is useful to investors in comparing the period-to-period performance of our core
business operations. The improvement in operating performance in the nine months ended
November 30, 2002 as compared to the same period in the previous year reflects the
strength of our business model which is designed to fully engage the enterprise customer,
the strength of our product offerings in the business intelligence (BI)
market, and changes in our internal costs attributable to ongoing expense management and
the prior years restructuring plan.

Total operating expenses for the
quarter ended November 30, 2002 were $110.1 million, a 3% increase from operating
expenses of $107.2 million for the same quarter last year. Operating margin for the
quarter ended November 30, 2002 was 20%, compared to 14% for the same quarter last
year.

Total operating expenses for the nine
months ended November 30, 2002 were $327.5 million, a 4% decrease from operating expenses
of $342.2 million for the same period last year. Operating margin for the nine months
ended November 30, 2002 was 15%, compared to 2% for the same period last year. Excluding
the effect related to the special charge discussed above, pro-forma operating expenses in
the nine-month period ended November 30, 2001 would have been $329.4 million and pro-forma
operating margin would have been 5%. These special charges primarily related to
involuntary employee separations. This pro-forma information is provided for greater
comparability regarding our on-going operating performance and is unlikely to be
comparable to any similar measures in the financial information filed by other issuers.
Management uses these pro-forma measures to analyze our on-going operations and believes
that it is useful to investors in comparing the period-to-period performance of our core
business operations.

13

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The following table sets out, for the
periods indicated, a reconciliation of certain GAAP financial measures to pro-forma
financial measures discussed above (000s except percentages):

|                                  | Three months ended

November 30, |  | Nine months ended

November 30,
|--------------------------------- | -------------------------------- |  | -------------------------------
|                                  |                                  |  |                                
|                                  | 2002                             |  | 2001                           
|                                  |                                  |  |                                
|Reported operating expenses       | $110,076                         |  | $107,194                       
|Special charges                   | -                                |  | -                              
|                                  |                                  |  |                                
|Pro-forma operating expenses      | $110,076                         |  | $107,194                       
|                                  |                                  |  |                                
|Reported operating margins        | 20%                              |  | 14%                            
|Special charges margin adjustment | -                                |  | -                              
|                                  |                                  |  |                                
|Pro-forma operating margins       | 20%                              |  | 14%                            
|                                  |                                  |  |                                
|Reported net income               | $19,929                          |  | $13,286                        
|Special charges (after tax)       | -                                |  | -                              
|                                  |                                  |  |                                
|Pro-forma net income              | $19,929                          |  | $13,286                        
|                                  |                                  |  |                                

We operate internationally, with a
substantial portion of our business conducted in foreign currencies. Accordingly, our
results are affected by year-over-year exchange rate fluctuations of the United States
dollar relative to various European currencies, to the Canadian dollar, and to a lesser
extent, other foreign currencies. The effect of foreign exchange rate fluctuations
improved the overall revenue growth by approximately three and two percentage points for
the quarter and nine months ended November 30, 2002, respectively, and increased the
growth in operating expense by two percentage points for both the quarter and nine-months
ended November 30, 2002.

14

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The following table sets out, for the
periods indicated, the percentage that each income and expense item bears to revenue, and
the percentage change of each item as compared to the indicated prior period.

|                                     | Percentage of Revenue            |  | Percentage Change
|------------------------------------ | -------------------------------- |  | -----------------
|                                     |                                  |  |                  
|                                     | Three months ended

November 30, |  |                  
|                                     |                                  |  |                  
|                                     | 2002                             |  | 2001             
|                                     |                                  |  |                  
|Revenue                              | 100.0%                           |  | 100.0%           
|                                     |                                  |  |                  
|Operating expenses                   |                                  |  |                  
|Cost of product license              | 0.5                              |  | 0.7              
|Cost of product support              | 3.8                              |  | 3.1              
|Selling, general, and administrative | 62.2                             |  | 68.4             
|Research and development             | 13.2                             |  | 14.1             
|Special charges                      | 0.0                              |  | 0.0              
|                                     |                                  |  |                  
|Total operating expenses             | 79.7                             |  | 86.3             
|                                     |                                  |  |                  
|Operating income                     | 20.3                             |  | 13.7             
|Interest expense                     | (0.2)                            |  | (0.1)            
|Interest income                      | 1.1                              |  | 1.6              
|                                     |                                  |  |                  
|Income before taxes                  | 21.2                             |  | 15.2             
|Income tax provision                 | 6.8                              |  | 4.5              
|                                     |                                  |  |                  
|Net income                           | 14.4%                            |  | 10.7%            
|                                     |                                  |  |                  

*- not meaningful

Revenue

Our total revenue was $138.1 million
for the quarter ended November 30, 2002, an increase of $13.9 million or 11%, compared to
the quarter ended November 30, 2001. Our total revenue was $387.3 million for the nine
months ended November 30, 2002, an increase of $38.8 million or 11% compared to the nine
months ended November 30, 2001.

Our total revenue was derived
primarily from our suite of business intelligence products, principally Web versions of
PowerPlay® and Impromptu®. Contributing to a lesser extent were Cognos Visualizer,
Cognos Finance, Cognos Query, DecisionStream, NoticeCast and our Analytical
Application packages. At the end of fiscal 2002 we released Cognos Series 7, the latest
integrated version of our suite of business intelligence components. We believe that
enterprise-wide deployment of business intelligence products is the trend in the industry
and that it will continue to increase as a percentage of our total revenue. An emerging
trend in the market for business intelligence is the growing demand for pre-packaged
solutions that shorten time to implementation and results. Our Analytic Applications
address this trend as they extend the value of investments in Enterprise Resource Planning
(ERP) and other operational systems. Total revenue (license, support, and services
revenue) derived from our business intelligence products was $130.3 million in the quarter
ended November 30, 2002, an increase of $16.2 million or 14%, and was $362.5 million
for the nine months ended November 30, 2002, an

15

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increase of $42.9 million or 13% when
compared to the corresponding periods in the prior fiscal year. Total revenue from these
business intelligence products was 94% and 92% of total revenue for the quarters ended
November 30, 2002 and November 30, 2001, respectively. On a year-to-date basis,
we derived 94% of total revenue from these products, compared to 92% in the corresponding
period last year.

Total revenue (license, support, and
services revenue) from our application development tools, PowerHouse® and Axiant®,
was $7.8 million for the quarter ended November 30, 2002, a decrease of $2.3 million or
23%, and was $24.8 million for the nine months ended November 30, 2002, a decrease of $4.1
million or 14% compared to the corresponding period in the prior fiscal year. We believe
that, in both the short and long-term, revenues from these products will continue to
decline.

The overall change in total revenue
from the three revenue categories in the quarter ended November 30, 2002 from November 30,
2001 was as follows: a 5% increase in product license revenue, a 19% increase in product
support revenue, and an 12% increase in services revenue. The change for the same
categories for the nine months was as follows: 9%, 18%, and 2%, respectively.

In the quarter ended November 30,
2002 the percentage of revenue from our three geographic regions, North America (includes
Latin America), Europe (consists of UK and Continental Europe), and Asia/Pacific (consists
of Australia and countries in the Far East) was 61%, 32%, and 7%, respectively as compared
to 62%, 31%, and 7%, respectively for the comparative quarter ended November 30, 2001. On
a year-to-date basis, for the same geographic regions the percentage of revenue was 63%,
30%, and 7% and 62%, 31%, and 7% for the periods ended November 30, 2002 and November 30,
2001, respectively. During the quarter ended November 30, 2002 revenue from North America
increased 9%, revenue from Europe increased 14%, and revenue from Asia/Pacific increased
by 21%. The growth for the same categories for the nine months was as follows: 12%, 8%,
and 13% respectively.

Our growth rate in Asia/Pacific for
the three months ended November 30, 2002 reflects the growth in Singapore and the
Australia/New Zealand region during the quarter. Our growth rate in Europe for the quarter
reflects growth in the UK as well as Northern Europe.

Product License Revenue

Product license revenue was $62.2
million in the quarter ended November 30, 2002, an increase of $3.1 million or 5%, and was
$167.1 million for the nine months ended November 30, 2002, an increase of $14.3 million
or 9% compared to the corresponding periods in the prior fiscal year. The increase in
product license revenue during the three and nine months ended November 30, 2002 as
compared to the same period in the prior year reflects the strength of our business model
which is designed to fully engage the enterprise customer and the strength of our product
offerings in the BI market. Additionally, during the three and nine months ended November
30, 2001 uncertain economic conditions affected our customers information technology
spending in our principal markets. This affected the sales of our business intelligence
products in that period. Customer purchasing behavior remains challenging in the current
economic environment, however we believe that the long-term prospects for the business
intelligence market are promising. Product license revenue accounted for 45% of total
revenue in the three months ended November 30, 2002 compared to 48% for the corresponding
period in the prior fiscal year,

16

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and accounted for 43% of total revenue in the nine months
ended November 30, 2002 and 44% for the corresponding period in the prior fiscal year.

Product license revenue from the
business intelligence products was $60.3 million for the quarter ended November 30, 2002,
an increase of $3.8 million or 7%, and was $161.3 million for the nine months ended
November 30, 2002, an increase of $15.1 million or 10% compared to the corresponding
periods in the prior fiscal year. Product license revenue from business intelligence
products accounted for 97% and 96% of total product license revenue for the quarters ended
November 30, 2002 and 2001. On a year-to-date basis, we derived 97% of product license
revenue from these products as compared to 96% in the corresponding period in the prior
fiscal year.

Product license revenue from
application development tools was $1.9 million for the quarter ended November 30, 2002, a
decrease of $0.7 million or 27%, and was $5.8 million for the nine months ended November
30, 2002, a decrease of $0.9 million or 13% compared to the corresponding periods in the
prior fiscal year. We believe in both the short and long term, the trend of decreasing
product license revenue from these products will continue.

Product Support Revenue

Product support revenue was $52.9
million in the quarter ended November 30, 2002, an increase of $8.3 million or 19%, and
was $152.3 million for the nine months ended November 30, 2002, an increase of $23.3
million or 18% compared to the corresponding periods in the prior fiscal year. The
increase in the dollar amounts was the result of the positive rate of renewal of support
contracts and the expansion of our customer base.

Product support revenue accounted for
38% and 36% of our total revenue in the quarters ended November 30, 2002 and 2001,
respectively, and accounted for 39% of total revenue for the nine months ended November
30, 2002 and 37% for the corresponding period in the prior fiscal year.

Product support revenue from the
business intelligence products comprised 89% and 84% of the product support revenue for
the quarters ended November 30, 2002 and 2001, respectively and comprised 88% and 83% of
product support revenue for the nine months ended November 30, 2002 and November 30, 2001,
respectively. Support revenue from the business intelligence products increased by 26% in
the quarter ended November 30, 2002, and support revenue from the application development
tools decreased by 19%, compared to the corresponding quarter in the prior fiscal year.
For the nine months ended November 30, 2002, support revenue from the business
intelligence products increased by 25%, whereas support revenue from the application
development tools decreased by 15%, compared to the corresponding period in the prior
year.

17

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Services Revenue

Services revenue (training,
consulting, and other revenue) was $23.0 million in the quarter ended November 30, 2002,
an increase of $2.5 million or 12%, and was $67.9 million in the nine months ended
November 30, 2002 an increase of $1.3 million or 2% compared to the corresponding periods
in the prior fiscal year. Services revenue accounted for 17% and 18% of our total revenue
for the three and nine months ended November 30, 2002, respectively, as compared to 16%
and 19% for the corresponding periods in the prior fiscal year.

In the quarter ended November 30,
2002, services revenue associated with the business intelligence products contributed
$22.8 million, an increase of $2.7 million or 13%, and was $67.2 million, an increase of
$1.3 million or 2% in the nine months ended November 30, 2001 compared to the
corresponding periods in the prior fiscal year. The increase in the dollar amounts was
primarily attributable to an increase in consulting revenue partially offset by a decrease
in education revenue. During the three and nine months ended November 30, 2001 uncertain
economic conditions affected our customers information technology spending in our
principal markets. This affected the sales of, and services revenue from our business
intelligence products in that period. Customer purchasing behavior remains challenging in
the current economic environment, however we believe that the long-term prospects for the
business intelligence market are promising. Total services revenue associated with our
application development tools for the quarter was $0.2 million, a $0.2 million decrease
from the corresponding period in the prior fiscal year and was $0.7 million for the nine
months ended November 30, 2002, an immaterial decrease from the same period last year.

Service revenue associated with
business intelligence products contributed 99% of the total services revenue for both the
quarter and nine months ended November 30, 2002. Comparatively, services revenue
associated with business intelligence products contributed 98% of services revenue for the
quarter and nine months ended November 30, 2001.

Cost of Product License

The cost of product license consists
primarily of royalties for technology licensed from third parties, as well as the costs of
materials and distribution related to licensed software.

The cost of product license revenue
was $0.7 million, a decrease of $0.1 million or 15% in the quarter ended November 30,
2002, and was $2.2 million in the nine months ended November 30, 2001, a decrease of $0.7
million or 26% compared to the corresponding periods in the prior fiscal year. These costs
represented 1% of product license revenue for both the quarter and nine months ended
November 30, 2002, as compared to 1% of product license revenue for the quarter ended
November 30, 2001 and 2% of product license revenue for the nine months ended November 30,
2001. The decrease in these costs was the result of decreases in materials and
distribution costs.

18

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Cost of Product Support

The cost of product support includes
the costs associated with resolving customer inquiries and other telesupport and
websupport activities, royalties in respect of technological support received from third
parties, and the cost of materials delivered in connection with enhancement releases.

The cost of product support revenue
was $5.2 million, an increase of $1.4 million or 37% in the quarter ended November 30,
2002, and was $14.7 million, an increase of $2.7 million or 23% in the nine months ended
November 30, 2002 compared to the corresponding periods in the prior fiscal year.

The cost of product support
represented 10% of total product support revenue for both the quarter and nine months
ended November 30, 2002 as compared to 9% for both of the corresponding periods in prior
fiscal year. The increase in the cost of product support is the result of increases in
telesupport and websupport costs as we brought in additional resources to enhance our
customer service through the web and telephonic support systems. This increase was offset
slightly by a decrease in royalty costs.

Selling, General, and
Administrative

Selling, general, and administrative
(SG&A) expenses were $85.9 million, an increase of $0.9 million or 1% in the quarter
ended November 30, 2002, and were $253.7 million, a decrease of $5.5 million or 2% in the
nine months ended November 30, 2002 compared to the corresponding periods in the prior
fiscal year. These costs decreased as a percentage of revenue, representing 62% and 65%
for the three and nine months ended November 30, 2001, respectively compared to 68% and
74% for the corresponding periods in the prior fiscal year.

The increase in these expenses in the
three months ended November 30, 2002 was predominantly the result of increases in staff
related costs and services purchased externally partially offset by decreases in
amortization expense. For the nine months ended November 30, 2002 the decrease in selling,
general, and administrative expenses was the result of decreases in amortization expense
and staff development costs, partially offset by increased staff related costs, and
services purchased externally. The average number of employees within selling, general,
and administrative increased by 6% in the three months ended November 30, 2002, and
remained flat for the nine months ended November 30, 2002, when compared to the
corresponding periods in the prior fiscal year. Amortization expense in the three and nine
months ended November 30, 2002 decreased by $1.1 million and $3.3 million,
respectively as the result of the implementation of the non-amortization provisions of
SFAS No. 142 (See Note 3 of the Condensed Notes to the Consolidated Financial Statements).
Amortization expense also decreased by $0.9 million and $2.9 million in the three and nine
months ended November 30, 2002, respectively, from the same periods last year, as a
result of certain intangible assets becoming fully amortized.

19

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Research and Development

Research and development (R&D)
costs were $18.3 million, an increase of $0.7 million or 4% in the quarter ended November
30, 2002 and were $57.0 million, an increase of $1.6 million or 3% in the nine months
ended November 30, 2002 compared to the corresponding periods in the prior fiscal year.
The increase for the quarter was predominantly the result of increases in compensation
costs, whereas the increase for the nine-month period was the result of increases in
compensation cost and increases associated with services purchased externally. The average
number of employees within R&D increased 5% for the three months ended November 30,
2002, and increased 1% for the nine months ended November 30, 2002 when compared to the
corresponding periods of the prior year.

During the quarter ended November 30,
2002, we continued to invest in R&D activities for our next generation of business
intelligence solutions which are the foundation of our CPM vision. During the current
quarter we released Cognos Metrics Manager, a scorecarding solution that enables
organizations to manage performance by mapping strategy to execution through metrics. We
also announced, for release in the next quarter three process analytic application
bundles: Cognos Customer Analytics, Cognos Financial Analytics, and Cognos Supply Chain
Analytics. These bundles enable cross-functional analytics and an integrated view of a
business. During the quarter we also announced, for availability in December 2002, Cognos
CPM for Finance which integrates our product offerings within forecasting, budgeting,
planning, and consolidation with reporting, analysis, and metrics management to enable a
company to align core financial processes with company strategy and performance
management.

We currently do not have any software
development costs capitalized on our balance sheet. Software development costs are
expensed as incurred unless they meet generally accepted accounting criteria for deferral
and amortization. Software development costs incurred prior to the establishment of
technological feasibility do not meet these criteria, and are expensed as incurred.
Capitalized costs are amortized over a period not exceeding 36 months. No costs were
deferred in the quarters ended November 30, 2002 and November 30, 2001. Costs were not
deferred in the period because either no projects met the criteria for deferral or, if
met, the period between achieving technological feasibility and the general availability
of the product was short, rendering the associated costs immaterial.

Special Charges

Business Restructuring
Charge

During the quarter ended May 31,
2001, we implemented a restructuring plan to align our cost structure and operations to
the prevailing economic environment, resulting in a pretax business restructuring charge
to earnings of $12.8 million. Business restructuring charges primarily related to
involuntary employee separations for approximately 300 employees, as well as asset
write-downs, and accruals for net costs of abandoning leases and related write-down of
leasehold improvements. The employee separations impacted all functional groups and
geographic regions. In the fourth quarter of fiscal 2002, $2.6 million of the original
accrual was reversed into income as a result of revisions to prior cost assumptions.

Cost savings as a result of the
restructuring plan affect compensation, amortization, and lease expenses. This decrease in
costs primarily impacts selling, general, and administration expense

20

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and research and
development expense. The expense reductions took effect in the second quarter of fiscal
2002. The restructuring was substantially complete by the quarter ended May 31, 2002.

Interest Income and
Expense

Net interest income was $1.3 million,
a decrease of $0.5 million or 30% in the quarter ended November 30, 2002, and was $4.3
million, a decrease of $2.6 million or 38% in the nine months ended November 30, 2002
compared to the corresponding periods in the prior fiscal year. The decrease was primarily
attributable to a decrease in the average effective interest rates partially offset by the
larger average portfolio.

Income Tax Provision

Our tax rate is affected by the
relative profitability of our operations in various geographic regions. In the three and
nine months ended November 30, 2002, we recorded an income tax provision of $9.4 million
and $20.5 million, respectively representing an effective income tax rate of 32%.
Comparatively, in the three and nine months ended November 30, 2001 we recorded an income
tax provision of $5.6 million and $3.9 million, respectively, representing an effective
income tax rate of 29.5%.

LIQUIDITY AND CAPITAL
RESOURCES

As of November 30, 2002 we had $338.1
million in cash, cash equivalents, and short-term investments, an increase of $23.6
million from February 28, 2002. In addition, we have in place an unsecured credit
facility. The credit facility permits us to borrow funds and issue letters of credit or
guarantee up to Cdn$12.5 (US$8.0) million, subject to certain covenants. As of November
30, 2002, there were no direct borrowings under this credit facility.

As of November 30, 2002, we had a
total of $10.8 million of long-term liabilities (including the current portion of $7.4
million presented in accrued charges), consisting of amounts due related to the settlement
of a patent litigation and other long-term liabilities related to acquisitions. A patent
litigation settlement payment of $1.8 million was made in the quarter ended November 30,
2002. Payments of approximately $1.8 million will be made each quarter for the next six
quarters in relation to the settlement.

As of November 30, 2002, working
capital was $262.3 million, an increase of $34.8 million from February 28, 2002.
The increase was primarily due to increases in short-term investments and decreases in
accounts payable, accrued charges, income taxes payable, and deferred product support
revenue which were partially offset by decreases in cash and cash equivalents and accounts
receivable. The days sales outstanding ratio, calculated based on ending accounts
receivable balances and quarterly revenue (DSO), was 67 days as at November
30, 2002 as compared with DSO of 72 days as at February 28, 2002.

Cash provided by operating activities
(after changes in non-cash working capital items) for the nine months ended November
30, 2002 was $48.8 million, an $11.2 million decrease when compared to the
corresponding period in the prior fiscal year. During the nine months ended

21

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November 30,
2002 we reported a net income of $43.6 million as compared to net income of $9.3 million
in the same period in the prior year which reflects the strength of our business model.
During the prior nine months ended November 30, 2001 we achieved a dramatic decrease in
our accounts receivable balances through a conscious effort to improve our collections
experience, which contributed to the cash provided by operating activities in that period.
We have been able to maintain this level of collection experience through the current
nine-month period and therefore we have not experienced the dramatic inflows of cash
reported in the comparative period.

Cash used in investing activities was
$49.9 million for the nine months ended November 30, 2002, compared to cash used
of $6.7 million in the corresponding period in the prior fiscal year. During the current
nine-month period, we used $38.6 million related to the investment in short-term
investments (net of the maturity of short-term investments) compared to the receipt of
$3.7 million related to the maturity of short-term investments (net of investments in
short-term investments) in the corresponding period in the prior fiscal year. During the
nine-month period ended November 30, 2002 additions to fixed assets were $11.3 million, as
compared to $10.4 million for the corresponding period in fiscal 2001. Additions during
both quarters were primarily computer hardware and software.

Cash used in financing activities was
$15.6 million for the nine months ended November 30, 2002, compared to cash used in
financing activities of $13.6 million in the corresponding period in the prior fiscal
year. We issued 755,000 common shares, valued at $9.8 million, during the nine months
ended November 30, 2002, compared to the issue of 622,000 shares valued at $7.1 million
during the corresponding period in the prior fiscal year. The issuance of shares in both
periods was pursuant to our stock purchase plan and the exercise of stock options pursuant
to stock option plans. Financing activities for the nine-month period ended November 30,
2002 included the repurchase of our own shares in the open market. We repurchased 910,500
shares at a cost of $20.0 million; in comparison, we repurchased 1,251,600 shares at a
cost of $20.0 million in the corresponding period in the prior fiscal year.

The share repurchases in the current
nine-month period ended November 30, 2002 were part of two open market share repurchase
programs, as well as shares purchased under our secondary offering of common shares (See
Note 9 of the Condensed Notes to the Consolidated Financial Statements). In October 2001,
we adopted a program that enabled us to purchase up to 4,400,943 common shares (not more
than 5% of those issued and outstanding) between October 9, 2001 and October 8, 2002.
Under this program the Corporation repurchased 388,100 of its shares for $10.0 million in
the nine months ended November 30, 2002. Purchases were made on the Nasdaq Stock Market at
prevailing open market prices and paid out of general corporate funds. All repurchased
shares were cancelled.

On October 3, 2002 we announced a new
stock repurchase program that enables us to purchase up to 4,398,820 common shares (not
more than 5% of those shares issued and outstanding) between October 9, 2002 and October
8, 2003. Any purchases will be done on the Toronto Stock Exchange or the Nasdaq Stock
Market at prevailing open market prices and paid out of general corporate funds. This
program does not commit us to make any share repurchases. All repurchased shares will be
cancelled. Under this program the Corporation repurchased 342,400 of its shares for $6.9
million in the nine months ended November 30, 2002. Purchases were made on the Nasdaq
Stock Market at prevailing open market prices and paid out of general corporate funds. All
repurchased shares will be cancelled.

22

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Our policy with respect to foreign
currency exposure is to manage our financial exposure to certain foreign exchange
fluctuations with the objective of neutralizing some of the impact of foreign currency
exchange movements. To achieve this objective, we enter into foreign exchange forward
contracts to hedge portions of the net investment in our various subsidiaries. We enter
into these foreign exchange forward contracts with major Canadian chartered banks, and
therefore do not anticipate non-performance by these counterparties. We limit these
foreign exchange forward contracts to a maximum term of six months. The amount of the
exposure on account of any non-performance is restricted to the unrealized gains in such
contracts. As of November 30, 2002, we had foreign exchange forward contracts all maturing
on February 27, 2003 to exchange various foreign currencies in the amount of $14.8
million.

We believe that our current cash,
cash equivalents, and short-term investments balance (subsequent to the acquisition of
Adaytum, Inc., see Note 10 to the Condensed Notes to the Consolidated Financial
Statements) and funds generated from operations, if any, will be adequate to finance
operations and meet any capital requirements over the next twelve months.

CERTAIN FACTORS THAT MAY
AFFECT FUTURE RESULTS

This Form 10-Q contains
forward-looking statements, expressed or implied, relating to, among other things, our
expectations concerning future financial performance and continuing business momentum,
future growth opportunities, the success and soundness of our business model and our
sales, marketing, and technology strategies; the trends and opportunities in the business
intelligence (BI) marketplace; the development, introduction, shipment, and
marketing of our current and future products; and our leadership position in the BI
market.

These forward-looking statements are
neither promises nor guarantees, but involve risks 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: our ability to develop and
introduce new products and enhancements in the BI software market; the impact of global
economic conditions on our business and our ability to implement timely and appropriate
remedial measures; our ability to obtain and close sales, particularly large enterprise
transactions; our ability to select and implement appropriate business models and
strategies; our ability to achieve and maintain revenue growth or to anticipate a decline
in revenue from any of our products or services; fluctuations in our quarterly and annual
operating results based on historical patterns, which may cause our stock price to
fluctuate or decline; rapid technological change in the BI software market; new product
introductions and enhancements by competitors; changing customers demands; our ability to
establish and maintain competitive advantage; our reliance on partners and other third
party distribution channels to market and distribute our products; our ability to maintain
or obtain third-party technology licenses relating to one or more of our products;
unauthorized use of our intellectual property; claims by third parties that our software
infringes their intellectual property; the risks inherent in international operations,
such as currency exchange rate fluctuations; our ability to identify, hire, train,
motivate, and retain highly qualified management and other key personnel; our ability to
identify, pursue, and complete acquisitions which could divert management attention and
financial resources and not produce desired business results, and our ability to complete
the acquisition of Adaytum, Inc. and integrate the acquired operations into our existing
operations. Readers should not place undue reliance on any such forward-looking
statements, which speak only as of the date they are

23

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made. We disclaim any obligation to
publicly update or revise any such statement to reflect any change in our 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. A detailed discussion of each of these risk factors is
contained under the heading Certain Factors That May Affect Future Results in
our most recent Annual Report on Form 10-K and under the heading Risk Factors
in our Form F-10 Registration Statement, each of which is filed with the United States
Securities and Exchange Commission.

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|Item  3. |  | Quantitative and
Qualitative Disclosure about Market Risk
|-------- |  | ---------------------------------------------------------

Market risk represents the risk of
loss that may impact our financial position due to adverse changes in financial market
prices and rates. Our market risk exposure is primarily a result of fluctuations in
interest rates and foreign currency exchange rates. We do not hold or issue financial
instruments for trading purposes.

Interest Rate Risk

Our exposure to market rate risk for
changes in interest rates relates primarily to our investment portfolio. The investment of
cash is regulated by our investment policy of which the primary objective is security of
principal. Interest income on our cash, cash equivalents, and short-term investments is
subject to interest rate fluctuations, but we believe that the impact of these
fluctuations does not have a material effect on our financial position due to the
short-term nature of these financial instruments. For the quarter ended November 30, 2002,
a 100 basis-point adverse change in interest rates would not have had a material effect on
our consolidated financial position, earnings or cash flows.

Foreign Currency Risk

We operate internationally;
accordingly, a substantial portion of our financial instruments are held in currencies
other than the United States dollar. Our policy with respect to foreign currency exposure
is to manage financial exposure to certain foreign exchange fluctuations with the
objective of neutralizing some of the impact of foreign currency exchange movements. To
achieve this objective, we enter into foreign exchange forward contracts to hedge portions
of the net investment in various subsidiaries. The forward contracts are typically between
the United States dollar and the British pound, the euro, and the Australian dollar.
Sensitivity analysis is used to measure our foreign currency exchange rate risk. As of
November 30, 2002, a 10% adverse change in foreign exchange rates versus the U.S. dollar
would not have had a material effect on our reported cash, cash equivalents, and
short-term investments.

|Item  4. |  | Controls and Procedures
|-------- |  | -----------------------

a)    
          Evaluation of disclosure controls and procedures.

Under the supervision and with the
participation of our management, including the Chief Executive Officer and Chief Financial
Officer, we have evaluated the disclosure controls and procedures as of a date within 90
days before the filing date of this quarterly report. Based on this evaluation the Chief
Executive Officer and Chief Financial Officer conclude that the disclosure controls and
procedures (as defined in Rule 13a-14(c) of the Securities Exchange Act of 1934)
effectively ensure that information required to be disclosed in our filings and
submissions under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in the Securities and Exchange Commissions rules and
forms.

25

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b)    Changes
in internal controls

There have been no significant changes in our
          internal controls or in other factors that could significantly affect these
          controls subsequent to the evaluation of the internal controls, including any
          corrective actions with regard to significant deficiencies and material
          weaknesses.

PART II  OTHER
INFORMATION

Item 1.    
Legal Proceedings

The Corporation is not a party to any
litigation that, in the opinion of management, could reasonably be expected to have
material adverse impact on the Corporations financial position.

In addition, we and our subsidiaries
may, from time to time be involved in other legal proceedings, claims, and litigation that
arise in the ordinary course of business.

Item 5.    
Other Information

On September 25, 2002, the Board of
Directors of the Corporation adopted the 2002-2005 Restricted Share Unit Plan pursuant to
which employees, officers, and directors of the Corporation and its subsidiaries are
eligible to participate. Under the plan, the Human Resources and Compensation Committee is
authorized to grant awards of restricted share units to participants, up to an aggregate
of 2,000,000 restricted share units. Subject to the vesting and other provisions set out
in each participants award agreement, each restricted share unit will be
exchangeable for one common share of the Corporation. The common shares for which
restricted share units may be exchanged will be purchased on the open market by a trustee
appointed and funded by the Corporation. As no common shares will be issued by the
Corporation pursuant to the plan, the plan is non-dilutive to existing shareholders.

Item 6.    Exhibits and
Reports on Form 8-K

|a) |  | Exhibits
|-- |  | --------

| | 3.1 |  | Articles
of Incorporation and amendments thereto
| | --- |  | ------------------------------------------------

| | 10.21 |  | 2002-2005
Restricted Share Unit Plan
| | ----- |  | ------------------------------------

| | 99 |  | Selected
 Consolidated  Financial  Statements in U.S.  Dollars and in accordance with Canadian
                                Generally Accepted   Accounting Principles
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 99.1 |  | Management's
 Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
                                Canadian Supplement
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 99.2 |  | Certification
 Pursuant to 18 U.S.C Section  1350,  As Adopted  Pursuant to Section 906 of The
                                Sarbanes-Oxley Act of 2002
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | 99.3 |  | Certification
 Pursuant to 18 U.S.C Section  1350,  As Adopted  Pursuant to Section 906 of The
                                Sarbanes-Oxley Act of 2002
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

b)    Reports on
Form 8-K

There were no reports on Form 8-K
filed during the three months ended November 30, 2002.

26

---

SIGNATURE

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                 |  | COGNOS INCORPORATED                                                                                                                                         
|---------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |  | (Registrant)                                                                                                                                                
|                 |  |                                                                                                                                                             
|                 |  |                                                                                                                                                             
|                 |  |                                                                                                                                                             
|January 13, 2003 |  | /s/ Tom Manley                                                                                                                                              
|                 |  |                                                                                                                                                             
|Date             |  | Tom Manley

Senior Vice President, Finance &

  Administration and Chief Financial Officer

  (Principal Financial Officer and Chief Accounting

   Officer)

27

---

CERTIFICATIONS

I, Renato Zambonini, Chief Executive
Officer, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Cognos Incorporated;
|-- | --------------------------------------------------------------------------

|2. | Based on my knowledge, this quarterly report does not contain any untrue
          statement of a material fact or omit to state a material fact necessary to make
          the statements made, in light of the circumstances under which such statements
          were made, not misleading with respect to the period covered by this quarterly
          report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
          included in this quarterly report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this quarterly report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) |  | designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this           quarterly report
(the Evaluation Date); and
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) |  | presented
in this quarterly report our conclusions about the effectiveness of           the
disclosure controls and procedures based on our evaluation as of the           Evaluation
Date;
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The registrants other certifying officers and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) |  | all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The registrants other certifying officers and I have indicated in this
          quarterly report whether or not there were significant changes in internal
          controls or in other factors that could significantly affect internal controls
          subsequent to the date of our most recent evaluation, including any corrective
          actions with regard to significant deficiencies and material weaknesses.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|January 13, 2003 |  | /s/ Renato Zambonini                    
|---------------- |  | ----------------------------------------
|                 |  |                                         
|Date             |  | Renato Zambonini,Chief Executive Officer

28

---

I, Tom Manley, Senior Vice President,
Finance & Administration and Chief Financial Officer (Principal Financial Officer and
Chief Accounting Officer), certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Cognos Incorporated;
|-- | --------------------------------------------------------------------------

|2. | Based on my knowledge, this quarterly report does not contain any untrue
          statement of a material fact or omit to state a material fact necessary to make
          the statements made, in light of the circumstances under which such statements
          were made, not misleading with respect to the period covered by this quarterly
          report;
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based on my knowledge, the financial statements, and other financial information
          included in this quarterly report, fairly present in all material respects the
          financial condition, results of operations and cash flows of the registrant as
          of, and for, the periods presented in this quarterly report;
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The registrants other certifying officers and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) |  | designed
such disclosure controls and procedures to ensure that material           information
relating to the registrant, including its consolidated subsidiaries,           is made
known to us by others within those entities, particularly during the           period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | evaluated
the effectiveness of the registrants disclosure controls and           procedures
as of a date within 90 days prior to the filing date of this           quarterly report
(the Evaluation Date); and
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) |  | presented
in this quarterly report our conclusions about the effectiveness of           the
disclosure controls and procedures based on our evaluation as of the           Evaluation
Date;
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The registrants other certifying officers and I have disclosed, based on
          our most recent evaluation, to the registrants auditors and the audit
          committee of registrants board of directors (or persons performing the
          equivalent function):
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) |  | all
significant deficiencies in the design or operation of internal controls           which
could adversely affect the registrants ability to record, process,
          summarize and report financial data and have identified for the
          registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | The registrants other certifying officers and I have indicated in this
          quarterly report whether or not there were significant changes in internal
          controls or in other factors that could significantly affect internal controls
          subsequent to the date of our most recent evaluation, including any corrective
          actions with regard to significant deficiencies and material weaknesses.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|January 13, 2003 |  | /s/ Tom Manley                                                                                                                                        
|---------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|                 |  |                                                                                                                                                       
|Date             |  | Tom ManleySenior Vice President, Finance &

  Administration and Chief Financial Officer

  (Principal Financial Officer and Chief Accounting Officer)

29

---

EXHIBIT INDEX

|EXHIBIT NO. | DESCRIPTION                                                                                                                                   | PAGE 
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------- | -----
|            |                                                                                                                                               |      
|3.1         | Articles of Incorporation and amendments thereto                                                                                              | 31-40
|10.21       | 2002-2005 Restricted Share Unit Plan                                                                                                          | 41-44
|99          | Selected Consolidated Financial Statements and
Notes in U.S. Dollars and in accordance with Canadian Generally Accepted Accounting Principles | 45-54
|99.1        | Managements Discussion and Analysis of
Financial Condition and Results of Operations - Canadian Supplement                                   | 55-56
|99.2        | Certification Pursuant to 18 U.S.C Section 1350,
As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002                         | 57   
|99.3        | Certification Pursuant to 18 U.S.C Section 1350, As Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002                         | 58   

30