---

UNITED STATES

SECURITIES AND EXCHANGE
COMMISSION

WASHINGTON, D.C. 20549

_________________

FORM 10-Q

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

For the Quarterly
Period Ended November 30, 2004

OR

[   ] 
   TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT
OF 1934 
For The Transition
Period From _________ To ________

Commission File Number
0-16006

COGNOS INCORPORATED(Exact Name Of
Registrant As Specified In Its Charter)

|CANADA                          | 98-0119485                       
|------------------------------- | ---------------------------------
|(State Or Other Jurisdiction Of | (IRS Employer Identification No.)
|Incorporation Or Organization) 

|3755 Riverside Drive, 
P.O. Box 9707, Station T, 
Ottawa, Ontario, Canada(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. YES X  
  NO

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). 
YES X    NO

The number of shares outstanding of
the registrants only class of Common Stock as of December 15, 2004, was 91,003,345.

---

---

# COGNOS INCORPORATED

# INDEX

|PAGE                          
|------------------------------
|PART I - FINANCIAL
INFORMATION
|                              
|Item 1.                       
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|Item 2.                       
|                              
|Item 3.                       
|                              
|Item 4.                       
|                              
|PART II -
OTHER INFORMATION   
|                              
|Item 1.                       
|                              
|Item 2.                       
|                              
|Item 6.                       
|                              
|Signature                     

2

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PART I  FINANCIAL INFORMATION

|Item 1. |  | Unaudited Consolidated
Financial Statements
|------- |  | -------------------------------------------

COGNOS INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(US$000s except share amounts, U.S. GAAP)
(Unaudited)

|                                         |  | Three months endedNovember 30, |   | Nine months ended  November 30, |  
|---------------------------------------- |  | ------------------------------ | - | ------------------------------- | -
|                                        
|                                         |  | 2004                           |   | 2003                            |  
|                                        
|Revenue                                  | 
|Product license                          |  | $   91,580                     |   | $   72,551                      |  
|Product support                          |  | 81,031                         |   | 68,676                          |  
|Services                                 |  | 37,755                         |   | 31,000                          |  
|                                        
|Total revenue                            |  | 210,366                        |   | 172,227                         |  
|                                        
|Cost of revenue                          | 
|Cost of product license                  |  | 578                            |   | 1,121                           |  
|Cost of product support                  |  | 8,508                          |   | 7,051                           |  
|Cost of services                         |  | 28,574                         |   | 22,924                          |  
|                                        
|Total cost of revenue                    |  | 37,660                         |   | 31,096                          |  
|                                        
|Gross margin                             |  | 172,706                        |   | 141,131                         |  
|                                        
|Operating expenses                       | 
|Selling, general, and administrative     |  | 102,206                        |   | 85,959                          |  
|Research and development                 |  | 26,987                         |   | 22,265                          |  
|Amortization of intangible assets        |  | 1,672                          |   | 2,116                           |  
|                                        
|Total operating expenses                 |  | 130,865                        |   | 110,340                         |  
|                                        
|Operating income                         |  | 41,841                         |   | 30,791                          |  
|Interest expense                         |  | (22                            | ) | (552                            | )
|Interest income                          |  | 1,909                          |   | 975                             |  
|                                        
|Income before taxes                      |  | 43,728                         |   | 31,214                          |  
|Income tax provision                     |  | 9,183                          |   | 6,966                           |  
|                                        
|Net income                               |  | $   34,545                     |   | $   24,248                      |  
|                                        
|Net income per share                     | 
|Basic                                    |  | $0.38                          |   | $0.27                           |  
|                                        
|Diluted                                  |  | $0.37                          |   | $0.26                           |  
|                                        
|Weighted average number of shares (000s) | 
|Basic                                    |  | 90,621                         |   | 89,692                          |  
|                                        
|Diluted                                  |  | 93,235                         |   | 92,614                          |  
|                                        

(See accompanying notes)

3

---

COGNOS INCORPORATED
                                            CONSOLIDATED BALANCE SHEETS
                                               (US$000s, U.S. GAAP)

|                                                                 |  | November 30,2004 | February 29,2004
|---------------------------------------------------------------- |  | ---------------- | ----------------
|                                                                
|Assets                                                           |  | (Unaudited)      |                 
|Current assets                                                   |  |                  |                 
|Cash and cash equivalents                                        |  | $ 313,937        |                 
|Short-term investments                                           |  | 125,430          |                 
|Accounts receivable                                              |  | 142,763          |                 
|Prepaid expenses and other current assets                        |  | 14,832           |                 
|Deferred tax assets                                              |  | 1,656            |                 
|                                                                
|                                                                 |  | 598,618          |                 
|Fixed assets                                                     |  | 73,622           |                 
|Intangible assets                                                |  | 28,846           |                 
|Goodwill                                                         |  | 222,883          |                 
|                                                                
|                                                                 |  | $ 923,969        |                 
|                                                                
|Liabilities                                                      | 
|Current liabilities                                              | 
|Accounts payable                                                 |  | $   33,415       |                 
|Accrued charges                                                  |  | 30,524           |                 
|Salaries, commissions, and related items                         |  | 68,576           |                 
|Income taxes payable                                             |  | 13,809           |                 
|Deferred revenue                                                 |  | 153,137          |                 
|                                                                
|                                                                 |  | 299,461          |                 
|Deferred income taxes                                            |  | 23,357           |                 
|                                                                
|                                                                 |  | 322,818          |                 
|                                                                
|Stockholders Equity                                             | 
|Capital stock                                                    | 
|Common shares and additional paid-in capital                     | 
|(November 30, 2004  90,825,717; February 29, 2004  89,902,895) |  | 237,540          |                 
|Treasury shares                                                  | 
|(November 30, 2004  46,375; February 29, 2004  43,500)         |  | (1,199           | )               
|Deferred stock-based compensation                                |  | (496             | )               
|Retained earnings                                                |  | 361,707          |                 
|Accumulated other comprehensive income (loss)                    |  | 3,599            |                 
|                                                                
|                                                                 |  | 601,151          |                 
|                                                                
|                                                                 |  | $ 923,969        |                 
|                                                                



(See accompanying notes)

4

---

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

|                                                                  |  | Three months ended November 30, |   | Nine months ended November 30, |  
|----------------------------------------------------------------- |  | ------------------------------- | - | ------------------------------ | -
|                                                                 
|                                                                  |  | 2004                            |   | 2003                           |  
|                                                                 
|Cash flows from operating activities                              |  |                                 |   |                                |  
|Net income                                                        |  | $   34,545                      |   | $   24,248                     |  
|Non-cash items                                                    | 
|Depreciation and amortization                                     |  | 7,658                           |   | 7,252                          |  
|Amortization of deferred stock-based compensation                 |  | 109                             |   | 215                            |  
|Amortization of other deferred compensation                       |  | --                              |   | 44                             |  
|Deferred income taxes                                             |  | (1,329                          | ) | 1,227                          |  
|Loss on disposal of fixed assets                                  |  | 89                              |   | 76                             |  
|                                                                 
|                                                                  |  | 41,072                          |   | 33,062                         |  
|Change in non-cash working capital                                | 
|Decrease (increase) in accounts receivable                        |  | (14,405                         | ) | (5,716                         | )
|Decrease (increase) in prepaid expenses and other current assets  |  | 3,980                           |   | 2,327                          |  
|Increase (decrease) in accounts payable                           |  | 3,864                           |   | 837                            |  
|Decrease in accrued charges                                       |  | (2,346                          | ) | (4,610                         | )
|Increase (decrease) in salaries, commissions, and related items   |  | 8,580                           |   | 6,647                          |  
|Increase in income taxes payable                                  |  | 7,630                           |   | 3,967                          |  
|Decrease in deferred revenue                                      |  | (10,051                         | ) | (7,314                         | )
|                                                                 
|Net cash provided by operating activities                         |  | 38,324                          |   | 29,200                         |  
|                                                                 
|Cash flows from investing activities                              | 
|Maturity of short-term investments                                |  | 75,897                          |   | 88,663                         |  
|Purchase of short-term investments                                |  | (125,460                        | ) | (144,406                       | )
|Additions to fixed assets                                         |  | (4,261                          | ) | (5,784                         | )
|Additions to intangible assets                                    |  | (242                            | ) | (381                           | )
|Acquisition costs, net of cash and cash equivalents               |  | (49,706                         | ) | (254                           | )
|                                                                 
|Net cash used in investing activities                             |  | (103,772                        | ) | (62,162                        | )
|                                                                 
|Cash flows from financing activities                              | 
|Issue of common shares                                            |  | 13,548                          |   | 8,896                          |  
|Purchase of treasury shares                                       |  | --                              |   | --                             |  
|Repurchase of shares                                              |  | (7,965                          | ) | --                             |  
|Decrease in long-term debt and long-term liabilities              |  | --                              |   | --                             |  
|                                                                 
|Net cash provided by financing activities                         |  | 5,583                           |   | 8,896                          |  
|                                                                 
|Effect of exchange rate changes on cash                           |  | 9,020                           |   | 4,111                          |  
|                                                                 
|Net increase (decrease) in cash and cash equivalents              |  | (50,845                         | ) | (19,955                        | )
|Cash and cash equivalents, beginning of period                    |  | 364,782                         |   | 186,182                        |  
|                                                                 
|Cash and cash equivalents, end of period                          |  | 313,937                         |   | 166,227                        |  
|Short-term investments, end of period                             |  | 125,430                         |   | 154,668                        |  
|                                                                 
|Cash, cash equivalents, and short-term investments, end of period |  | $ 439,367                       |   | $ 320,895                      |  
|                                                                 

(See accompanying notes)

5

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. 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. The consolidated balance sheet as at
February 29, 2004 has been extracted from the audited consolidated financial statements
at that date. These consolidated financial statements 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 on Form 10-K for the fiscal year ended
February 29, 2004.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 deferred, until the right of return lapses.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

| | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Services
revenue from education, consulting, and other services is recognized at the time such
services are rendered. Many of the Corporations sales include both software and
services. Where the service is (1) not essential to the functionality of any other element
of the transaction and (2) stated separately such that the total price of the arrangement
is expected to vary as a result of the inclusion or exclusion of the service, the software
element is accounted for separately from the service element. Where these two criteria are
not met, the entire arrangement is accounted for using the percentage of completion method
in accordance with SOP 81-1, Accounting for Performance of Construction Type and Certain
Production Type Contracts.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | For
contracts with multiple obligations (e.g., delivered and undelivered products, support
obligations, education, consulting, and other services), the Corporation allocates revenue
to each element of the contract based on vendor specific objective evidence
(VSOE) of the fair value of the element. VSOE of fair value is assigned using
the residual method as outlined in SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions. VSOE is the renewal rate for product
support elements of a contract and, for service elements, is the normal pricing and
discounting practices for those products when they are sold separately; the residual is
then assigned to the license element of the contract.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Stock
Based Compensation
|-- |  | ------------------------

| | The
Corporation applies Accounting Principles Board Opinion 25, Accounting for Stock Issued to
Employees(APB 25) in accounting for its stock option, stock purchase, and
restricted share unit plans. Where the exercise price of stock options is equal to the
market price of the stock on the trading day preceding the date of grant, no compensation
cost has been recognized in the financial statements for its stock option and stock
purchase plans. However, for certain options assumed on the acquisition of Adaytum, Inc.
(Adaytum), under purchase accounting methodology, compensation cost has been
recognized in the financial statements. For restricted share units, the fair value of each
unit is calculated at the date of grant. Compensation cost relating to the restricted
share unit plan is recognized in the financial statements over the vesting period.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

| | If
the fair values of the options granted had been recognized as compensation expense on a
straight-line basis over the vesting period of the grant, stock-based compensation costs
would have reduced net income, basic net income per share and diluted net income per share
as indicated in the table below (000s, except per share amounts):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                |  | Three months endedNovember 30, |   | Nine months endedNovember 30 |  
| | ------------------------------------------------------------------------------ |  | ------------------------------ | - | ---------------------------- | -
| |                                                                               
| |                                                                                |  | 2004                           |   | 2003                         |  
| |                                                                               
| | Net income:                                                                    |  |                                |   |                              |  
| | As reported                                                                    |  | $34,545                        |   | $ 24,248                     |  
| | Add: Stock-based employee compensation included above                          |  | 109                            |   | 215                          |  
| | Less: Stock-based employee compensation using fair value                       | 
| | based method                                                                   |  | (4,518                         | ) | (5,435                       | )
| |                                                                               
| | Pro forma                                                                      |  | $ 30,136                       |   | $ 19,028                     |  
| |                                                                               
| | Basic net income per share:                                                    | 
| | As reported                                                                    |  | $0.38                          |   | $0.27                        |  
| | Add: Stock-based employee compensation included above                          |  | --                             |   | --                           |  
| | Less: Stock-based employee compensation using fair value 
        based method |  | (0.05                          | ) | (0.06                        | )
| |                                                                               
| | Pro forma                                                                      |  | $0.33                          |   | $0.21                        |  
| |                                                                               
| | Diluted net income per share:                                                  | 
| | As reported                                                                    |  | $0.37                          |   | $0.26                        |  
| | Add: Stock-based employee compensation included above                          |  | --                             |   | --                           |  
| | Less: Stock-based employee compensation using fair value 
        based method |  | (0.05                          | ) | (0.05                        | )
| |                                                                               
| | Pro forma                                                                      |  | $0.32                          |   | $0.21                        |  
| |                                                                               
| | Weighted average number of shares:                                             | 
| | Basic                                                                          |  | 90,621                         |   | 89,692                       |  
| |                                                                               
| | Diluted                                                                        |  | 93,235                         |   | 92,614                       |  
| |                                                                               

8

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

| | The
fair value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                  |  | Three months ended  November 30, |   | Nine months ended   November 30, |  
| | -------------------------------- |  | -------------------------------- | - | -------------------------------- | -
| |                                 
| |                                  |  | 2004                             |   | 2003                             |  
| |                                 
| | Risk-free interest rates         |  | 3.2                              | % | 3.0                              | %
| | Expected volatility              |  | 51.0                             | % | 57.1                             | %
| | Dividend yield                   |  | 0.0                              | % | 0.0                              | %
| | Expected life of options (years) |  | 4.3                              |   | 4.3                              |  

|4. |  | Goodwill
|-- |  | --------

| | During the three and nine months ended November 30, 2004, there were additions to goodwill in the amount of $50,560,000 resulting
from the acquisition of Frango AB (Frango). See Note 11. During the three and nine months ended November 30, 2003, there were
additions to goodwill of $254,000 and $484,000, respectively. The additions during the three and nine months ended November 30,
2003 were 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 as per the terms of the original purchase
agreement. The Corporation has designated the beginning of its fiscal year as the date for the annual impairment test, and
performed the required test as of March 1, 2004. Based on this test, goodwill is not considered to be impaired.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                   |  | Three months ended  November 30, |         | Nine months ended  November 30, | 
| | ----------------- |  | -------------------------------- | ------- | ------------------------------- | 
| |                  
| |                   |  | 2004                             |         | 2003                            | 
| |                  
| |                   |  | ($000s)                          | ($000s)
| | Beginning balance |  | $172,323                         |         | $170,221                        | 
| | Additions         |  | 50,560                           |         | 254                             | 
| |                  
| | Closing balance   |  | $222,883                         |         | $170,475                        | 
| |                  

9

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

|5. |  | Intangible
Assets
|-- |  | -----------------

| |                           |  | As at November 30,2004 | As at February 29,2004 
| | ------------------------- |  | ---------------------- | -----------------------
| |                          
| |                           |  | Cost                   | AccumulatedAmortization
| |                          
| |                           |  | ($000s)                | ($000s)                
| | Acquired technology       |  | $ 40,419               |                        
| |                           |  |                        |                        
| | Deferred compensation     |  | 8,945                  |                        
| | Contractual relationships |  | 9,608                  |                        
| | Trademarks and patents    |  | 4,390                  |                        
| |                           |  |                        |                        
| |                           |  | 63,362                 |                        
| |                           |  |                        |                        
| |                           |  | (34,516                | )                      
| |                           |  |                        |                        
| | Net book value            |  | $ 28,846               |                        
| |                           |  |                        |                        

| | During
the three and nine months ended November 30, 2004, there were additions to acquired
technology and contractual relationships in the amount of $7,038,000 and $1,808,000,
respectively, resulting from the acquisition of Frango. See Note 11. During the three and
nine months ended November 30, 2004, there were additions to trademarks and patents in
the amount of $241,000 and $770,000, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Amortization
of intangible assets was $1,672,000 and $2,116,000 in the quarters ended November 30,
2004 and November 30, 2003, respectively, and was $4,413,000 and $6,212,000 in the nine
months ended November 30, 2004 and November 30, 2003, respectively. The estimated
amortization expense related to intangible assets is as follows ($000s):
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2005 (Q4)           |  | $1,800 | 
|------------------- |  | ------ | 
|2006                |  | 7,170  | 
|2007                |  | 7,060  | 
|2008                |  | 6,407  | 
|2009                |  | 2,883  | 
|2010                |  | 2,103  | 
|2011 and thereafter |  | 1,423  | 
|                   

10

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

|6. |  | Commitments
and Contingencies
|-- |  | -----------------------------

| | Customer
 Indemnification
| | -------------------------

| | The
Corporation has entered into licensing agreements with customers that include limited
intellectual property indemnification clauses. These clauses are typical in the software
industry and require the Corporation to compensate the customer for certain liabilities
and damages incurred as a result of third party intellectual property claims arising from
these transactions. The Corporation has not made any significant indemnification payments
as a result of these clauses and, in accordance with Financial Accounting Standards Board
(FASB) Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, has
not accrued any amounts in relation to these indemnification clauses.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Legal
Proceedings
| | -----------------

| | The
Corporation and its subsidiaries may, from time to time, be involved in legal
proceedings, claims, and litigation that arise in the ordinary course of business. In the
event that any such claims or litigation are resolved against Cognos, such outcomes or
resolutions could have a material adverse effect on the business, financial condition, or
results of operations of the Corporation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. |  | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. |  | Stockholders Equity
|-- |  | --------------------

| | The
Corporation issued 625,000 common shares for $13.5 million, and 543,000 common shares for
$8.9 million during the quarters ended November 30, 2004, and November 30, 2003,
respectively. The Corporation issued 1,727,000 common shares for $32.8 million and
1,769,000 common shares for $27.0 million during the nine months ended November 30, 2004,
and November 30, 2003, respectively. The issuance of shares in all periods was pursuant
to the Corporations stock purchase plan and the exercise of stock options by
employees and officers.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Corporation repurchases shares under a share repurchase program and under a restricted
share unit plan. During the three and nine months ended November 30, 2004, the
Corporation repurchased 217,000 shares at a value of $8.0 million and 804,000 shares at a
value of $27.8 million, respectively, in the open market under its share repurchase
program. During the three and nine months ended November 30, 2003, the Corporation did
not repurchase any shares under its stock repurchase program.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

| | The
Corporation did not repurchase shares under its restricted share unit plan during the
three months ended November 30, 2004 and November 30, 2003. During the nine-month
periods ended November 30, 2004 and November 30, 2003, the Corporation repurchased 10,000
shares at a value of $0.3 million and 21,000 shares at a value of $0.6 million,
respectively under its restricted share unit plan.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 endedNovember 30, |  | Nine months endedNovember 30, | 
| | ----------------------------------- |  | ------------------------------ |  | ----------------------------- | 
| |                                    
| |                                     |  | 2004                           |  | 2003                          | 
| |                                    
| | Basic Net Income per Share          |  |                                |  |                               | 
| | Net income                          |  | $34,545                        |  | $24,248                       | 
| |                                    
| | Weighted average number of shares   | 
| | outstanding                         |  | 90,621                         |  | 89,692                        | 
| |                                    
| | Basic net income per share          |  | $0.38                          |  | $0.27                         | 
| |                                    
| | Diluted Net Income per Share        | 
| | Net income                          |  | $34,545                        |  | $24,248                       | 
| |                                    
| | Weighted average number of shares   | 
| | outstanding                         |  | 90,621                         |  | 89,692                        | 
| | Dilutive effect of stock options    |  | 2,614                          |  | 2,922                         | 
| |                                    
| | Adjusted weighted average number of | 
| | shares outstanding                  |  | 93,235                         |  | 92,614                        | 
| |                                    
| | Diluted net income per share        |  | $0.37                          |  | $0.26                         | 
| |                                    

12

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

|9. |  | 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 not
included in net income and other than transactions with stockholders. These changes are
recorded directly as a separate component of Stockholders Equity. 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |                                          |  | Three months endedNovember 30, |  | Nine months endedNovember 30, | 
| | ---------------------------------------- |  | ------------------------------ |  | ----------------------------- | 
| |                                         
| |                                          |  | 2004                           |  | 2003                          | 
| |                                         
| | Net income                               |  | $34,545                        |  | $24,248                       | 
| | Other comprehensive income:              | 
| | Foreign currency translation adjustments |  | 5,373                          |  | 2,931                         | 
| |                                         
| | Comprehensive income                     |  | $39,918                        |  | $27,179                       | 
| |                                         

|10. |  | Segmented
Information
|--- |  | ---------------------

| | The
Corporation operates in one business segment  computer software solutions.
| | -------------------------------------------------------------------------------

|11. |  | Acquisitions
|--- |  | ------------

| | Frango
| | ------

| | On
September 29, 2004, the Corporation announced that it had successfully completed a tender
offer for the shares of Frango, a Stockholm Sweden based company with global operations.
The acquisition was accounted for using the purchase method of accounting in accordance
with Statement of Financial Accounting Standard (SFAS) 141, Business
Combinations. Frango specializes in consolidation and financial reporting solutions.
The Corporation acquired Frango primarily to add Frangos consolidation and financial
reporting software to its product suite and also to access Frangos workforce and
distribution channels in Europe and Asia, all part of the Corporations broader
strategy to lead the CPM market. The acquisition of Frango further strengthens the
Corporations product offering to the office of finance, a key entry point with its
customers. The aggregate purchase consideration was approximately $53,088,000 paid in
cash. Direct costs associated with the acquisition were approximately $1,916,000.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

| | An
independent appraisal valued the in-process research and development at an immaterial
amount, and therefore the purchase of Frango did not involve the write-off of any
in-process research and development.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
purchase price allocation is not yet final, particularly as it relates to the fair
valuation of certain items such as accounts receivable, intangible assets, deferred
revenue, and accrued liabilities, the restructuring plan as discussed below and goodwill.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Based
on an independent appraisal, an initial estimate of $8,846,000 of the purchase price was
allocated to intangible assets, subject to amortization. Of this amount, $7,038,000 was
allocated to acquired technology and $1,808,000 was allocated to contractual
relationships. Neither intangible asset is expected to have any residual value. The
amortization period for the acquired technology is five years whereas the amortization
period for the contractual relationships is approximately eight years. The weighted
average amortization for these intangible assets acquired is approximately six years. The
fair values of these intangible assets were assigned using the discounted cashflow method,
which discounts the present value of the free cashflows expected to be generated by the
assets. The amortization periods were determined using the estimated economic useful life
of the asset.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the allocation of purchase price, an initial estimate of $50,560,000 was assigned to
goodwill. This represents the excess of the purchase price paid for Frango over the fair
value of the net tangible and identifiable intangible assets acquired. Goodwill will not
be amortized but will be subject to annual impairment testing, in accordance with the
Corporations accounting policy. The goodwill is not deductible for tax purposes.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
purchase price, which is subject to final adjustment, is allocated to the assets and
liabilities based upon their estimated fair value at the date of acquisition, as noted
below: ($000s)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

| |                                         |  | Frango AB | 
| | --------------------------------------- |  | --------- | 
| |                                        
| | Assets acquired:                        |  |           | 
| | Cash                                    |  | $  3,382  | 
| | Accounts receivable, net                |  | 8,896     | 
| | Prepaid expenses                        |  | 2,220     | 
| | Fixed assets                            |  | 647       | 
| | Intangible assets                       |  | 8,846     | 
| |                                        
| |                                         |  | 23,991    | 
| |                                        
| | Liabilities assumed:                    | 
| | Accrued expenses                        |  | 3,174     | 
| | Deferred revenue                        |  | 1,523     | 
| | Other current liabilities               |  | 8,596     | 
| | Restructuring                           |  | 5,074     | 
| | Deferred tax liabilities on intangibles |  | 3,096     | 
| |                                        
| |                                         |  | 21,463    | 
| |                                        
| | Net assets acquired                     |  | 2,528     | 
| | Goodwill                                |  | 50,560    | 
| |                                        
| | Purchase price                          |  | $53,088   | 
| |                                        
| | Purchase price consideration            | 
| |                                        
| | Cash                                    |  | $53,088   | 
| |                                        

| | The
Corporation undertook a restructuring plan in conjunction with the acquisition of Frango.
In accordance with Emerging Issues Task Force (EITF) No. 95-3,
Recognition of Liabilities in Connection with a Business Combination (EITF
95-3), the liability associated with this restructuring is considered a
liability assumed in the purchase price allocation. This restructuring was primarily
related to involuntary employee separations of approximately 20 employees of Frango and
accruals for vacating leased premises of Frango. The employee separations impacted all
functional groups, primarily in Europe. The restructuring accrual is included on the
balance sheet as accrued charges and salaries, commissions, and related items. The plan is
not yet finalized and as a result, there may be unresolved contingencies, purchase price
allocation issues, or additional liabilities that could result in a material adjustment to
the acquisition cost allocation.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

| | ($000s)                                     |  | Employeeseparations | Otherrestructuringaccruals | Total 
| | ------------------------------------------- |  | ------------------- | -------------------------- | ------
| |                                            
| | Restructuring accrual at September 30, 2004 |  | $2,311              |                            | $2,763
| | Cash payments                               |  | --                  |                            | --    
| | Foreign Exchange Adjustment                 |  | 135                 |                            | 164   
| |                                            
| | Balance as at November 30, 2004             |  | $2,446              |                            | $2,927
| |                                            

| | The
Corporation has elected not to disclose pro-forma combined results of operations as they
are not material to the financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------

| | Adaytum
| | -------

| | The
Corporation undertook a restructuring plan in conjunction with the acquisition of Adaytum
in January 2003. In accordance with EITF 95-3, the liability associated with this
restructuring is considered a liability assumed in the purchase price allocation. The
Corporation recorded restructuring costs of approximately $9.2 million in relation to this
restructuring plan. These restructuring costs primarily relate to involuntary employee
separations of approximately 90 employees of Adaytum, accruals for vacating leased
premises of Adaytum, and related write-downs of leasehold improvements as well as asset
write-downs of Adaytum. The employee separations impact all functional groups and
geographic regions of Adaytum. The remaining accrual is included on the balance sheet as
accrued charges and salaries, commissions, and related items. All amounts excluding lease
payments are expected to be settled in fiscal 2005. Outstanding balances for lease
payments will be paid over the lease term unless settled earlier. Settlement of
obligations at an amount lower than that currently accrued will result in an adjustment to
goodwill, settlement at a higher amount would be expensed in the period in which the
determination is made.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

| | The
following table sets forth the activity in the Corporations restructuring accrual
for the nine-month period ended November 30, 2004: ($000s)
| | -------------------------------------------------------------------------------------------------------------------------------------------------

| |                                     |  | Employeeseparations | Otherrestructuringaccruals | Totalaccrual
| | ----------------------------------- |  | ------------------- | -------------------------- | ------------
| |                                    
| | Balance as at February 29, 2004     |  | $ 945               |                            | $3,498      
| | Cash payments during the first nine | 
| | months of fiscal 2005               |  | (563                | )                          | (193        
| |                                    
| | Balance as at November 30, 2004     |  | $ 382               |                            | $3,305      
| |                                    

|12. |  | Comparative
Results
|--- |  | -------------------

| | Certain
of the prior periods figures have been reclassified in order to conform to the
presentation adopted during the current fiscal year. This change in presentation does not
affect previously reported assets, liabilities, or results of operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. |  | New
Accounting Pronouncements
|--- |  | -----------------------------

| | In
January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46). FIN 46 expands upon existing guidance
that addresses when a company should include in its financial statements the assets,
liabilities, and activities of another company. A variable interest entity is any legal
structure used for business purposes that either (a) does not have equity investors or has
equity investors that lack characteristics of control; or (b) the equity investment at
risk does not provide sufficient financial resources for the entity to support its
activities. Under FIN 46, a variable interest entity must be consolidated by a company if
that company is expected to absorb a majority of the entitys expected losses or to
receive a majority of the entitys expected residual returns. The consolidation
requirements apply to variable interest entities created after January 31, 2003. For
variable interest entities created before January 31, 2003, the consolidation requirements
became applicable for reporting periods ending after March 15, 2004. FIN 46 also requires
certain disclosures about variable interest entities where those entities are not required
to be consolidated. The Corporation has determined that it owns a minority interest in an
undercapitalized distributor that qualifies as a variable interest entity. The Corporation
adopted FIN 46 on May 31, 2004 for this variable interest entity which was created prior
to February 1, 2003. The adoption of FIN 46 did not have a material impact on the
Corporations financial condition or results of operations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

---

COGNOS INCORPORATED 
CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
(All amounts in U.S. dollars, unless otherwise stated)
(In accordance with U.S. GAAP)

| | In
December 2004, the FASB issued SFAS 123R, Share-Based Payment,(SFAS
123R). This revised standard addresses the accounting for share-based payment
transactions in which a company receives employee services in exchange for either equity
instruments of the company or liabilities that are based on the fair value of the
companys equity instruments or that may be settled by the issuance of such equity
instruments. Under the new standard, companies will no longer be able to account for
share-based compensation transactions using the intrinsic method in accordance with APB
25. Instead, companies will be required to account for such transactions using a
fair-value method and recognize the expense in the consolidated statement of income. SFAS
123R will be effective for periods beginning after June 15, 2005 and allows, but does not
require, companies to restate the full fiscal year of 2005 to reflect the impact of
expensing share-based payments under SFAS 123R. The Corporation has not yet determined
which fair-value method and transitional provision it will follow. The impact on Cognos
financial statements of applying one of the acceptable fair-value based method of
accounting for stock options is disclosed in Note 3.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18

---

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)

FORWARD-LOOKING
STATEMENTS/SAFE HARBOR

Managements Discussion and
Analysis of Financial Condition and Results of Operations (MD&A)
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 MD&A contained in our
Annual Report on Form 10-K for the fiscal year ended February 29, 2004 (fiscal
2004). MD&A contains forward-looking statements including statements
concerning future revenues and earnings; product demand and growth opportunities; business
outlook and business momentum; trends towards increasing customer attention to corporate
performance management and BI standardization and our position to capitalize on such
trends; purchasing environment and improving market conditions; currency fluctuation; the
strengthening of our customer relationships and strategic partnerships; the strength of
our sales and distribution channels and of our service and support teams; the method of
penetrating the large enterprise market; the role of systems integrators; research and
development activities as well as new product introductions, including an upgrade to our
Business Intelligence Series and the introduction of Cognos Controller in North America;
customer reaction and acceptance of our products, including the Cognos
ReportNetTM product; market positioning and conditions, business model and
technology strategies and execution; the expensing of stock options; the growth, strategic
importance and acceptance of corporate performance management, business intelligence,
prepackaged solutions and solution standardization; the impact and benefits of the
acquisition of Frango AB (Frango) and the exclusive relationship with
Composite Software; and our requirements for working capital. 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: the
Companys ability to maintain revenue growth or to anticipate a decline in revenue
from any of its products or services; the Companys ability to develop and introduce
new products and enhancements that respond to customer requirements and rapid
technological change; new product introductions and enhancements by competitors; the
Companys ability to compete in an intensely competitive market; continued BI market
consolidation; the Companys ability to select and implement appropriate business
models and strategies; fluctuations in its quarterly and annual operating results;
currency fluctuations; tax rate fluctuations; the impact of global economic conditions on
the Companys business; unauthorized use of the Companys intellectual property;
claims by third parties that the Companys software infringes their intellectual
property; the risks inherent in international operations, such as currency exchange rate
fluctuations; the Companys ability to identify, hire, train, motivate, and retain
highly qualified management and other key personnel; the Companys ability to
identify, pursue, and complete acquisitions with desired business results; a continuing
increase in the number of larger customer transactions; the Companys ability to
efficiently integrate Frango and the ease in which Frango can be integrated; the existence
of regulatory barriers to integration; and the Companys ability to retain Frango
personnel; as well as the risk factors discussed below and in other periodic reports filed
with the SEC. Readers should not place undue reliance on any such forward-looking
statements, which speak only as of the date they are made. We disclaim any obligation to
publicly update or revise any such statement to reflect any change in its expectations or
in events, conditions, or circumstances on which any such statements may be based, or that
may affect the likelihood that actual results will differ from those contained in the
forward-looking statements.

19

---

# ABOUT
COGNOS®

Cognos is a global leader in business
intelligence (BI) and corporate performance management
(CPM) software solutions. Our solutions help 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, management believes that customers gain valuable insights that can be used
to improve financial and operational performance, enhance customer satisfaction, reduce
corporate response times and, ultimately, increase revenues and profits. Our integrated
software solutions consist of our suite of BI components, analytical applications, and
performance management applications.

Our customers can also strategically
apply our software solutions across their extended enterprise to address their need for
CPM. By allowing timely analysis of data from disparate systems, CPM enables organizations
to measure execution against business strategy to ensure that the two are aligned at all
levels. Our integrated CPM solution enables customers to drive performance through
planning; monitor performance through scorecarding; and understand performance through BI.

Our revenue is derived primarily from
the licensing of our software and the provision of related services for BI solutions.
These related services include product support, education, and consulting. We generally
license software and provide services subject to terms and conditions consistent with
industry standards. For an annual fee, customers may contract with us for product support,
which includes product and documentation enhancements, as well as tele-support and
web-support.

# OVERVIEW OF THE
QUARTER

We delivered excellent results this
quarter. We achieved strong revenue and earnings performance and we improved our operating
margin and license revenue growth. In addition, during the quarter, we completed the
acquisition of Frango, strengthening our financial applications solution.

# Operating Performance

Revenue for the three-month period
ended November 30, 2004 was $210.4 million, an increase of 22% from $172.2 million for the
corresponding period last fiscal year. License revenue increased 26% to $91.6 million,
compared with $72.6 million in the third quarter of fiscal 2004. The increase in revenue
for the quarter is primarily attributable to increased sales of Cognos ReportNet and our
Enterprise Planning series.

Our operating margin for the quarter
ended November 30, 2004 was 19.9% compared to 17.9% a year ago. Net income for the
three-month period ended November 30, 2004 was $34.5 million or $0.37 per share compared
to net income of $24.2 million or $0.26 per share for the same period last year. The
improvement in net income for the quarter can be attributed to the market acceptance of
our product portfolio, the performance of our distribution channels and sales
organization, the strength of our customer relationships, the quality of our support and
services and our prudent expense management. This is evidenced by the increase in license
revenue and overall improvement in operating results. Also contributing to the increase in
net income was a lower effective tax rate.

20

---

We generated $38.3 million in cash
flow from operations during the three-month period ended November 30, 2004. During the
period, we expended $53.1 million for the purchase of Frango and $8.0 million to
repurchase shares under the share repurchase program. We exited the quarter with $439.4
million in cash, cash equivalents, and short-term investments.

We signed fifteen contracts in excess
of one million dollars during the quarter. In addition, the number of contracts greater
than $200,000 and $50,000 increased by 34% and 24%, respectively, compared to the
corresponding period last year. We believe this increase in the number of large contracts
is evidence of the continuing growth and deepening strategic importance of CPM within our
customers businesses and the trend towards standardization on a single BI platform.

# Economic and Market
Factors

We believe that the IT purchasing
environment remains stable and that the market for BI products, in particular, is healthy.
The increasing attention to CPM and BI standardization among our customers and large
enterprises worldwide is contributing to our success. Our BI and Enterprise Planning
software, which we believe are the foundation for CPM, allow us to enter the market from
several key entry points and can assist our customers in delivering end-to-end
decision-making systems. We believe customers are receiving a return on their investment
in these products and witnessing evidence of our CPM vision in action.

The breadth of our solution and
quality of our products is allowing us to develop long-term strategic relationships with
our customers which, in turn, enables us to generate additional software licensing and
ongoing maintenance renewals. These relationships are a significant asset as approximately
68% of our license revenue came from existing customers in the three-month period ended
November 30, 2004.

# Acquisition of Frango

On September 29, 2004, we announced
that we had successfully completed a tender offer for the capital stock of Frango, a
Swedish company with global operations. Frango specializes in consolidation and financial
reporting solutions.

We believe that Frangos
established customer base in Europe and Asia will assist us in growing in those strategic
markets. We also believe that Frangos consolidation and financial reporting products
should further strengthen our product offering to the office of finance, a key entry point
with our customers. We believe these products are proven and market-ready and we plan on
introducing them to the American market early next fiscal year. The acquisition of Frango
is also part of our broader corporate strategy of leading the CPM market.

# Outlook for the fourth
quarter

For the fourth quarter of fiscal
2005, we expect continued growth in our revenue and earnings. We believe that the trends
towards standardization on one BI vendor and broader acceptance of CPM are evidenced by
the growth in order size. We also believe that our leadership position in the BI and CPM
market enables us to capitalize on these trends. We are making significant investments in
sales related personnel, our partner channel and in marketing to take advantage of these
factors.

21

---

Recent foreign exchange increases
relative to the U.S. dollar, particularly the euro, U.K. pound and Canadian dollar, have
favorably impacted revenue while at the same time unfavorably impacted our cost structure.
Foreign exchange fluctuations going forward will continue to impact both revenues and
costs.

We continue to focus on bringing
innovative new products to market. We recently released Cognos Planning Series 7 version 3
which streamlines key financial and operational processes by providing component-based
planning to link planning models in real-time across the global scope of the organization.
We also recently introduced Cognos Controller 2.3 which is the first Cognos-branded
offering from our acquisition of Frango. Cognos Controller offers sophisticated global
consolidation and financial reporting capabilities. In addition, we entered into an OEM
agreement with Composite Software to embed its Enterprise Information Integration
(EII) software into Cognos ReportNet, thereby extending our open data
strategy for our customers.

In fiscal 2006, we expect to release
an upgrade to our Enterprise Business Intelligence Series that will continue to expand the
deployment of our new platform.

# APPLICATION OF
CRITICAL
ACCOUNTING
POLICIES AND
ESTIMATES

Our discussion and analysis of our
financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, and expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates based on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances. The estimates
form the basis for making judgments about the carrying values of assets and liabilities
and reported revenues and expenses that may not be readily apparent from other sources.
Actual results may differ from these estimates under different assumptions, conditions,
and experience.

The following critical accounting
policies and significant estimates are used in the preparation of our consolidated
financial statements:

| |  | Revenue
Recognition
|- |  | -------------------

| |  | Allowance
for Doubtful Accounts
|- |  | -------------------------------

| |  | Accounting
for Income Taxes
|- |  | ---------------------------

| |  | Goodwill
and Acquired Intangible Assets
|- |  | ---------------------------------------

| |  | Impairment
of Goodwill and Long-lived Assets
|- |  | --------------------------------------------

Revenue Recognition We
recognize revenue in accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition. Our product license revenue is earned from licenses
of off-the-shelf software not requiring significant production, modification, or
customization. Revenue from these licenses is recognized when all of the following
criteria are met: (1) persuasive evidence of an arrangement exists (our standard business
practice is that persuasive evidence exists when we have a binding contract with a
customer), (2) delivery has occurred, (3) the fee is fixed or determinable, and (4)
collectibility is probable. If a license includes the right to return the product for
refund or credit, revenue is deferred, until the right of return lapses.

22

---

Product support includes the right to
receive support services and unspecified upgrades or enhancements. Unspecified upgrades
and enhancements are product support only if they are offered on a when-and-if-available
basis. 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.

Services revenue from education,
consulting, and other services is recognized at the time the services are rendered. Many
of our sales include both software and services. Where the service is (1) not essential to
the functionality of any other element of the transaction and (2) stated separately such
that the total price of the arrangement is expected to vary as a result of the inclusion
or exclusion of the service, the software element is accounted for separately from the
service element. Where these two criteria are not met, the entire arrangement is accounted
for using the percentage of completion method in accordance with SOP 81-1, Accounting
for Performance of Construction Type and Certain Production Type Contracts.

For those contracts with multiple
obligations, that is, delivered and undelivered products, support obligations, education,
consulting, and other services, we allocate revenue to each element of the contract based
on vendor specific objective evidence (VSOE) of the fair value of the element.
VSOE of fair value is assigned using the residual method as outlined in SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions. For product support elements of a contract, VSOE is the renewal rate.
VSOE for service elements is the normal pricing and discounting practices for those
products when they are sold separately; the residual is then assigned to the license
element of the contract.

Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. We regularly review our
accounts receivable and use judgment to assess the collectibility of specific accounts
and, based on this assessment, an allowance is maintained for 100% of all accounts deemed
to be uncollectible. For those receivables not specifically identified, an allowance is
maintained for a specific percentage of those receivables based on the aging of the
accounts, our historical collection experience, and current economic conditions. If the
financial condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.

Accounting for Income Taxes As an entity which operates globally, we calculate our income tax liabilities in each
of the jurisdictions in which we conduct business. Our tax rate is therefore affected by
the relative profitability of our operations in various geographic regions. We employ tax
planning strategies which, by their nature, involve complicated transactions. Those
transactions are subject to review or audit by taxation authorities and the ultimate tax
outcome bears a measure of uncertainty. We must therefore make estimates and judgments and
it may take a considerable period of time for the ultimate tax outcome to be known.
Although we believe our estimates are reasonable, the ultimate tax outcome could differ
from the amounts recorded in our financial statements. These differences could have a
material effect on our financial position and our net income.

23

---

We record a valuation allowance to
reduce our deferred tax assets to the amount that is more likely than not to be realized.
We have considered forecasted taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for a valuation allowance.

Our valuation allowance pertains
primarily to the net operating loss carryforwards resulting from acquisitions. In the
event we were to subsequently determine that we would be able to realize deferred tax
assets related to an acquisition in excess of the net purchase price allocated to those
deferred tax assets, we would record a credit to goodwill.

If we were to determine that we would
be able to realize deferred tax assets unrelated to acquisitions in excess of the net
recorded amount, an adjustment to the deferred tax asset would increase income in the
period such determination was made. Should we determine that we would not be able to
realize all or part of our net deferred tax assets in the future, an adjustment to the
deferred tax asset would reduce income in the period such determination was made.

We provide for withholding taxes on
the undistributed earnings of our foreign subsidiaries. The ultimate tax liability related
to the undistributed earnings could differ from the liabilities recorded in our financial
statements. These differences could have a material effect on our income tax liabilities
and our net income.

Goodwill and Acquired Intangible
Assets We account for acquisitions of companies in accordance with Statement of
Financial Accounting Standards Board Statement (SFAS) No. 141,
Business Combinations. We allocate purchase price to tangible assets, intangible
assets, and liabilities based on fair values with the excess of purchase price amount
being allocated to goodwill.

Historically, our acquisitions have
resulted in the recognition of significant amounts of goodwill and acquired intangible
assets. In order to allocate a purchase price to these intangible assets and goodwill, we
make estimates and judgments based on assumptions about the future income producing
capabilities of these assets and related future expected cash flows. In larger
acquisitions, we typically use independent appraisals to assist us in determining the fair value of
intangible assets. We also make estimates about the useful lives of the acquired
intangible assets. Should different conditions prevail, we could incur write-downs of
goodwill, write-downs of intangible assets, or changes in the estimation of useful lives
of those intangible assets.

In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets (SFAS 142), goodwill is not
amortized, but is subject to annual impairment testing which is discussed in greater
detail below under Impairment of Long-lived Assets. Prior to our adoption of SFAS
142, we amortized goodwill over 5 years using the straight-line method.

Intangible assets include acquired
technology, contractual relationships, and trademarks and patents. Acquired technology is
initially recorded at fair value based on the present value of the estimated net future
income-producing capabilities of the software products acquired. Acquired technology is
amortized over its estimated useful life on a straight-line basis. Contractual
relationships represent contractual and separable relationships that we have with certain
customers and partners that we acquired through acquisitions. These contractual
relationships were initially recorded at their fair value based on the present value of
expected future cash flows and are amortized over their estimated useful life. Trademarks
and patents are initially recorded at cost. Cost includes legal fees and other expenses
incurred in order to obtain these assets. They are amortized over their estimated useful
life on a straight-line basis.

24

---

We evaluate the remaining useful life
of our intangible assets being amortized each reporting period to determine whether events
or circumstances warrant a revision to the estimated remaining amortization period.

Impairment of Goodwill and
Long-lived Assets In accordance with SFAS 142, goodwill is subject to annual
impairment tests, or on a more frequent basis if events or conditions indicate that
goodwill may be impaired. Goodwill is tested for impairment at a level of reporting
referred to as a reporting unit. Cognos as a whole is considered one reporting unit.
Quoted market prices in active markets are considered the best evidence of fair value.
Therefore, the first step of our annual test is to compare the fair value of our shares on
The Nasdaq Stock Market to the carrying value of our net assets. If we determine that our
carrying value exceeds our fair value, we would conduct a second step to the goodwill
impairment test. The second step would compare the implied fair value of the goodwill
(determined as the excess fair value over the fair value assigned to our other assets and
liabilities) to the carrying amount of goodwill. When the carrying amount of goodwill
exceeds the implied fair value of goodwill, an impairment loss would be recognized.

We evaluate all of our long-lived
assets, including intangible assets other than goodwill and fixed assets, periodically for
impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal
of Long-lived Assets(SFAS 144). SFAS 144 requires that long-lived
assets be evaluated for impairment when events or changes in facts and circumstances
indicate that their carrying value may not be recoverable. If events or circumstances
indicate that the carrying value of an asset may not be recoverable, the amount of
impairment will be measured as the difference between the carrying value and the fair
value of the impaired asset. An impairment will be recorded as an operating expense in the
period of the impairment and as a reduction in the carrying value of that asset.

# NEW
ACCOUNTING
PRONOUNCEMENTS

In January 2003, the Financial
Accounting Standards Board (FASB) issued Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46). FIN 46
expands upon existing guidance that addresses when a company should include in its
financial statements the assets, liabilities, and activities of another company. A
variable interest entity is any legal structure used for business purposes that either (a)
does not have equity investors or has equity investors that lack characteristics of
control; or (b) the equity investment at risk does not provide sufficient financial
resources for the entity to support its activities. Under FIN 46, a variable interest
entity must be consolidated by a company if that company is expected to absorb a majority
of the entitys expected losses or to receive a majority of the entitys
expected residual returns. The consolidation requirements apply to variable interest
entities created after January 31, 2003. For variable interest entities created before
January 31, 2003, the consolidation requirements became applicable for reporting periods
ending after March 15, 2004. FIN 46 also requires certain disclosures about variable
interest entities where those entities are not required to be consolidated. We have
determined that Cognos owns a minority interest in an undercapitalized distributor that
qualifies as a variable interest entity. We adopted FIN 46 on May 31, 2004 for this
variable interest entity created prior to February 1, 2003. The adoption of FIN 46 did not
have a material impact on our financial condition or results of operations.

25

---

In December 2004, the FASB issued
SFAS 123R, Share-Based Payment,(SFAS 123R). This revised
standard addresses the accounting for share-based payment transactions in which a company
receives employee services in exchange for either equity instruments of the company or
liabilities that are based on the fair value of the companys equity instruments or
that may be settled by the issuance of such equity instruments. Under the new standard,
companies will no longer be able to account for share-based compensation transactions
using the intrinsic method in accordance with APB 25. Instead, companies will be required
to account for such transactions using a fair-value method and recognize the expense in
the consolidated statement of income. SFAS 123R will be effective for periods beginning
after June 15, 2005 and allows, but does not require, companies to restate the full fiscal
year of 2005 to reflect the impact of expensing share-based payments under SFAS 123R. We
have not yet determined which fair-value method or transitional provision we will follow.
The impact on Cognos financial statements of applying one of the acceptable fair-value
based method of accounting for stock options is disclosed in Note 3 of the Condensed Notes
to the Consolidated Financial Statements.

# SHAREHOLDER
PROPOSAL

In June 2003, the shareholders of
Cognos approved a proposal made by the Carpenters Union asking the Board of Cognos to
adopt a policy requiring Cognos to record the expense of all future stock options awarded
to senior executives in its annual income statement. At the time, the Board undertook to
study this issue and respond to Cognos shareholders before the next Shareholders
Meeting in June 2004.

The Board of Cognos considered this
matter at length and concluded that it agrees unequivocally with the principle that all
stock options, including those issued to non-executives, should be recorded as an expense
on the Corporations income statement. As with any other major accounting policy,
regulators first must develop uniform rules and guidance so that investors may make
informed comparisons between Cognos and its industry peers. Comprehensive standards and
uniform rules have now been issued in both the United States and Canada. As we report
under both U.S. and Canadian accounting standards, changes to standards in both countries
apply to Cognos.

In October 2003, the Canadian
Institute of Chartered Accountants issued uniform rules relating to stock option expensing
requiring Cognos to comply not later than the start of the current fiscal year. Cognos
began expensing stock options in its Canadian GAAP financial statements in the fourth
quarter of fiscal 2004, retroactive to the beginning of the fiscal year.

In December 2004, the FASB issued
uniform rules relating to stock option expensing requiring companies to start expensing
the fair-value of stock options in periods beginning after June 15, 2005. We are currently
examining the different valuation methods and we will be expensing stock options no later
than the third quarter of fiscal 2006 commencing on September 1, 2005. See Note 3 of the
Condensed Notes to the Consolidated Financial Statements.

26

---

# RESULTS OF
OPERATIONS

|(000s, except per share amounts) |  |                                | Percentage Change            
|-------------------------------- |  | ------------------------------ | -----------------------------
|                                
|                                 |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                                 |  |                               
|                                 |  | 2004                           | 2003                         
|                                
|Revenue                          |  | $210,366                       |                              
|Cost of revenue                  |  | 37,660                         |                              
|                                 |  |                               
|Gross margin                     |  | 172,706                        |                              
|Operating expenses               |  | 130,865                        |                              
|                                 |  |                               
|Operating income                 |  | $  41,841                      |                              
|                                
|Gross margin percentage          |  | 82.1                           | %                            
|Operating margin percentage      |  | 19.9                           | %                            
|                                
|Net income                       |  | $  34,545                      |                              
|                                 |  |                               
|Basic net income per share       |  | $0.38                          |                              
|                                 |  |                               
|Diluted net income per share     |  | $0.37                          |                              
|                                 |  |                               

Revenue for the quarter ended
November 30, 2004 was $210.4 million, a 22% increase from revenue of $172.2 million for
the same quarter last year. Net income for the current quarter was $34.5 million, compared
to net income of $24.2 million for the same quarter last year. Diluted net income per
share was $0.37 for the current quarter, compared to diluted net income per share of $0.26
for the same quarter last year. Basic net income per share was $0.38 and $0.27 for the
quarters ended November 30, 2004 and November 30, 2003, respectively.

Revenue for the nine months ended
November 30, 2004 was $569.2 million, an 18% increase from revenue of $481.0 million for
the same period last year. Net income for the current nine-month period was $82.3 million,
compared to net income of $54.8 million for the same period last year. Diluted net income
per share was $0.89 for the current nine-month period, compared to diluted net income per
share of $0.60 for the same period last year. Basic net income per share was $0.91 and
$0.61 for the nine-month periods ended November 30, 2004 and November 30, 2003,
respectively.

Gross margin for the three months
ended November 30, 2004 was $172.7 million, an increase of 22% over gross margin of $141.1
million for the same quarter last year. Gross margin percentage was 82% for both the
quarters ended November 30, 2004 and November 30, 2003. Gross margin for the nine months
ended November 30, 2004 was $463.2 million, an increase of 18% over gross margin of $391.6
million for the same period last year. Gross margin percentage for both the nine months
ended November 30, 2004 and November 30, 2003 was 81%.

27

---

Total operating expenses for the
quarter ended November 30, 2004 were $130.9 million, a 19% increase from operating
expenses of $110.3 million for the same quarter last year. The operating margin for the
quarter ended November 30, 2004 was 20% as compared to 18% for the corresponding quarter
of the previous fiscal year. Total operating expenses for the nine months ended November
30, 2004 were $364.1 million, a 13% increase from operating expenses of $321.2 million for
the same period last year. The operating margin for the nine months ended November 30,
2004 was 17% as compared to 15% for the same period last year.

On September 29, 2004 we acquired
Frango, a Swedish company with global operations specializing in consolidation and
financial reporting solutions. Frangos operating results are included in our results
from September 29, 2004 to November 30, 2004. Comparatively, the results for the three and
nine months ended November 30, 2003 reflect operations prior to this acquisition. To that
extent, our operations for the three and nine months ended November 30, 2004 are not
identical to the operations for the comparative periods ended November 30, 2003. As Frango
is fully integrated in our operations, we are not tracking its revenues, cost of revenues
or operating expenses separately. Therefore, it is not practical to report separately on
the effect of the acquisition on our revenues, cost of revenues, or operating expenses.

We believe the improvement in net
income in the three and nine months ended November 30, 2004, as compared to the
same periods in the previous fiscal year, reflects the market acceptance of our product
portfolio, the performance of our distribution channels and sales organization, the
strength of our customer relationships, the quality of our support and services and our
prudent expense management. This is evidenced by the increase in license revenue and the
overall improvement in operating results. Also contributing to the increase in net income
was a lower effective tax rate.

We operate internationally and, as a
result, a substantial portion of our business is conducted in foreign currencies.
Accordingly, our results are affected by year-over-year exchange rate fluctuations of the
U.S. dollar relative to the Canadian dollar, to various European currencies, and, to a
lesser extent, other foreign currencies. The following table breaks down the
year-over-year percentage change in revenue and expenses between change attributable to
growth and change attributable to fluctuations in the value of the U.S. dollar.

# Year-over-year
Percentage Change in Revenue and Expenses

|                                       |  | Three Months Ended November 30,2004 over 2003 | Nine Months Ended November 30,2004 over 2003
|-------------------------------------- |  | --------------------------------------------- | --------------------------------------------
|                                      
|                                       |  | Growth                                        | ForeignExchange                             
|                                      
|Revenue                                |  | 17                                            | .0%                                         
|Cost of Revenue and Operating Expenses |  | 13                                            | .2%                                         
|Operating income                       |  | 33                                            | .6%                                         

28

---

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 endedNovember 30, | Nine months endedNovember 30,
|                                            |  |                               
|                                            |  | 2004                           | 2003                         
|                                           
|Revenue                                     |  | 100.0                          | %                            
|                                            |  |                               
|Cost of revenue                             |  | 17.9                           |                              
|                                            |  |                               
|Gross margin                                |  | 82.1                           |                              
|                                            |  |                               
|Operating expenses                          | 
|Selling, general, and        administrative |  | 48.6                           |                              
|Research and development                    |  | 12.8                           |                              
|Amortization of intangible        assets    |  | 0.8                            |                              
|                                            |  |                               
|Total operating expenses                    |  | 62.2                           |                              
|                                            |  |                               
|Operating income                            |  | 19.9                           |                              
|Interest expense                            |  | 0.0                            |                              
|Interest income                             |  | 0.9                            |                              
|                                            |  |                               
|Income before taxes                         |  | 20.8                           |                              
|Income tax provision                        |  | 4.4                            |                              
|                                            |  |                               
|Net income                                  |  | 16.4                           | %                            
|                                            |  |                               

# REVENUE

|($000s)         |  |                                | Percentage Change            
|--------------- |  | ------------------------------ | -----------------------------
|               
|                |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                |  |                               
|                |  | 2004                           | 2003                         
|               
|Product License |  | $  91,580                      |                              
|Product Support |  | 81,031                         |                              
|Services        |  | 37,755                         |                              
|                |  |                               
|Total Revenue   |  | $210,366                       |                              
|                |  |                               

Our total revenue was $210.4 million
for the quarter ended November 30, 2004, an increase of $38.1 million or 22%, compared to
the quarter ended November 30, 2003. Our total revenue was $569.2 million for the nine
months ended November 30, 2004, an increase of $88.2 million or 18%, compared to the nine
months ended November 30, 2003.

29

---

Our total revenue was derived
primarily from our suite of BI products, principally Cognos ReportNet, Web versions of
PowerPlay® and Impromptu® and the Cognos Enterprise Planning
Series which includes Cognos Planning, Cognos Finance and the new Cognos Controller
product acquired through the acquisition of Frango. Contributing to a lesser extent were
Cognos Metrics Manager, DecisionStream, Cognos Visualizer, Cognos Analytic
Applications, and NoticeCast®.

Industry Trends and
Geographic Information

We believe that enterprise-wide
deployment of BI products is the trend in the industry as companies standardize on one BI
platform across their organizations. An emerging trend in the market for BI is the growing
demand for pre-packaged solutions that shorten time to implementation and results. Our
analytic applications (Cognos Planning, Cognos Finance, Cognos Controller, and Cognos
Analytical Applications) address this trend as they extend the value of investments in
Enterprise Resource Planning (ERP) and other operational systems.

We are seeing an increase in the
number of large contracts, and the strengthening of our relationships with some of the
worlds largest companies and our strategic partners. During the quarter, we signed
fifteen contracts in excess of one million dollars. The number of contracts greater than
$200,000 has increased to 127 in the third quarter of fiscal 2005, up 34% from the same
period one year ago and the number of contracts greater than $50,000 has increased
24% to 709 over the same period. For the nine months ended November 30, 2004, the number
of contracts greater than $200,000 and $50,000 has increased 35% and 24%, respectively.
Average order size for contracts greater than $15,000 for the quarter ended November 30,
2004 was approximately $93,000, an increase of 7% from approximately $87,000 for the same
quarter last year. For contracts greater than $50,000, the average order size for the
three months ended November 30, 2004 was approximately $183,000, up 5% from approximately
$174,000 last fiscal year. We believe that this growth in order size is another indication
that we are positioned to capitalize on the trend towards standardization on a single BI
platform.

While we are seeing signs of an
improving market as evidenced by the increased number of large transactions, these larger
transactions are also subject to longer buying cycles as they typically require greater
scrutiny and longer decision cycles by our customers.

The breadth of our solution is
allowing us to develop long-term strategic relationships with our customers which, in
turn, enables us to generate additional software licensing and ongoing maintenance
renewals. These relationships are a significant asset as approximately 68% of our license
revenue came from existing customers in the three-month period ended November 30, 2004.

The overall change in total revenue
from our three revenue categories in the quarter ended November 30, 2004 from
November 30, 2003 was as follows: a 26% increase in product license revenue, an 18%
increase in product support revenue, and a 22% increase in services revenue. The change
for the same categories for the nine months was as follows: 21%, 17%, and 17%,
respectively.

30

---

The following table sets out, for
each fiscal period indicated, the revenue attributable to each of our three main
geographic regions and the percentage change in the dollar amount in each region as
compared to the prior fiscal year.

# Revenue by Geography

|($000s)      |  |                                | Percentage Change            
|------------ |  | ------------------------------ | -----------------------------
|            
|             |  | Three months endedNovember 30, | Nine months endedNovember 30,
|             |  |                               
|             |  | 2004                           | 2003                         
|            
|The Americas |  | $121,503                       |                              
|Europe       |  | 69,308                         |                              
|Asia/Pacific |  | 19,555                         |                              
|             |  |                               
|Total        |  | $210,366                       |                              
|             |  |                               

This table sets out, for each fiscal
period indicated, the percentage of total revenue earned in each geographic region.

# Revenue by Geography as
a Percentage of Total Revenue

|             |  | Three months endedNovember 30, | Nine months endedNovember 30, |      |     
|------------ |  | ------------------------------ | ----------------------------- | ---- | ----
|            
|             |  | 2004                           | 2003                          | 2004 | 2003
|            
|The Americas |  | 57                             | .8%                           | 55   | .8% 
|Europe       |  | 32                             | .9                            | 34   | .2  
|Asia/Pacific |  | 9                              | .3                            | 10   | .0  
|             |  |                               
|Total        |  | 100                            | .0%                           | 100  | .0% 
|             |  |                               

The growth rates of our revenue in
Europe, Asia/Pacific and, to a much lesser extent, in the Americas, were affected by
foreign exchange rate fluctuations. The following table breaks down the year-over-year
percentage change in revenue for the three and nine months ended
November 30, 2004 by geographic area between change attributable to growth and
change due to fluctuations in the value of the U.S. dollar.

# Year-over-year
Percentage Change in Revenue by Geography

|             |  | Three Months Ended November 30,2004 over 2003 | Nine Months Ended November 30,2004 over 2003
|------------ |  | --------------------------------------------- | --------------------------------------------
|            
|             |  | Growth                                        | ForeignExchange                             
|            
|The Americas |  | 25                                            | .1%                                         
|Europe       |  | 7                                             | .2%                                         
|Asia/Pacific |  | 7                                             | .0%                                         
|Total        |  | 17                                            | .0%                                         

31

---

Our growth rate in Europe for the
three and nine months ended November 30, 2004 reflects growth across the region. Since
revenue from Asia/Pacific represents a lower percentage of our total revenue, larger transactions
can have a greater influence on revenues in that region. As indicated
by the above table, the weakening of the U.S. dollar in relation to various currencies in
Europe and Asia/Pacific positively impacted the growth rates in those regions for the
three and nine-month periods ended November 30, 2004. Changes in the valuation of the U.S.
dollar relative to other currencies will continue to impact our revenues in the future.

# Product License Revenue

|($000s)                     |  |                                | Percentage Change            
|--------------------------- |  | ------------------------------ | -----------------------------
|                           
|                            |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                            |  |                               
|                            |  | 2004                           | 2003                         
|                           
|Product license revenue     |  | $91,580                        |                              
|Percentage of total revenue |  | 43.5                           | %                            

Product license revenue was $91.6
million in the quarter ended November 30, 2004, an increase of $19.0 million or 26% from
the quarter ended November 30, 2003; and was $233.0 million for the nine months ended
November 30, 2004, an increase of $40.4 million or 21% compared to the corresponding
period in the prior fiscal year. The increase in product license revenue during the three
and nine months ended November 30, 2004 as compared to the same periods in the prior year
reflects the markets acceptance of Cognos ReportNet and our Enterprise Planning
Series. License revenue growth rates for the three and nine months ended November 30, 2004
were positively affected by the favorable impact of exchange rates (principally European
exchange rates), relative to the U.S. dollar. Product license revenue accounted for 44% of
total revenue in the three months ended November 30, 2004 compared to 42% for the
corresponding quarter in the prior fiscal year. For the nine months ended
November 30, 2004 and November 30, 2003, product license revenue represented 41% and
40% of total revenue, respectively.

We license our software through our
direct sales force and value-added resellers, system integrators, and OEMs. Direct sales
accounted for approximately 74% and 70% of our license revenue for the third quarter of
fiscal 2005 and 2004, respectively.

We believe that a direct sales force
is an effective way of building long term relationships with our customers. In addition,
as enterprise-wide deployments become more important, we believe that the relationships we
have built with systems integrators over the past few years along with our direct sales
force will help us succeed in the large enterprise market as the role of systems
integrators in large standardization environments is increasing. We are also expending
resources developing our indirect sales activities in order to have coverage in
every market. We will continue to commit management time and financial resources to
developing relationships with system integrators and direct and indirect international
sales and support channels.

32

---

# Product Support Revenue

|($000s)                     |  |                                | Percentage Change            
|--------------------------- |  | ------------------------------ | -----------------------------
|                           
|                            |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                            |  |                               
|                            |  | 2004                           | 2003                         
|                           
|Product support revenue     |  | $81,031                        |                              
|Percentage of total revenue |  | 38.5                           | %                            

Product support revenue was $81.0
million in the quarter ended November 30, 2004, an increase of $12.4 million or 18% from
the quarter ended November 30, 2003; and was $232.0 million in the nine months ended
November 30, 2004, an increase of $33.0 million or 17% compared to the corresponding
period in the prior fiscal year. The increase in the dollar amounts was the result of the
strong rate of renewal of support contracts and the expansion of our customer base. Also
contributing to the increase in product support revenue for the quarter and the nine
months ended November 30, 2004 was the impact of exchange rate fluctuations.

Product support revenue accounted for
39% and 40% of our total revenue in the quarters ended November 30, 2004 and November 30,
2003, respectively, and was 41% of total revenue in both the nine months ended November
30, 2004 and November 30, 2003.

# Services Revenue

|($000s)                     |  |                                | Percentage Change            
|--------------------------- |  | ------------------------------ | -----------------------------
|                           
|                            |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                            |  |                               
|                            |  | 2004                           | 2003                         
|                           
|Services revenue            |  | $37,755                        |                              
|Percentage of total revenue |  | 17.9                           | %                            

Services revenue (training,
consulting, and other revenue) was $37.8 million in the quarter ended November 30, 2004,
an increase of $6.8 million or 22% from the quarter ended November 30, 2003; and
was $104.2 million in the nine months ended November 30, 2004, an increase of $14.8
million or 17% compared to the corresponding period in the prior fiscal year. Services
revenue accounted for 18% of our total revenue for both the three months ended November
30, 2004 and 2003. For the nine months ended November 30, 2004 and 2003, services revenue
represented 18% and19% of total revenue, respectively.

The increase for the three months
ended November 30, 2004 was primarily attributable to an increase in consulting revenue.
For the nine months ended November 30, 2004, the increase was primarily attributable to
education due to the demand for Cognos ReportNet and Enterprise Planning training.
Exchange rate fluctuations also had a favorable impact on services revenue for the
quarter.

33

---

# COST OF
REVENUE

# Cost of Product License

|($000s)                       |  |                                | Percentage Change            
|----------------------------- |  | ------------------------------ | -----------------------------
|                             
|                              |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                              |  |                               
|                              |  | 2004                           | 2003                         
|                             
|Cost of product license       |  | $578                           |                              
|Percentage of license revenue |  | 0.6                            | %                            

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 $0.6 million, a decrease of $0.5 million or 48% in the quarter ended November 30,
2004, and was $1.7 million, a decrease of $1.6 million, also 48%, in the nine months ended
November 30, 2004 compared to the corresponding periods in the prior fiscal year. These
costs represented 1% of product license revenue for the three and nine months ended
November 30, 2004, as compared to 2% of product license revenue for both comparative
periods in the prior fiscal year. The decrease in these costs for the three months ended
November 30, 2004 was the result of decreases in royalties as certain royalty agreements
have ended and the decrease for the nine months ended November 30, 2004 is attributable to
a reduction in royalties as well as a reduction in materials and distribution costs.

# Cost of Product Support

|($000s)                       |  |                                | Percentage Change            
|----------------------------- |  | ------------------------------ | -----------------------------
|                             
|                              |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                              |  |                               
|                              |  | 2004                           | 2003                         
|                             
|Cost of product support       |  | $8,508                         |                              
|Percentage of support revenue |  | 10.5                           | %                            

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

34

---

The cost of product support revenue
was $8.5 million, an increase of $1.5 million or 21% in the quarter ended November 30,
2004, and was $22.8 million, an increase of $2.0 million or 9% in the nine months ended
November 30, 2004 compared to the corresponding periods in the prior fiscal year.

The cost of product support
represented 10% of total product support revenue for the three and nine months ended
November 30, 2004, as well as the corresponding periods last fiscal year. The increase in
the cost of product support is the result of increases in staff related costs, significant
shipments to supported customers of Cognos Series 7 version 3, and the unfavorable impact
of foreign currency fluctuations relative to the U.S. dollar, partially offset by a
decrease in royalties. The average number of employees within the support organization
increased 7% and 5% in the three and nine months ended November 30, 2004, respectively, as
compared to the same periods last fiscal year.

# Cost of Services

|($000s)                        |  |                                | Percentage Change            
|------------------------------ |  | ------------------------------ | -----------------------------
|                              
|                               |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                               |  |                               
|                               |  | 2004                           | 2003                         
|                              
|Cost of services               |  | $28,574                        |                              
|Percentage of services revenue |  | 75.7                           | %                            

The cost of services includes the
costs associated with delivering education, consulting, and other services in relation to
our products.

The cost of services was $28.6
million, an increase of $5.6 million or 25% in the quarter ended November 30, 2004 and was
$81.5 million, an increase of $16.2 million or 25% in the nine months ended November 30,
2004 compared to the corresponding periods in the prior fiscal year. The cost of services
represented 76% and 78% of services revenue for the three and nine months ended November
30, 2004, respectively, as compared to 74% and 73% for the corresponding periods in the
prior fiscal year.

The increase in cost of services is
primarily the result of increases in costs for services purchased externally.
Subcontractors are engaged to supplement Cognos employees. While we intend to hire in this
area, we will continue to fill any gaps in delivery by engaging subcontractors. Staff
related costs and exchange rate fluctuations also had an unfavorable impact on cost of
services during the three and nine months ended November 30, 2004. The average
number of employees within the services organization increased 6% and 3% in the three and
nine months ended November 30, 2004, respectively, as compared to the same periods last
year.

35

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# OPERATING
EXPENSES

# Selling, General, and
Administrative

|($000s)                              |  |                                | Percentage Change            
|------------------------------------ |  | ------------------------------ | -----------------------------
|                                    
|                                     |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                                     |  |                               
|                                     |  | 2004                           | 2003                         
|                                    
|Selling, general, and administrative |  | $102,206                       |                              
|Percentage of total revenue          |  | 48.6                           | %                            

Selling, general, and administrative
(SG&A) expenses include staff related costs and travel and living
expenditures for sales, marketing, management, and administrative personnel. These
expenses also include costs associated with the sale and marketing of our products,
professional services, and other administrative costs.

SG&A expenses were $102.2
million, an increase of $16.2 million or 19% in the quarter ended November 30, 2004, and
were $282.9 million, an increase of $35.3 million or 14% in the nine months ended November
30, 2004 compared to the corresponding periods in the prior fiscal year. These costs
represented 49% and 50% of total revenue for the three and nine months ended November 30,
2004, respectively, as compared to 50% and 51% for the corresponding periods in the prior
fiscal year.

The increase in these expenses, in
dollar terms, in the three and nine months ended November 30, 2004 was primarily the
result of increases in staff related costs resulting from increases in salaries, bonuses
and commissions as well as associated benefits as compared to the same periods last fiscal
year. SG&A expenses were also unfavorably impacted by the effect of other foreign
currencies relative to the U.S. dollar. The average number of employees within selling,
general, and administrative increased by 9% and 4% in the three and nine months ended
November 30, 2004, when compared to the corresponding periods in the prior fiscal year.

# Research and Development

|($000s)                     |  |                                | Percentage Change            
|--------------------------- |  | ------------------------------ | -----------------------------
|                           
|                            |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                            |  |                               
|                            |  | 2004                           | 2003                         
|                           
|Research and development    |  | $26,987                        |                              
|Percentage of total revenue |  | 12.8                           | %                            

36

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Research and development
(R&D) expenses are primarily staff related costs attributable to
the design and enhancement of existing products along with the creation of new products.

R&D costs were $27.0 million, an
increase of $4.7 million or 21% in the quarter ended November 30, 2004, and were
$76.7 million, an increase of $9.4 million or 14% for the nine months ended November 30,
2004 compared to the corresponding periods in the prior fiscal year. The increase for the
three and nine months ended November 30, 2004 was the result of increases in staff related
costs and the unfavorable impact of other foreign currencies relative to the U.S. dollar.
R&D costs were 13% of revenue for both the three and nine months ended
November 30, 2004 as compared to 13% and 14% of revenue, respectively, for the
corresponding periods in the prior fiscal year. The average number of employees within
R&D increased by 3% and 1% for the three and nine months ended November 30, 2004,
respectively, when compared to the corresponding periods of the prior fiscal year.

We continue to invest significantly
in R&D activities for our next generation of BI solutions which are the foundation of
our CPM vision. In the upcoming year, we expect to release an upgrade to our Enterprise
Business Intelligence Series that will continue to expand the deployment of our new
platform.

We are currently focusing on bringing
innovative new products to market. We have recently released Cognos Planning Series 7
version 3 which streamlines key financial and operational processes by providing
component-based planning to link planning models in real-time across the global scope of
the organization. We also recently introduced Cognos Controller 2.3 which is the first
Cognos-branded offering from our acquisition of Frango. Cognos Controller offers
sophisticated global consolidation and financial reporting capabilities. In addition, we
entered into an OEM agreement with Composite Software to embed its Enterprise Information
Integration (EII) software into Cognos ReportNet thereby extending our
open data strategy for our customers.

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 would be amortized over a period not exceeding 36 months. No costs were
deferred in the three and nine months ended November 30, 2004 and November 30, 2003. Costs
were not deferred in the periods 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.

37

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# Amortization of
Intangible Assets

|($000s)                           |  |                                | Percentage Change            
|--------------------------------- |  | ------------------------------ | -----------------------------
|                                 
|                                  |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                                  |  |                               
|                                  |  | 2004                           | 2003                         
|                                 
|Amortization of intangible assets |  | $1,672                         |                              

Amortization of intangible assets was
$1.7 million, a decrease of $0.4 million or 21% for the quarter ended November 30, 2004
and was $4.4 million, a decrease of $1.8 million or 29% for the nine months ended November
30, 2004 compared to the corresponding periods in the prior fiscal year. The decrease in
this expense in the three and nine months ended November 30, 2004 was due to certain
intangible assets being fully amortized, partially offset by the amortization of the
intangible assets acquired through our purchase of Frango.

# Interest Income and Expense

|($000s)             |  |                                | Percentage Change            
|------------------- |  | ------------------------------ | -----------------------------
|                   
|                    |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                    |  |                               
|                    |  | 2004                           | 2003                         
|                   
|Net interest income |  | $1,887                         |                              

Net interest income was $1.9 million,
an increase of $1.5 million or 346% in the quarter ended November 30, 2004 and was $5.0
million, an increase of $2.3 million or 86% in the nine months ended November 30, 2004
compared to the corresponding periods in the prior fiscal year. The increase during the
three and nine months ended November 30, 2004 was primarily attributable to an increase in
the average portfolio size as compared to the corresponding periods in the prior fiscal
year. Also contributing to the period over period increase was higher interest expense in
the corresponding periods last year as a result of interest charges on tax assessments we
received during the quarter for prior years.

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# Income Tax Provision

|($000s)            |  |                                | Percentage Change            
|------------------ |  | ------------------------------ | -----------------------------
|                  
|                   |  | Three months endedNovember 30, | Nine months endedNovember 30,
|                   |  |                               
|                   |  | 2004                           | 2003                         
|                  
|Tax expense        |  | $9,183                         |                              
|Effective tax rate |  | 21.0                           | %                            

As we operate globally, we calculate
our income tax provision in each of the jurisdictions in which we conduct business. Our
tax rate is therefore affected by the relative profitability of our operations in various
geographic regions. In the three and nine months ended November 30, 2004, we recorded an
income tax provision of $9.2 million and $21.9 million, respectively, representing an
effective income tax rate of 21%. Comparatively, in the three and nine months ended
November 30, 2003, we recorded an income tax provision of $7.0 million and $18.3 million,
respectively, representing an effective income tax rate of 22% and 25%, respectively. The
effective tax rate decreased as compared to the corresponding periods last year but
increased compared to the effective tax rate of 16% for the full fiscal year 2004. This is
due primarily to higher investment tax credits (ITCs) in fiscal 2004
compared to fiscal 2005. The increased amount of ITCs for fiscal 2004 resulted from
changes in government administrative practices regarding the type of expenses eligible for
ITCs and, last year, we were able to claim an amount not only for fiscal 2004 but for
prior years as well. In fiscal 2005, only current year ITCs can be claimed.

39

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# LIQUIDITY AND
CAPITAL
RESOURCES

|($000s)                                            |  | As atNovember 30,2004 | As atFebruary 29,2004 | Percentage Change
|-------------------------------------------------- |  | --------------------- | --------------------- | -----------------
|                                                  
|Cash and cash equivalents                          |  | $313,937              |                       | $224,830         
|Short-term investments                             |  | 125,430               |                       | 163,411          
|                                                   |  |                      
|Cash, cash equivalents, and short-term investments |  | $439,367              |                       | $388,241         
|Working capital                                    |  | 299,157               |                       | 259,502          



|($000s)                         |  | Nine months endedNovember 30, | Percentage ChangeNine months endedNovember 30,
|------------------------------- |  | ----------------------------- | ----------------------------------------------
|                               
|                                |  | 2004                          | 2003                                          
|                                | 
|Net cash provided by (used in): |  |                               |                                               
|Operating activities            |  | $ 100,827                     |                                               
|Investing activities            |  | (24,298                       | )                                             
|Financing activities            |  | 4,665                         |                                               



|                             |  | As atNovember 30,2004 | As atNovember 30,2003
|---------------------------- |  | --------------------- | ---------------------
|                            
|Days sales outstanding (DSO) |  | 61                    |                      



# Cash, Cash Equivalents,
and Short-term Investments

As of November 30, 2004, we held
$439.4 million in cash, cash equivalents, and short-term investments, an increase of $51.1
million from February 29, 2004. Cash and cash equivalents include investments which are
highly liquid and held to maturity. Cash equivalents typically include commercial paper
and term deposits and bankers acceptances issued by major North American banks. All
cash equivalents have terms to maturity of ninety days or less. Short-term investments are
investments that are highly liquid and held to maturity with terms to maturity greater
than ninety days, but less than twelve months. Short-term investments typically consist of
commercial paper and corporate bonds.

Management groups cash and cash
equivalents with short-term investments when analyzing our total cash position. These
balances may fluctuate from quarter to quarter depending on the renewal terms of the
investments.

40

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# Working Capital

Working capital represents our
current assets less our current liabilities. As of November 30, 2004, working capital was
$299.2 million, an increase of $39.7 million from February 29, 2004. The increase can be
attributed to higher levels of cash, cash equivalents, and short-term investments and a
decrease in deferred revenue. Partially offsetting this increase were decreases in
accounts receivable and higher levels of accounts payable, accrued charges, salaries,
commissions, and related items, and income taxes payable.

Days sales outstanding (DSO) was 61
days at November 30, 2004 as compared to 62 days as at November 30, 2003. We calculate our
days sales outstanding ratio based on ending accounts receivable balances and quarterly
revenue.

# Long-term Liabilities

As at November 30, 2004 and February
29, 2004, we had no long-term liabilities.

# Cash Provided by
Operating Activities

Cash provided by operating activities
(after changes in non-cash working capital items) for the nine months ended November 30,
2004 was $100.8 million, an increase of $39.4 million compared to the comparative period
last year. The increase is attributable to higher net income and strong accounts
receivable collections partially offset by a decrease in deferred revenue.

# Cash Used In Investing
Activities

Cash used in investing activities was
$24.3 million for the nine months ended November 30, 2004, a decrease of $66.5
million compared to the comparative period last year. During the nine months ended
November 30, 2004, we used $49.7 million net of cash and cash equivalents acquired to
purchase the outstanding shares of Frango as discussed below. In addition, during the nine
months ended November 30, 2004, we spent $12.0 million on fixed asset additions as
compared to $17.3 million in the corresponding period last year. The additions for both
periods related primarily to computer equipment and software, office furniture and
leasehold improvements. These expenditures in fiscal 2005 were offset by a decrease in our
net investment in short-term investments. In the nine months ended November 30, 2004, our
proceeds on maturity of short-term investments, net of purchases, were $38.1 million. In
comparison, during the nine months ended November 30, 2003, our purchases of short-term
investments were in excess of our maturities of short-term investments by $72.0 million.

# Acquisition of Frango

On September 29, 2004, we announced
that we had successfully completed a tender offer for the capital stock of Frango, a
Swedish company with global operations. Frango specializes in consolidation and financial
reporting solutions. Cognos acquired Frango primarily to add Frangos consolidation
and financial reporting software to its product suite and also to access Frangos
workforce and distribution channels in Europe and Asia. The acquisition of Frango further
strengthens our product offering to the office of finance, a key entry point with our
customers. The aggregate purchase consideration was approximately $53.1 million paid in
cash. Direct costs associated with the acquisition were approximately $1.9 million.

41

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An independent appraisal valued the
in-process research and development at an immaterial amount, and therefore the purchase of
Frango did not involve the write-off of any in-process research and development.

Based on an independent appraisal,
$8.8 million of the purchase price was allocated to intangible assets, subject to
amortization. Of this amount, $7.0 million was allocated to acquired technology and $1.8
million was allocated to contractual relationships. Neither intangible asset is expected
to have any residual value. The amortization period for the acquired technology is five
years whereas the amortization period for the contractual relationships is approximately
eight years. In the allocation of purchase price, $50.6 million was assigned to goodwill.
This represents the excess of the purchase price paid for Frango over the fair value of
the net tangible and identifiable intangible assets acquired. Goodwill will not be
amortized but will be subject to annual impairment testing, in accordance with our
accounting policy.

# Cash Provided by
Financing Activities

Cash provided by financing activities
was $4.7 million for the nine months ended November 30, 2004, a decrease of
$20.1 million compared to the same period last year. We issued 1,727,000 common shares,
valued at $32.8 million, during the nine months ended November 30, 2004, compared to the
issuance of 1,769,000 shares valued at $27.0 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 by employees and officers.

We paid $28.2 million during the nine
months ended November 30, 2004 to repurchase 814,000 shares on the open market, 804,000 of
which were under our share repurchase program and 10,000 under our restricted share unit
plan. Comparatively, we repurchased 21,000 shares for $0.6 million during the nine-month
period ended November 30, 2003 all of which were under our restricted share unit
plan.

In October 2004, the share repurchase
program adopted in October 2003 expired. We renewed the program which enables us to
purchase not more than 5% of the issued and outstanding common shares of Cognos to a
maximum of $50,000,000. The new program is effective from October 9, 2004 to October 8,
2005. Purchases can be made on the Nasdaq Stock Market or the Toronto Stock Exchange 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 are cancelled.

# Contracts and Commitments

We have an unsecured credit facility
which is provided to us at no cost. The credit facility permits us to borrow funds or
issue letters of credit or guarantee up to Cdn $12.5 million (U.S.$10.5 million), subject
to certain covenants. As of November 30, 2004 and 2003, there were no direct borrowings
under this facility.

We do not enter into off-balance
sheet financing as a matter of practice except for the use of operating leases for office
space, computer equipment, and vehicles. In accordance with GAAP, neither the lease
liability nor the underlying asset is carried on the balance sheet, as the terms of the
leases do not meet the thresholds for capitalization.

42

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In connection with the acquisition of
Adaytum, we undertook a restructuring plan in conjunction with the business combination.
The restructuring primarily relates to involuntary employee separations of approximately
90 employees of Adaytum, accruals for vacating leased premises of Adaytum and related
write-downs of leasehold improvements as well as asset write-downs of Adaytum. During the
nine months ended November 30, 2004, the total cash payments made in relation to the
accrual were $0.8 million, and cash payments remaining at November 30, 2004 were $3.7
million. The remaining accrual is included in the balance sheet as accrued charges and
salaries, commissions, and related items. All amounts excluding lease payments are
expected to be settled during fiscal 2005. Outstanding balances for the lease payments
will be paid over the lease term unless settled earlier.

Our contractual obligations have not
changed materially from those included in our Annual Report on Form 10-K for the year
ended February 29, 2004.

We have never declared or paid any
cash dividends on our common shares. Our current policy is to retain our earnings to
finance expansion and to develop, license, and acquire new software products, and to
otherwise reinvest in Cognos.

Given our historical profitability
and our ability to manage expenses, we believe that our current resources are adequate to
meet our requirements for working capital and capital expenditures through the foreseeable
future.

Inflation has not had a significant
impact on our results of operations.

# CERTAIN
FACTORS
THAT
MAY
AFFECT
FUTURE
RESULTS

This report contains forward-looking
statements, including statements regarding the future success of our business and
technology strategies, and future market opportunities. These statements are neither
promises nor guarantees, but involve known and unknown risks and uncertainties that may
cause our actual results, levels of activity, performance, or achievements to be
materially different from any future results, levels of activity, performance, or
achievements expressed in or implied by these forward-looking statements. These risks
include risks related to our revenue growth, operating results, industry, products, and
litigation, as well as the other factors discussed below and elsewhere in this report.
Readers should not place undue reliance on any such forward-looking statements, which
speak only as of the date they were made. We disclaim any obligation to publicly update or
revise any such statements 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 set forth in the forward-looking
statements.

We face intense
competition and we may not compete successfully.

We face substantial competition
throughout the world, primarily from software companies located in the United States,
Europe, and Canada. We expect our competitors to continue to improve the performance of
their current products and to introduce new products or new technologies. The BI market
may continue to consolidate by merger or acquisition. If one or more of our competitors
merges or partners with another of our competitors or if we were to become the subject of
an unsolicited acquisition initiative by another enterprise, any such change in the competitive
landscape could adversely affect our ability to compete. As well, competition may increase
by the entry or expansion of other software vendors into this market. These competitors
may have substantially greater financial and other resources with which to pursue research
and development, manufacturing, marketing, and distribution of their products. New product
announcements or introductions by our competitors could cause a decline in sales, a
reduction in the sales price, or a loss of market acceptance of our existing products. To
the extent that we are unable to effectively compete against our current and future
competitors, our ability to sell products could be harmed and our market share reduced.
Any erosion of our competitive position could have a material adverse effect on our
business, results of operations, and financial condition.

43

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If we do not respond
effectively to rapid technological change, our products may become obsolete.

The markets for our products are
characterized by: rapid and significant technological change; frequent new product
introductions and enhancements; changing customer demands; and evolving industry
standards. We cannot provide assurance that our products and services will remain
competitive in light of future technological change or that we will be able to respond to
market demands and developments or new industry standards. If we are unable to identify a
shift in market demand or industry standards quickly enough, we may not be able to develop
products to meet those new demands or standards, or to timely bring them to market. In
addition, failure to respond successfully to technological change may render our products
and services obsolete and thus harm our ability to attract and retain customers.

We may not be able to
hire, integrate, or retain key personnel essential to our business.

We believe that our success depends
on senior management and other key employees to develop, market, and support our products
and manage our business. The loss of their services could have a material adverse effect
on our business. Our success is also highly dependent on our continuing ability to hire,
integrate, and retain highly qualified personnel. The failure to attract and retain key
personnel would adversely affect our future growth and profitability.

Our total revenue and
operating results may fluctuate.

We rely predominantly on revenue from
a single line of business, our BI products. Although we have experienced revenue growth
from these products in the past, we cannot provide assurance that revenue from these
products will continue to grow, or grow at previous rates or rates projected by
management. Anticipated revenue may be reduced by any one, or a combination of, unforeseen
market, economic, or competitive factors some of which are discussed in this section. We
have experienced and in the future may experience a shortfall in revenue or earnings or
otherwise fail to meet public market expectations, which could materially and adversely
affect our business and the market price of our common stock.

44

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Our quarterly and annual
operating results may vary between periods.

Historically, our quarterly operating
results have varied from quarter to quarter, and we anticipate this pattern will continue.
We typically realize a larger percentage of our annual revenue and earnings in the fourth
quarter of each fiscal year, and lower revenue and earnings in the first quarter of the
following fiscal year. As well, in each quarter we typically close a larger percentage of
sales transactions near the end of that quarter. As a result, it is difficult to
anticipate the revenue and earnings that we will realize in any particular quarter until
near the end of the quarter. Some of the causes of this difficulty are explained in
subsequent risk factors  in particular those entitled Our sales forecasts
may not match actual revenues in a particular period, The length of
time required to complete a sales cycle may be lengthy and unpredictable and
Our expenses may not match anticipated revenues.

Our sales forecasts may
not match actual revenues in a particular period.

The basis of our business budgeting
and planning process is the estimation of revenues that we expect to achieve in a
particular quarter and is based on a common industry practice known as the
pipeline system. Under this system, information relating to sales prospects,
the anticipated date when a sale will be completed and the potential dollar amount of the
sale are tracked and analyzed to provide a pipeline of future business. These
pipeline estimates are not necessarily reliable predictors of revenues in a particular
quarter because of, among other things, the events identified in these risk factors, as
well as the subjective nature of the estimates themselves. In particular, a slowdown in
technology spending or a deterioration in economic conditions is likely to result in the
delay or cancellation of prospective orders in our pipeline. A variation from the expected
conversion rate of the pipeline could adversely affect our budget or planning and could
consequently materially affect our operating results.

The length of time
required to complete a sales cycle may be lengthy and unpredictable.

As our business evolves toward larger
transactions at the enterprise level, the presence or absence of one or more of these
large transactions in a particular period may have a material upwards or downwards effect
on the revenue estimates in that period. These significant transactions require a
considerable effort on the part of customers to assess alternative products and require
additional levels of management approvals before being concluded. These factors combine to
lengthen the typical sales cycle and increase the risk that the customers purchasing
decision may be postponed or delayed from one period to another subsequent or later period
or that the customer will alter its purchasing requirements. The sales effort and service
delivery scope for larger transactions also place additional execution strain on our
existing personnel. These factors, along with any other foreseen or unforeseen event,
could result in lower than anticipated revenue for a particular period or in the reduction
of estimated revenue in future periods.

Our expenses may not
match anticipated revenues.

We base our operating expenses on
anticipated revenue trends. Since a high percentage of these expenses are relatively
fixed, a delay in recognizing revenue from license transactions could cause significant
variations in operating results from quarter to quarter and could result in operating
losses. If these expenses precede, or are not subsequently followed by, increased
revenues, our business, financial condition, or results of operations could be materially
and adversely affected.

45

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Economic conditions could
adversely affect our revenue growth and ability to forecast revenue.

The revenue growth and profitability
of our business depends on the overall demand for BI products and services. Because our
sales are primarily to major corporate customers in the high technology,
telecommunications, financial services (including insurance), pharmaceutical, utilities,
and consumer packaged goods industries, our business depends on the overall
economic conditions and the economic and business conditions within these industries. A
weakening of one or more of the global economy, the information technology industry, or
the business conditions within the industries listed above may cause a decrease in our
software license revenues. A decrease in demand for computer software caused, in part, by
a continued weakening of the economy, domestically or internationally, may result in a
decrease in revenues and growth rates.

Natural or other
disasters and hostilities or terrorist attacks may disrupt our operations.

Natural or other disasters and
hostilities or terrorist attacksmay disrupt our operations or those
of our customers, distributors, and suppliers, which could adversely affect our business,
financial condition, or results of operations. The threat of future outbreak or continued
escalation of hostilities involving the United States or other countries could adversely
affect the growth rate of our software license revenue and have an adverse effect on our
business, financial condition, or results of operations.

We operate
internationally and face risks attendant to those operations, in particular currency risk.

We earn a significant portion of our
total revenues from international sales generated through our foreign direct and indirect
operations. These sales operations face risks arising from local political, legal and
economic factors such as the general economic conditions in each country or region,
varying regulatory requirements, compliance with international and local trade, labor and
other laws, and reduced intellectual property protections in certain jurisdictions. We may
also face difficulties in managing our international operations, collecting receivables in
a timely fashion, and repatriating earnings. Any of these factors, either individually or
in combination, could materially impact our international operations and adversely affect
our business as a whole. Also, a substantial portion of both our revenues and expenditures
are generated in currencies other than the U.S. dollar, such as the Canadian dollar and
the euro. Fluctuations in the exchange rate between the U.S. dollar and other currencies,
such as the Canadian dollar and the euro, may have a material adverse effect on our
business, financial condition, and operating results. Please see further discussion on
foreign currency risk included in the Quantitative and Qualitative Disclosure on Market
Risk in Item 3 of this Form 10-Q.

Making and integrating
acquisitions could impair our operating results.

We have acquired and, if appropriate,
will continue to seek to acquire additional products or businesses that we believe are
complementary to ours. Acquisitions involve a number of other risks, including: diversion
of managements attention; disruption of our ongoing business; difficulties in
integrating and retaining all or part of the acquired business and its personnel; and
assumption of disclosed and undisclosed liabilities. The individual or combined effect of
these risks could have a material adverse effect on our business. As well, in paying for
an acquisition we may deplete our cash resources or dilute our shareholder base by issuing
additional shares. Furthermore, there is the risk that our valuation assumptions and or
models for an acquired product or business may be erroneous or inappropriate due to
foreseen or unforeseen circumstances and thereby cause us to overvalue an acquisition
target. There is also the risk that the contemplated benefits of an acquisition may not
materialize as planned or may not materialize within the time period or to the extent
anticipated.

46

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We may not realize the
benefits that we anticipated from our acquisition of Frango AB within the time periods or
to the extent that we expected because of integration and other challenges.

All of the risk factors referenced
above in Making and integrating acquisitions could impair our operating
results apply to our acquisition of Frango AB discussed elsewhere in this report
in greater detail. In addition, there is the risk that the contemplated benefits of the
Frango acquisition may not materialize as planned or may not materialize within the time
periods or to the extent anticipated. Factors that may cause such differences include, but
are not limited to, differences in the state of Frangos actual business, its
operations, and its product condition and capabilities from what we believe based on our
due diligence review; our ability to efficiently integrate Frango and the ease in which
Frango can be integrated; the state of Frangos internal controls and procedures; and
the existence of regulatory barriers to integration.

If we introduce a new
product, revenue from existing products may be eroded.

We may develop technology or a
product that constitutes a marked advance over both our own products and those of our
competitors. If we introduce such a product, we may experience a decline in revenues of
our existing products that is not fully matched by the new products revenue. In
addition, we may lose existing customers who choose a competitors product rather
than migrate to our new product. This could result in a temporary or permanent revenue
shortfall and materially affect our business.

We may have exposure to
greater than anticipated tax liabilities.

We are subject to income taxes and
non-income taxes in a variety of jurisdictions and our tax structure is subject to review
by both domestic and foreign taxation authorities. The determination of our worldwide
provision for income taxes and other tax liabilities requires significant judgment.
Although we believe our estimates are reasonable, the ultimate tax outcome may differ from
the amounts recorded in our financial statements and may materially affect our financial
results in the period or periods for which such determination is made.

Our intellectual property
may be misappropriated or we may have to defend ourselves against other parties
claims.

We rely on various intellectual
property protections, including contractual provisions, patents, copyright, trademark, and
trade secret laws, to preserve our intellectual property rights. Despite our precautions,
third parties may misappropriate our intellectual property causing us to lose potential
revenue and competitive advantage. As well, we may ourselves from time to time become
subject to claims by third parties that our technology infringes their intellectual
property rights. In either case, we may incur expenditures to police, protect, and defend
our interests and may become involved in litigation that could divert the attention of our
management. Responding to such claims could result in substantial expense and result in
damages, royalties, or injunctive relief, or require us to enter into licensing agreements
on unfavorable terms, or redesign or stop selling affected products which could materially
disrupt the conduct of our business.

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We may face liability
claims if our software products or services fail to perform as intended.

The sale, servicing, and support of
our products entails the risk of product liability, performance or warranty claims, which
may be substantial in light of the use of our products in business-critical applications.
A successful product liability claim could seriously disrupt our business and adversely
affect our financial results. Software products are complex and may contain errors or
defects, particularly when first introduced, or when new versions or enhancements are
released, or when configured to individual customer requirements. We currently have in
place procedures and staff to exercise quality control over our products and respond to
defects and errors found in current versions, new versions, or enhancements of our
products. We also attempt to contractually limit our liability in accordance with industry
practices. However, defects and errors in our products could inhibit or prevent customer
deployment and cause us to lose customers or require us to pay penalties or damages.

Our share price may
fluctuate.

The market price of our common shares
may be volatile and could be subject to wide fluctuations due to a number of factors,
including: actual or anticipated fluctuations in our results of operations; changes in
estimates of our future results of operations by us or securities analysts; announcements
of technological innovations or new products by us or our competitors; general industry
changes in the BI tools or related markets; or other events or factors.

New Accounting
Pronouncements may require us to change the way in which we account for our operational
or business activities.

The FASB and other bodies that have
jurisdiction over the form and content of our accounts are constantly discussing proposals
designed to ensure that companies best display relevant and transparent information
relating to their respective businesses. The effect of the pronouncements of FASB and
other bodies may have the effect of requiring us to account for revenues and/or expenses
in a different manner than at present. For example, beginning in the first interim period
after June 15, 2005, a new FASB pronouncement will require us to expense the fair value of
stock options. As a result, we will likely report increased expenses in our income
statement and a reduction of our net income and earnings per share. The impact on
Cognos current financial statements of applying a fair value method of accounting
for stock options is disclosed in Note 3 of the Condensed Notes to the Consolidated
Financial Statements.

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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. Among other selection criteria, the investment policy states that the term to
maturity of investments cannot exceed two years in length. We do not use derivative
financial instruments in our investment portfolio.

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. We have no
long-term debt. Our interest income and interest expense are most sensitive to the general
level of interest rates in Canada and the United States. Sensitivity analysis is used to
measure our interest rate risk. For the three and nine months ending November 30, 2004, 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 U.S. dollar. Our policy with respect to foreign currency exposure as it
relates to financial instruments, is to manage financial exposure to certain foreign
exchange fluctuations with the objective of neutralizing some of the impact of foreign
currency exchange movements. Sensitivity analysis is used to measure our foreign currency
exchange rate risk. As of November 30, 2004, a 10% adverse change in foreign exchange
rates versus the U.S. dollar would have decreased our reported cash, cash equivalents, and
short-term investments by approximately two to three percent.

Also, as we conduct a substantial
portion of our business in foreign currencies other than the U.S. dollar, our results are
affected, and may be affected in the future, by exchange rate fluctuations of the U.S.
dollar relative to the Canadian dollar, various European currencies, and, to a lesser
extent, other foreign currencies. Revenues and expenses generated in foreign currencies
are translated at exchange rates during the month in which the transaction occurs. We
cannot predict the effect foreign exchange fluctuations will have on our results going
forward; however, if significant foreign exchange losses are experienced, they could have
a material adverse effect on our business, results of operations, and financial condition.

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|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 the end of the
period covered by 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 Rules 13a-15(e) and 15(d)-15(e) 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.

|b) |  | Changes in
 internal control over financial reporting
|-- |  | -----------------------------------------------------

There have been no changes in the
Corporations internal control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act) during our most recently completed fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the Corporations
internal control over financial reporting.

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PART II  OTHER
INFORMATION

|Item 1. |  | Legal
Proceedings
|------- |  | -----------------

Cognos is not a party to any legal
proceedings that, if resolved or determined adversely to Cognos, would have a material
adverse effect on Cognos business, financial condition, and results of operation.
Cognos, however, may become subject to claims and litigation in the ordinary course of
business. In the event that any such claims or litigation are resolved against Cognos,
such outcomes or resolutions could have a material adverse effect on Cognos
business, financial condition, or results of operations.

|Item 2. |  | Unregistered
Sales of Equity Securities and Use of Proceeds
|------- |  | -----------------------------------------------------------

# PURCHASES
OF EQUITY SECURITIES

|Period                            | Total Number of Shares Purchased        | Average Price Paid per Share | Total Number of Shares Purchased as Part of
Publicly Announced Plans | Approximate Number of Shares or Dollar Value of
Shares that May Yet Be Purchased Under the Plan
|--------------------------------- | --------------------------------------- | ---------------------------- | -------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------
|                                 
|                                  | Restricted Share Unit Plan(# of shares) | ShareRepurchaseProgram      
|                                  |                                        
|                                  |                                         |                              |                                                                      |                                                                                                
|September 1 to September 30, 2004 |                                         | Nil                          |                                                                      | Nil                                                                                            
|October 1 to October 31, 2004     |                                         | 186,500                      |                                                                      | $36.53                                                                                         
|November 1 to November 30, 2004   |                                         | 30,000                       |                                                                      | $38.42                                                                                         
|                                  |                                        
|Total                             |                                         | 216,500                      |                                                                      | $36.79                                                                                         
|                                  |                                        

On September 25, 2002, the Board of
Directors of Cognos adopted a restricted share unit plan under which awards of restricted
share units can be granted to employees, officers and directors of Cognos up to an
aggregate of 2,000,000 restricted share units. Subject to the vesting provisions set out
in each participants award agreement, each restricted share unit can be exchangeable
for one common share of Cognos. The common shares for which the restricted share units may
be exchanged will be purchased on the open market by a trustee appointed and funded by
Cognos. This plan terminates on September 30, 2005. During the quarter ended November 30,
2004, Cognos did not repurchase any shares under the restricted share unit plan.

On October 7, 2003, Cognos announced
that it had adopted a stock repurchase program authorizing the repurchase of up to
4,468,639 common shares (not more than 5% of the common shares outstanding on that date)
up to a maximum of $50,000,000 between October 9, 2003 and October 8, 2004 (the
2003 Stock Repurchase Program). During the quarter ended November 30,
2004, Cognos repurchased 100,000 shares at an average price of $36.20 under the 2003 Stock
Repurchase Program.

On October 6, 2004, Cognos announced
that it had adopted a stock repurchase program authorizing the repurchase of up to
4,530,256 common shares (not more than 5% of the common shares outstanding on that date)
up to a maximum of $50,000,000 between October 9, 2004 and October 8, 2005 (the
2004 Stock Repurchase Program). During the quarter ended November 30,
2004, Cognos repurchased 116,500 shares at an average price of $37.30 under the 2004 Stock
Repurchase Program. As described above, the balance of the shares repurchased by Cognos
during the quarter ended November 30, 2004 were repurchased pursuant to the 2003 Stock
Repurchase Program.

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|Item 6. |  | Exhibits
|------- |  | --------

|a) |  | Exhibits |  |                                                                                                                                                                                                                                                   | 
|-- |  | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|   |  | 3.1      |  | Articles of Incorporation and Amendments thereto
(incorporated by reference to Exhibit 3.1 of Cognos Form 10-Q filed for the quarter ended  November 30, 2002 and
Exhibit  3.1(i) of Cognos Form 10-Q filed for the quarter ended May 31, 2004) | 
|   |  | 3.2      |  | By-Laws of Cognos  (incorporated  by  reference  to
 Exhibit 3.2 of Cognos Form 10-K filed for the year ended February 28, 1997)                                                                                                                 | 
|   |  | 10.26    |  | Employment  Agreement  for Robert G. Ashe dated  October 25,
 2004  (filed as Exhibit  99.1 to Report on Form 8-K filed on October 29, 2004)                                                                                                      | 
|   |  | 10.27    |  | FY05 Compensation Plan for Robert G. Ashe                                                                                                                                                                                                         | 
|   |  | 10.28    |  | Employment  Agreement  for Tom Manley dated  October 25, 2004
 (filed as Exhibit 99.2 to Report on Form 8-K filed on October 29, 2004)                                                                                                            | 
|   |  | 10.29    |  | FY05 Compensation Plan for Tom Manley                                                                                                                                                                                                             | 
|   |  | 31.1     |  | Certification  of Chief Executive  Officer Pursuant to
Rule 13a - 14(a) and 15d - 14(a) of the Securities   Exchange  Act  of  1934,  as  Adopted  Pursuant  to  Section  302  of  the
Sarbanes-Oxley Act of 2002                                 | 
|   |  | 31.2     |  | Certification  of Chief Financial  Officer Pursuant to
Rule 13a - 14(a) and 15d - 14(a) of the Securities   Exchange  Act  of  1934,  as  Adopted  Pursuant  to  Section  302  of  the
Sarbanes-Oxley Act of 2002                                 | 
|   |  | 32       |  | Certification  of Chief Executive  Officer and Chief
Financial  Officer  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002                                                                 | 
|   |  | 99.1     |  | Selected  Consolidated  Financial  Statements in U.S.
Dollars and in accordance with Canadian Generally Accepted Accounting Principles                                                                                                            | 
|   |  | 99.2     |  | Management's  Discussion  and  Analysis of  Financial
Condition  and Results of  Operations - Canadian Supplement                                                                                                                                 | 

52

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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 6, 2005 |                    
|                |                    
|Date            |                    
|                |                    
|                |                    
|                |                    
|                |                    

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EXHIBIT INDEX

|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                                                                                                  |  | PAGE  | 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----- | 
|           
|10.27       |  | FY05 Compensation Plan for Robert G. Ashe                                                                                                                                                                                                                    |  | 55    | 
|           
|10.29       |  | FY05 Compensation Plan for Tom Manley                                                                                                                                                                                                                        |  | 57    | 
|           
|31.1        |  | Certification of Chief Executive Officer Pursuant to Rule 13a - 14(a) and 15d -
                        14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of
                        the Sarbanes-Oxley Act of 2002           |  | 59    | 
|           
|            |  | 31.2Certification  of Chief  Financial  Officer  Pursuant  to Rule 13a - 14(a) and 15d -
                        14(a) of the Securities  Exchange Act of 1934, as Adopted Pursuant to Section 302 of
                        the Sarbanes-Oxley Act of 2002 |  | 60    | 
|           
|32          |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18
                        U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act
                        of 2002                                |  | 61    | 
|           
|99.1        |  | Selected Consolidated Financial Statements and Notes in U.S. Dollars and in
                        accordance with Canadian Generally Accepted Accounting Principles                                                                                        |  | 62-74 | 
|           
|99.2        |  | Managements Discussion and Analysis of Financial Condition and Results of
                        Operations - Canadian Supplement                                                                                                                          |  | 75-77 | 

54