---

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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 August 31, 2005

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

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

The number of shares outstanding of
the registrants only class of Common Stock as of September 30, 2005, was 91,239,368.

---

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# COGNOS INCORPORATED

# INDEX

|PAGE                          
|------------------------------
|PART I  FINANCIAL
INFORMATION
|                              
|Item 1.                       
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|                              
|Item 2.                       
|                              
|Item 3.                       
|                              
|Item 4.                       
|                              
|PART II  OTHER INFORMATION   
|                              
|Item 2.                       
|                              
|Item 4.                       
|                              
|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 ended August 31, | Six months ended August 31,
|---------------------------------------------- |  | ----------------------------- | ---------------------------
|                                              
|                                               |  | 2005                          |                            
|                                              
|Revenue                                        |  |                               |                            
|Product license                                |  | $  78,649                     |                            
|Product support                                |  | 92,062                        |                            
|Services                                       |  | 41,331                        |                            
|                                              
|Total revenue                                  |  | 212,042                       |                            
|                                              
|Cost of revenue                                | 
|Cost of product license                        |  | 1,409                         |                            
|Cost of product support                        |  | 8,797                         |                            
|Cost of services                               |  | 32,511                        |                            
|                                              
|Total cost of revenue                          |  | 42,717                        |                            
|                                              
|Gross margin                                   |  | 169,325                       |                            
|                                              
|Operating expenses                             | 
|Selling, general, and administrative           |  | 106,241                       |                            
|Research and development                       |  | 28,526                        |                            
|Amortization of acquisition-related intangible | 
|assets                                         |  | 1,637                         |                            
|                                              
|Total operating expenses                       |  | 136,404                       |                            
|                                              
|Operating income                               |  | 32,921                        |                            
|Interest and other expenses                    |  | (506                          | )                          
|Interest income                                |  | 3,557                         |                            
|                                              
|Income before taxes                            |  | 35,972                        |                            
|Income tax provision                           |  | 7,253                         |                            
|                                              
|Net income                                     |  | $  28,719                     |                            
|                                              
|Net income per share                           | 
|Basic                                          |  | $0.32                         |                            
|                                              
|Diluted                                        |  | $0.31                         |                            
|                                              
|Weighted average number of shares (000s)       | 
|Basic                                          |  | 90,740                        |                            
|                                              
|Diluted                                        |  | 92,806                        |                            
|                                              

(See accompanying notes)

3

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

|                                                               |  | August 31,2005 |   | February 28,2005 |  
|-------------------------------------------------------------- |  | -------------- | - | ---------------- | -
|                                                              
|Assets                                                         |  |                |   | (Note 1)         |  
|Current assets                                                 | 
|Cash and cash equivalents                                      |  | $405,112       |   | $  378,348       |  
|Short-term investments                                         |  | 96,140         |   | 144,552          |  
|Accounts receivable                                            |  | 140,941        |   | 189,602          |  
|Prepaid expenses and other current assets                      |  | 17,986         |   | 18,941           |  
|Deferred tax assets                                            |  | 1,601          |   | 3,856            |  
|                                                              
|                                                               |  | 661,780        |   | 735,299          |  
|Fixed assets, net                                              |  | 74,357         |   | 73,566           |  
|Intangible assets, net                                         |  | 24,019         |   | 27,234           |  
|Other assets                                                   |  | 6,564          |   | 6,378            |  
|Goodwill                                                       |  | 220,488        |   | 221,490          |  
|                                                              
|                                                               |  | $987,208       |   | $1,063,967       |  
|                                                              
|Liabilities                                                    | 
|Current liabilities                                            | 
|Accounts payable                                               |  | $ 21,229       |   | $    30,705      |  
|Accrued charges                                                |  | 24,131         |   | 31,047           |  
|Salaries, commissions, and related items                       |  | 58,595         |   | 91,010           |  
|Income taxes payable                                           |  | 1,335          |   | 21,148           |  
|Deferred revenue                                               |  | 188,210        |   | 217,153          |  
|                                                              
|                                                               |  | 293,500        |   | 391,063          |  
|Deferred income taxes                                          |  | 13,680         |   | 17,083           |  
|                                                              
|                                                               |  | 307,180        |   | 408,146          |  
|                                                              
|Stockholders' Equity                                           | 
|Capital stock                                                  | 
|Common shares and additional paid-in capital                   | 
|(August 31, 2005 - 90,571,423; February 28, 2005 - 91,070,967) |  | 267,248        |   | 252,561          |  
|Treasury shares                                                | 
|(August 31, 2005 - 37,640; February 28, 2005 - 46,375)         |  | (915           | ) | (1,199           | )
|Deferred stock-based compensation                              |  | (21            | ) | (277             | )
|Retained earnings                                              |  | 409,100        |   | 402,020          |  
|Accumulated other comprehensive income                         |  | 4,616          |   | 2,716            |  
|                                                              
|                                                               |  | 680,028        |   | 655,821          |  
|                                                              
|                                                               |  | $987,208       |   | $1,063,967       |  
|                                                              

(See accompanying notes)

4

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

|                                                                     |  | Three months ended August 31, |   | Six months ended August 31, |  
|-------------------------------------------------------------------- |  | ----------------------------- | - | --------------------------- | -
|                                                                    
|                                                                     |  | 2005                          |   | 2004                        |  
|                                                                    
|Cash flows from operating activities                                 |  |                               |   |                             |  
|Net income                                                           |  | $ 28,719                      |   | $ 27,599                    |  
|Non-cash items                                                       | 
|Depreciation and amortization                                        |  | 7,240                         |   | 6,504                       |  
|Amortization of deferred stock-based compensation                    |  | 167                           |   | 220                         |  
|Amortization of other deferred compensation                          |  | --                            |   | --                          |  
|Deferred income taxes                                                |  | 1,863                         |   | 1,285                       |  
|Loss on disposal of fixed assets                                     |  | 186                           |   | 123                         |  
|                                                                    
|                                                                     |  | 38,175                        |   | 35,731                      |  
|Change in non-cash working capital                                   | 
|Decrease (increase) in accounts receivable                           |  | (1,871                        | ) | (8,472                      | )
|Decrease (increase) in prepaid expenses and other current
    assets |  | (586                          | ) | (699                        | )
|Decrease in accounts payable                                         |  | (981                          | ) | (18                         | )
|Increase (decrease) in accrued charges                               |  | 2,629                         |   | 1,298                       |  
|Increase (decrease) in salaries, commissions, and related items      |  | 5,615                         |   | 8,468                       |  
|Increase (decrease) in income taxes payable                          |  | (1,348                        | ) | 2,048                       |  
|Decrease in deferred revenue                                         |  | (12,821                       | ) | (8,942                      | )
|                                                                    
|Net cash provided by operating activities                            |  | 28,812                        |   | 29,414                      |  
|                                                                    
|Cash flows from investing activities                                 | 
|Maturity of short-term investments                                   |  | 118,610                       |   | 99,081                      |  
|Purchase of short-term investments                                   |  | (96,140                       | ) | (85,566                     | )
|Additions to fixed assets                                            |  | (6,161                        | ) | (4,637                      | )
|Additions to intangible assets                                       |  | (196                          | ) | (460                        | )
|Increase in other assets                                             |  | (365                          | ) | --                          |  
|Acquisition costs, net of cash and cash equivalents                  |  | --                            |   | --                          |  
|                                                                    
|Net cash provided by investing activities                            |  | 15,748                        |   | 8,418                       |  
|                                                                    
|Cash flows from financing activities                                 | 
|Issue of common shares                                               |  | 6,246                         |   | 8,983                       |  
|Purchase of treasury shares                                          |  | (177                          | ) | (335                        | )
|Repurchase of shares                                                 |  | (23,694                       | ) | (9,866                      | )
|                                                                    
|Net cash used in financing activities                                |  | (17,625                       | ) | (1,218                      | )
|                                                                    
|Effect of exchange rate changes on cash                              |  | 751                           |   | 727                         |  
|                                                                    
|Net increase in cash and cash equivalents                            |  | 27,686                        |   | 37,341                      |  
|Cash and cash equivalents, beginning of period                       |  | 377,426                       |   | 327,441                     |  
|                                                                    
|Cash and cash equivalents, end of period                             |  | 405,112                       |   | 364,782                     |  
|Short-term investments, end of period                                |  | 96,140                        |   | 75,628                      |  
|                                                                    
|Cash, cash equivalents, and short-term investments, 
  end of period |  | $501,252                      |   | $440,410                    |  
|                                                                    

(See accompanying notes)

5

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COGNOS INCORPORATEDCONDENSED 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 28, 2005 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 28, 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 particular, management makes judgments
related to, among other things, revenue recognition, the allowance for doubtful accounts,
income taxes, business acquisitions and the related goodwill, intangibles and
restructuring accrual, and the impairment of goodwill and long-lived assets. 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Corporation recognizes revenue in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition as amended by SOP 98-9
Software Revenue Recognition with Respect to Certain Arrangements (collectively
SOP 97-2) issued by the American Institute of Certified Public
Accountants.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Corporation recognizes revenue only 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. For contracts with multiple obligations, the
Corporation allocates revenue to each element of the contract based on vendor specific
objective evidence (VSOE) of the fair value of the elements using the
residual method as described in SOP 97-2.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Substantially
all of the Corporations product license revenue is earned from licenses of
off-the-shelf software requiring no customization. If a license includes the right to
return the product for refund or credit, revenue is deferred, until the right of return
lapses.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenue
from product support contracts is recognized ratably over the life of the contract,
typically 12 months. Incremental costs directly attributable to the acquisition of product
support contracts which would not have been incurred but for the acquisition of that
contract, are deferred and expensed in the period the related revenue is recognized. These
costs include commissions payable on sales of support contracts.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

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

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

| | As
required by SOP 97-2, the Corporation establishes VSOE for each element of a contract with
multiple obligations (i.e. delivered and undelivered products, support obligations,
education, consulting, and other services). The Corporation determines VSOE for service
elements based on the normal pricing and discounting practices for those elements when
they are sold separately and for product support elements based on the renewal rates
offered to customers; the remaining arrangement fee is then assigned to the license
element of the contract.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Corporation recognizes revenue for resellers, value added resellers, original equipment
manufacturers, and strategic system integrators (collectively
third-parties) in a similar manner to revenue for end-users. The
Corporation recognizes revenue on physical transfer of the master copy to third-parties if
the license fee is a one-time up-front fixed irrevocable payment and all other revenue
recognition criteria have been met. If there are multiple license fee payments based on
the number of copies made or ordered, delivery occurs and revenue is recognized when the
copies are licensed and delivered to an end-user. It is the Corporations general
business practice not to offer or agree to exchanges or returns with third-parties. If a
third-party is newly formed, undercapitalized or in financial difficulty, or if
uncertainties about the number of copies to be sold by the third-party exist, revenue is
deferred and recognized when cash is received if all other revenue recognition criteria
have been met.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Corporation applies Accounting Principles Board (APB) 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., based on 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

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COGNOS INCORPORATEDCONDENSED 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 in accordance with Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-based Compensation, (SFAS 123) 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 endedAugust 31, | Six months endedAugust 31,
| | ----------------------------------- |  | ---------------------------- | --------------------------
| |                                    
| |                                     |  | 2005                         |                           
| |                                    
| | Net income:                         |  |                              |                           
| | As reported                         |  | $28,719                      |                           
| | Add: Stock-based employee           | 
| | compensation included above         |  | 167                          |                           
| | Less: Stock-based employee          | 
| | compensation using fair value based | 
| | method                              |  | (3,986                       | )                         
| |                                    
| | Pro forma                           |  | $24,900                      |                           
| |                                    
| | Basic net income per share:         | 
| | As reported                         |  | $0.32                        |                           
| | Add: Stock-based employee           | 
| | compensation included above         |  | --                           |                           
| | Less: Stock-based employee          | 
| | compensation using fair value based | 
| | method                              |  | (0.05                        | )                         
| |                                    
| | Pro forma                           |  | $0.27                        |                           
| |                                    

8

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

| |                                     |  |                              |                            |        |   |        |   |        |  
| | ----------------------------------- |  | ---------------------------- | -------------------------- | ------ | - | ------ | - | ------ | -
| |                                     |  | Three months endedAugust 31, | Six months endedAugust 31,
| |                                    
| |                                     |  | 2005                         |                            | 2004   |   | 2005   |   | 2004   |  
| |                                    
| | Diluted net income per share:       | 
| | As reported                         |  | $0.31                        |                            | $0.30  |   | $0.56  |   | $0.51  |  
| | Add: Stock-based employee           | 
| | compensation included above         |  | --                           |                            | --     |   | --     |   | --     |  
| | Less: Stock-based employee          | 
| | compensation using fair value based | 
| | method                              |  | (0.04                        | )                          | (0.04  | ) | (0.08  | ) | (0.06  | )
| |                                    
| | Pro forma                           |  | $0.27                        |                            | $0.26  |   | $0.48  |   | $0.45  |  
| |                                    
| |                                     |  |                              |                            |        |   |        |   |        |  
| | Weighted average number of shares:  | 
| | Basic                               |  | 90,740                       |                            | 90,382 |   | 90,909 |   | 90,237 |  
| |                                    
| | Diluted                             |  | 92,806                       |                            | 92,849 |   | 93,350 |   | 92,771 |  
| |                                    

| | For
purposes of computing pro forma net income, the fair value of the options granted during
the three and six month periods ended August 31, 2005 was estimated at the date of grant
using a binomial lattice option-pricing model. Prior to March 1, 2005, the Corporation
used the Black-Scholes option-pricing model to estimate the fair value of options at the
grant date. The following weighted average assumptions were used :
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                  |  |                              |                            |      |   |      |   |      |  
| | -------------------------------- |  | ---------------------------- | -------------------------- | ---- | - | ---- | - | ---- | -
| |                                  |  | Three months endedAugust 31, | Six months endedAugust 31,
| |                                 
| |                                  |  | 2005                         |                            | 2004 |   | 2005 |   | 2004 |  
| |                                 
| | Risk-free interest rates         |  | 3.8                          | %                          | 3.2  | % | 3.8  | % | 3.2  | %
| | Expected volatility              |  | 33.0                         | %                          | 51.0 | % | 33.1 | % | 51.0 | %
| | Dividend yield                   |  | 0.0                          | %                          | 0.0  | % | 0.0  | % | 0.0  | %
| | Expected life of options (years) |  | 3.8                          |                            | 4.3  |   | 3.8  |   | 4.3  |  

| | For
purposes of the pro forma disclosures, the expected volatility assumptions used by the
Corporation prior to this fiscal year have been based solely on the historical volatility
of the Corporations common stock over the most recent period commensurate with the
estimated expected life of the Corporations stock options. Beginning in fiscal year
2006, the Corporation has modified this approach to consider other relevant factors,
including implied volatility in market traded options on the Corporations common
stock and the impact of unusual fluctuations not reasonably expected to recur on the
historical volatility of the Corporations common stock. The Corporation will
continue to monitor these and other relevant factors in developing the expected
volatility assumption used to value future awards.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

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

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

| | During
the three and six months ended August 31, 2005, there were reductions to goodwill of
$871,000 and $1,002,000, respectively, resulting from adjustments to the restructuring
plan (see Note 11) in the purchase price allocation for Frango AB
(Frango). For the three and six months ended August 31, 2004, there
were no adjustments to goodwill.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                   |         |                              |                            |          |  |          |   |          | 
| | ----------------- | ------- | ---------------------------- | -------------------------- | -------- |  | -------- | - | -------- | 
| |                   |         | Three months endedAugust 31, | Six months endedAugust 31,
| |                  
| |                   |         | 2005                         |                            | 2004     |  | 2005     |   | 2004     | 
| |                  
| |                   | ($000s) | ($000s)                     
| | Beginning balance |         | $221,359                     |                            | $172,323 |  | $221,490 |   | $172,323 | 
| | Adjustments       |         | (871                         | )                          | --       |  | (1,002   | ) | --       | 
| |                  
| | Closing balance   |         | $220,488                     |                            | $172,323 |  | $220,488 |   | $172,323 | 
| |                  

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

| |                           |  | As at August 31,2005 | As at February 28,2005 
| | ------------------------- |  | -------------------- | -----------------------
| |                          
| |                           |  | Cost                 | AccumulatedAmortization
| |                          
| |                           |  | ($000s)              | ($000s)                
| |                           |  |                      |                        
| | Acquired technology       |  | $ 40,419             |                        
| | Contractual relationships |  | 9,608                |                        
| | Trademarks and patents    |  | 5,042                |                        
| |                           |  |                      |                        
| |                           |  | 55,069               |                        
| |                           |  |                      |                        
| |                           |  | (31,050              | )                      
| |                           |  |                      |                        
| | Net book value            |  | $ 24,019             |                        
| |                           |  |                      |                        

| | During
the three months ended August 31, 2005 and August 31, 2004, there were additions to
trademarks and patents in the amount of $200,000 and $459,000, respectively, and $445,000
and $529,000 in the six months ended August 31, 2005 and August 31, 2004, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
amortization of intangible assets is included in amortization of acquisition-related
intangibles and selling, general, and administrative expenses. The following table sets
forth the allocations:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---

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

| |                                 |         |                              |                            |        |  |        |  |        | 
| | ------------------------------- | ------- | ---------------------------- | -------------------------- | ------ |  | ------ |  | ------ | 
| |                                 |         | Three months endedAugust 31, | Six months endedAugust 31,
| |                                
| |                                 |         | 2005                         |                            | 2004   |  | 2005   |  | 2004   | 
| |                                
| |                                 | ($000s) | ($000s)                     
| | Amortization of                 |        
| | acquisition-related intangibles |         | $1,637                       |                            | $1,228 |  | $3,274 |  | $2,464 | 
| | Selling, general, and           |        
| | administrative expenses         |         | 201                          |                            | 141    |  | 386    |  | 277    | 
| |                                
| | Closing balance                 |         | $1,838                       |                            | $1,369 |  | $3,660 |  | $2,741 | 
| |                                

| | The
estimated amortization expense related to intangible assets is as follows ($000s):
| | --------------------------------------------------------------------------------------

| |  | 2006 (Q3 to Q4) |  | $3,637 | 
| |  | --------------- |  | ------ | 
| |  | 2007            |  | 7,182  | 
| |  | 2008            |  | 6,528  | 
| |  | 2009            |  | 3,004  | 
| |  | 2010            |  | 2,220  | 
| |  | 2011            |  | 1,448  | 

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

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

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

11

---

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

|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. The estimated
effective tax rate is adjusted on a quarterly basis when a tax asset or exposure is
ultimately resolved.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Corporation estimates its effective tax rate for the fiscal year to be 21%, exclusive of
any one-time events. This estimated effective tax rate was reduced for the three-month
period ended August 31, 2005 to 20.2% due to adjustments relating to various tax audits
and prior year tax provisions. The effective tax rate for the six-month period ended
August 31, 2005 was adjusted to 16.7%. In addition to the tax adjustments for the current
quarter, this included the first quarter adjustments of benefits resulting from (i) a tax
court decision that allowed corporations to claim investment tax credits on stock-based
compensation for research and development personnel relating to fiscal years 2004 and 2005
and (ii) a change in tax withholding legislation relating to one of the Corporations
subsidiaries. For the three and six month periods ended August 31, 2004, the Corporation
estimated its effective tax rate for fiscal 2005 to be 21%.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Corporation issued 239,000 common shares for proceeds of $6,246,000, and 467,000 common
shares for proceeds of $8,983,000 during the quarters ended August 31, 2005, and August
31, 2004, respectively. The Corporation issued 766,000 common shares for proceeds of
$18,553,000 and 1,102,000 common shares for $19,272,000 during the six months ended August
31, 2005, and August 31, 2004, respectively. The issuance of shares in fiscal
2006 and 2005 was pursuant to the Corporations stock purchase plan and the exercise
of stock options by employees, officers and directors.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Corporation repurchases shares under a share repurchase program and under a restricted
share unit plan. During the three and six months ended August 31, 2005, the Corporation
repurchased 649,000 shares at a value of $23,694,000 and 1,266,000 shares at a value of
$48,948,000, respectively, in the open market under its share repurchase program. During
these same periods, the Corporation repurchased 5,000 shares valued at $177,000 under its
restricted share unit plan.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

---

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

| | During
the three and six months ended August 31, 2004, the corporation repurchased 287,000 shares
at a value of $9,866,000 and 587,000 shares at a value of $19,855,000 respectively, in the
open market under its share repurchase program. During these same periods, the Corporation
repurchased 10,000 shares valued at $335,000 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 endedAugust 31, | Six months endedAugust 31,
| |                                    
| |                                     |  | 2005                         |                            | 2004    |  | 2005    |  | 2004    | 
| |                                    
| | Basic Net Income per Share          | 
| | Net income                          |  | $28,719                      |                            | $27,599 |  | $52,544 |  | $47,724 | 
| |                                    
| | Weighted average number of shares   | 
| | outstanding                         |  | 90,740                       |                            | 90,382  |  | 90,909  |  | 90,237  | 
| |                                    
| | Basic net income per share          |  | $0.32                        |                            | $0.31   |  | $0.58   |  | $0.53   | 
| |                                    
| | Diluted Net Income per Share        | 
| | Net income                          |  | $28,719                      |                            | $27,599 |  | $52,544 |  | $47,724 | 
| |                                    
| | Weighted average number of shares   | 
| | outstanding                         |  | 90,740                       |                            | 90,382  |  | 90,909  |  | 90,237  | 
| | Dilutive effect of stock options    |  | 2,066                        |                            | 2,467   |  | 2,441   |  | 2,534   | 
| |                                    
| | Adjusted weighted average number of | 
| | shares outstanding                  |  | 92,806                       |                            | 92,849  |  | 93,350  |  | 92,771  | 
| |                                    
| | Diluted net income per share        |  | $0.31                        |                            | $0.30   |  | $0.56   |  | $0.51   | 
| |                                    

|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. OCI includes the
foreign currency translation adjustments for subsidiaries that do not use the U.S. dollar
as their functional currency net of gains or losses on derivatives designated as a hedge
of the net investment in foreign operations and the effective portion of cash flow hedges
where the hedged item has not yet been recognized in income. Tax effects of foreign
currency translation adjustments pertaining to those subsidiaries are generally included
in OCI.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---

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

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

| |                                          |  |                              |                            |         |  |         |   |         |  
| | ---------------------------------------- |  | ---------------------------- | -------------------------- | ------- |  | ------- | - | ------- | -
| |                                          |  | Three months endedAugust 31, | Six months endedAugust 31,
| |                                         
| |                                          |  | 2005                         |                            | 2004    |  | 2005    |   | 2004    |  
| |                                         
| | Net income                               |  | $28,719                      |                            | $27,599 |  | $52,544 |   | $47,724 |  
| | Other comprehensive income (loss):       | 
| | Foreign currency translation adjustments |  | 2,179                        |                            | 1,382   |  | 2,769   |   | (333    | )
| | Change in net unrealized loss on         | 
| | derivative instruments                   |  | (633                         | )                          | --      |  | (869    | ) | --      |  
| |                                         
| | Comprehensive income                     |  | $30,265                      |                            | $28,981 |  | $54,444 |   | $47,391 |  
| |                                         

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

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

|11. |  | Liabilities
in Connection with Acquisition
|--- |  | ------------------------------------------

| | The
Corporation undertook a restructuring plan in conjunction with the acquisition of Frango
in September 2004. In accordance with Emerging Issues Task Force No. 95-3, Recognition
of Liabilities in Connection with a Business Combination, the liability associated
with this restructuring is considered a liability assumed in the purchase price
allocation. The Corporation recorded restructuring costs of approximately $5,445,000 in
relation to this restructuring plan. This restructuring 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. All amounts excluding lease payments
are expected to be paid during fiscal 2006. Outstanding balances for the lease payments
will be paid over the lease term unless settled earlier. As of August 31, 2005, the plan
was 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---

COGNOS INCORPORATEDCONDENSED 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 six-month period ended August 31, 2005: ($000s)
| | ----------------------------------------------------------------------------------------------------------------------------------------------

| |                                              |  | Employeeseparations | Otherrestructuringaccruals | Total accrual
| | -------------------------------------------- |  | ------------------- | -------------------------- | -------------
| |                                             
| | Balance as at February 28, 2005              |  | $ 2,913             |                            | $2,261       
| | Adjustments to accrual                       |  | (305                | )                          | (453         
| | Cash payments during the first six months of | 
| | fiscal 2006                                  |  | (1,649              | )                          | (554         
| | Foreign exchange adjustment                  |  | (177                | )                          | (148         
| |                                             
| | Balance as at August 31, 2005                |  | $    782            |                            | $1,106       
| |                                             

|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
December 2004, the FASB issued SFAS No. 123 (Revised), Share-based Payment(SFAS 123R) which is a revision of SFAS 123 and supersedes APB 25
and SFAS No. 148, Accounting for Stock-based Compensation  Transition and
Disclosure. 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 fiscal years beginning after June 15, 2005. Early adoption is
permitted. The Corporation is currently examining the different changes contemplated by
the new rules and has yet to determine which transitional provision it will follow. The
impact on the Corporations financial statements of applying one of the acceptable
fair value based methods of accounting for stock options is disclosed in Note 3
Stock-based Compensation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

---

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

| | In
March 2005, the Securities and Exchange Commission (SEC) released SEC
Staff Accounting Bulletin No. 107, Share-Based Payment (SAB
107). SAB 107 provides the SEC staff position regarding the application of SFAS
123R. SAB 107 contains interpretive guidance related to the interaction between SFAS 123R
and certain SEC rules and regulations, as well as provides the staffs views
regarding the valuation of share-based payment arrangements for public companies. SAB 107
also highlights the importance of disclosures made related to the accounting for
share-based payment transactions. The Corporation is currently evaluating SAB 107 and will
be incorporating it as part of its adoption of SFAS 123R.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections(SFAS 154) which supersedes APB Opinion No. 20, Accounting
Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial
Statements. SFAS 154 changes the requirements for the accounting for and reporting of
changes in accounting principle. The statement requires the retroactive application to
prior periods financial statements of changes in accounting principles, unless it is
impracticable to determine either the period specific effects or the cumulative effect of
the change. SFAS 154 does not change the guidance for reporting the correction of an error
in previously issued financial statements or the change in an accounting estimate. SFAS
154 is effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The Corporation does not expect the adoption of
SFAS 154 to have a material impact on its consolidated results of operations and
financial condition.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. |  | Canadian
Generally Accepted Accounting Principles
|--- |  | -------------------------------------------------

| | The
Corporations consolidated financial statements have been prepared in accordance with
U.S. GAAP. As the Corporation is a reporting issuer in each of the provinces of Canada and
is incorporated under the Canada Business Corporations Act (CBCA), it
has had to prepare Canadian GAAP financial statements for its shareholders. Recent
amendments to provincial securities laws and the CBCA allow the Corporation to report
solely under U.S. GAAP to its shareholders providing that a reconciliation between U.S.
GAAP and Canadian GAAP is included in the notes to the consolidated financial statements
for two years following the adoption of the amendment. Accordingly, the Corporation will
include the reconciliations for fiscal 2005 and fiscal 2006.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---

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

| | The
following summarizes the more significant differences that would result if Canadian GAAP
had been applied in the preparation of these consolidated financial statements:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Condensed
Consolidated Balance Sheets
| | -------------------------------------

| | $000s, as at            |  | August 31, 2005 | February 28, 2005
| | ----------------------- |  | --------------- | -----------------
| |                        
| |                         |  | U.S. GAAP       |                  
| |                        
| | Current assets          |  | $661,780        |                  
| | Fixed assets, net       |  | 74,357          |                  
| | Intangible assets, net  |  | 24,019          |                  
| | Other assets            |  | 6,564           |                  
| | Goodwill                |  | 220,488         |                  
| |                        
| | Total Assets            |  | $987,208        |                  
| |                        
| | Current liabilities     |  | $293,500        |                  
| | Deferred income taxes   |  | 13,680          |                  
| | Common shares and       | 
| | additional paid-in      | 
| | capital                 |  | 267,248         |                  
| | Treasury shares         |  | (915            | )                
| | Deferred stock-based    | 
| | compensation            |  | (21             | )                
| | Retained earnings       |  | 409,100         |                  
| | Accumulated other       | 
| | comprehensive    income |  | 4,616           |                  
| |                        
| | Total Liabilities and   | 
| | Stockholders' Equity    |  | $987,208        |                  
| |                        

17

---

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

| | Reconciliation
of Consolidated Net Income
| | -----------------------------------------

| |                                                  |  |                              |                            |         |   |         |   |         |  
| | ------------------------------------------------ |  | ---------------------------- | -------------------------- | ------- | - | ------- | - | ------- | -
| |                                                  |  | Three months endedAugust 31, | Six months endedAugust 31,
| |                                                 
| | $000s except per share amounts                   |  | 2005                         |                            | 2004    |   | 2005    |   | 2004    |  
| |                                                 
| | Net income under U.S. GAAP                       |  | $28,719                      |                            | $27,599 |   | $52,544 |   | $47,724 |  
| | Amortization of acquired in-process technology   |  | (250                         | )                          | (250    | ) | (500    | ) | (500    | )
| | Deferred taxes on acquired in-process technology | 
| | amortization                                     |  | 100                          |                            | 100     |   | 200     |   | 200     |  
| | Stock-based compensation                         |  | (4,391                       | )                          | (3,635  | ) | (8,305  | ) | (7,286  | )
| | Tax impact of stock-based compensation           |  | 572                          |                            | 427     |   | 1,033   |   | 854     |  
| |                                                 
| | Net income under Canadian GAAP                   |  | $24,750                      |                            | $24,241 |   | $44,972 |   | $40,992 |  
| |                                                 
| | Net income per share under Canadian GAAP         | 
| | Basic                                            |  | $0.27                        |                            | $0.27   |   | $0.49   |   | $0.45   |  
| |                                                 
| | Diluted                                          |  | $0.27                        |                            | $0.26   |   | $0.48   |   | $0.44   |  
| |                                                 
| | Weighted average number of shares (000s)         | 
| | Basic                                            |  | 90,740                       |                            | 90,382  |   | 90,909  |   | 90,237  |  
| |                                                 
| | Diluted                                          |  | 92,806                       |                            | 92,849  |   | 93,350  |   | 92,771  |  
| |                                                 

| | There
are no significant differences with respect to the consolidated statement of cash flows
between U.S. GAAP and Canadian GAAP.
| | ----------------------------------------------------------------------------------------------------------------------------------

| | The
most significant differences between U.S. and Canadian GAAP, in terms of the impact on
the Corporations financial statements, relate to in-process research and
development and stock-based compensation. A description of these differences and others
is presented below.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | A.        Acquired
in-process technology
| |  | ----------------------------------------

| | Canadian
GAAP requires capitalization of the value assigned to acquired in-process technology and
amortization of this value over its estimated useful life. Under U.S. GAAP, this value is
written off immediately. The impact of this difference was to decrease net income by
$250,000 for both the three months ended August 31, 2005 and August 31, 2004, compared to
U.S. GAAP. For both the six months ended August 31, 2005 and August 31, 2004, the impact
of this difference was to decrease net income by $500,000, compared to U.S. GAAP.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

18

---

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

| |  | B.        Stock-based
compensation
| |  | ----------------------------------

| | Under
U.S. GAAP, companies may choose between the intrinsic value method and fair value method
of accounting for stock-based compensation. The Corporation has elected to account for
stock-based compensation using the intrinsic value method in accordance with APB 25 and to
disclose the pro forma effect of recording compensation expense under the fair value
method. This disclosure can be found in Note 3 to these unaudited consolidated financial
statements. For Canadian GAAP purposes, companies are required to use the fair value
method of accounting for stock-based compensation. The impact of this difference for the
three months ended August 31, 2005 and August 31, 2004 was to decrease income before taxes
by $4,391,000 and $3,635,000, respectively. For the six months ended August 31, 2005 and
August 31, 2004, the impact of this difference was to decrease income before taxes by
$8,305,000 and $7,286,000, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Upon
adoption of a fair value method of stock-based compensation for Canadian GAAP purposes, a
cumulative adjustment of $132,798,000 was made to additional paid in capital with an
offsetting entry of $77,770,000 to retained earnings and $55,028,000 to deferred
stock-based compensation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | C.        Deferred
income taxes related to acquired in-process technology and stock-based compensation
| |  | ------------------------------------------------------------------------------------------------------

| | The
above noted difference relating to the capitalization of in-process technology created an
additional deferred income tax liability for Canadian GAAP purposes as the capitalization
of the in-process technology created a temporary difference. The amortization of this
balance decreased the income tax provision by $100,000 for both the three months ended
August 31, 2005 and August 31, 2004, compared to U.S. GAAP. For both the six months ended
August 31, 2005 and August 31, 2004, the amortization of this balance decreased the income
tax provision by $200,000 compared to U.S. GAAP.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
expensing of stock-based compensation creates a deferred tax asset for Canadian GAAP
purposes as this expense is deductible in certain jurisdictions when the options are
exercised. Under U.S. GAAP, the reduction in the tax liability is treated as part of the
purchase price component of the stock options and added to paid-in capital. The expensing
of stock-based compensation reduced the Canadian GAAP tax provision by $572,000 and
$427,000 for the three months ended August 31, 2005 and August 31, 2004, respectively, as
compared to U.S. GAAP. For the six months ended August 31, 2005 and August 31, 2004, the
reduction to the tax provision was $1,033,000 and $854,000, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | D.        Derivative
financial instruments
| |  | ------------------------------------------

| | Under
Canadian GAAP, derivative financial instruments that qualify for hedge accounting
treatment may be recognized on the balance sheet only to the extent that cash has been
paid and or received together with adjustments necessary to offset recognized gains or
losses arising on the hedged items. Under U.S. GAAP, such derivative financial instruments
are recognized on the balance sheet at fair value with a corresponding charge or credit
recorded in OCI for any portion not recognized in income. At August 31, 2005 and
February 28, 2005, there was $1,217,000 and $348,000, respectively, included in OCI
related to the net unrealized loss on the Corporations cash flow hedges. For
Canadian GAAP, this amount was removed and applied against the accrued liability related
to the hedge.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19

---

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

| |  | E.        Investment
tax credits
| |  | --------------------------------

| | In
addition to the above differences affecting net income, Canadian GAAP requires that
investment tax credits be deducted from operating expense whereas, under U.S. GAAP, these
amounts are to be deducted from the income tax provision. The impact of this difference
was to increase net income before taxes and the income tax provision by $4,263,000 and
$4,580,000 for the three months ended August 31, 2005 and August 31, 2004, respectively,
with no resulting impact to net income, compared to U.S. GAAP. For the six months ended
August 31, 2005 and August 31, 2004, the impact was to increase net income before taxes
and the income tax provision by $9,763,000 and $7,594,000, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

---

Item 2.

# COGNOS INCORPORATED

# MANAGEMENTS
DISCUSSION AND ANALYSISOF 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 28, 2005 (fiscal
2005). MD&A contains forward-looking statements including statements
concerning future revenue and earnings and drivers of revenue growth; the effect of
foreign currency fluctuations, changes in accounting principles and changes in actual or
assumed tax liabilities; our expectations regarding tax exposure; product demand and
growth opportunities; business outlook and business momentum; industry trends, including
standardization, greater investment within the Office of Finance, and the emergence of
CPM; purchasing environment; larger transactions and changes in buying cycle; new product
introductions/development and customer reaction and acceptance of such products, including
new releases of Cognos Planning and Cognos Controller as well as Cognos 8 Business
Intelligence and the impact of Cognos 8 Business Intelligence on our business, financial
performance, customers, and industry; market positioning and conditions, business model
and technology strategies and execution; the growth, strategic importance, benefits, and
acceptance of corporate performance management, business intelligence and solution
standardization; our deployment of resources to expand our direct and indirect sales
activities; our relationships with system integrators and the importance of those
relationships; our use of subcontractors and direct and indirect sales channels; increases
in enterprise-wide deployments; expense monitoring and our anticipated capital
requirements and working capital needs. These forward-looking statements are neither
promises nor guarantees, but involve risks and uncertainties that may cause actual results
to differ materially from those in the forward-looking statements. Factors that may cause
such differences include, but are not limited to, our ability to maintain or accurately
forecast revenue growth or to anticipate and accurately forecast a decline in revenue from
any of our products or services, particularly our license revenues as a result of the
release of Cognos 8 Business Intelligence; a continuing increase in the number of larger
customer transactions and the potential for a related lengthening of sales cycles; our
ability to compete in an intensely competitive market; our ability to develop and
introduce new products and enhancements on schedule that respond to customer requirements
and rapid technological change; new product introductions and enhancements by competitors;
our ability to select and implement appropriate business models, plans and strategies and
to execute on them; our ability to identify, hire, train, motivate, and retain highly
qualified management and other key personnel; continued BI market consolidation and other
competitive changes in the BI market; the incursion of enterprise resource planning
companies into the BI market; fluctuations in our quarterly and annual operating results;
currency fluctuations; fluctuations in our tax exposure; the impact of global economic
conditions on our business; unauthorized use or misappropriation of our intellectual
property; claims by third parties that our software infringes their intellectual property;
the risks inherent in international operations, such as the impact of the laws of foreign
jurisdictions; the impact of recent hurricanes on the overall economic condition of North
America; and our ability to identify, pursue, and complete acquisitions with desired
business results; 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 our
expectations or in events, conditions, or circumstances on which any such statements may
be based, or that may affect the likelihood that actual results will differ from those
contained in the forward-looking statements.

21

---

# ABOUTCOGNOS

Cognos is a global leader in business
intelligence (BI) and corporate performance management
(CPM) software solutions. Our solutions help improve business
performance by enabling planned performance management through the consistent reporting
and analysis of data derived from various sources. Management believes that organizations
that use our software gain valuable insights that can be used to improve operational
effectiveness, enhance customer satisfaction, reduce corporate response times and,
ultimately, increase revenues and profits. Our integrated software solutions consist of
our suite of BI components, performance management applications, and analytical
applications.

Our customers can 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 solution for CPM allows users to effectively manage the full business cycle
with planning, budgeting, consolidation, reporting, analysis, and scorecarding products.

Our revenue is derived primarily from
the licensing of our software and the provision of related services for BI and CPM
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
THEQUARTER

We delivered solid financial results
in the second quarter of fiscal 2006 leading up to the release of Cognos 8 Business
Intelligence (Cognos 8 BI) early in our third quarter. The quarter was
marked by significant marketing activity and customer Beta testing related to this new
product.

# Operating Performance

Revenue for the three-month period
ended August 31, 2005 was $212.0 million, an increase of 14% from $185.2 million for the
corresponding period last year. The increase in revenue during the quarter is mainly
attributable to increases in support revenue and services revenue which increased 21% and
23%, respectively, compared to the same period last fiscal year. License revenue increased
4% to $78.6 million, compared with $75.4 million in the second quarter of fiscal 2005. The
increase in license revenue for the quarter is primarily attributable to increased sales
of Cognos ReportNetTM, Cognos Planning, and Cognos Controller. This increase
was partially offset by a decline in license revenue of our on-line analytical process
(OLAP) product, PowerPlay®.

Our operating margin for the quarter
ended August 31, 2005 was 15.5% compared to 17.9% a year ago. The decrease in operating
margin was primarily attributable to fluctuations in foreign currency, predominantly the
Canadian dollar which strengthened compared to the U.S. dollar during the quarter. Also
contributing were the ongoing expenses resulting from our acquisition of Frango and our
investment in headcount to support our future growth.

22

---

Net income for the three month period
ended August 31, 2005 was $28.7 million or $0.31 per share compared to net income of $27.6
million or $0.30 per share for the same period last year. The improvement in net income
for the quarter can be attributed to the contribution driven by the increased revenue in
the quarter. This increase was partially offset by increased costs caused by the
unfavorable impact of foreign currency fluctuations and increased spending in targeted
areas as we invested in staff development, marketing, and our distribution channels for
the launch of Cognos 8 BI, and to take advantage of market opportunities in BI
standardization and the Office of Finance.

Our balance sheet remains strong, as
we ended the quarter with $501.3 million in cash, cash equivalents, and short-term
investments, an increase of $5.2 million from May 31, 2005. Cash flow from operations for
the quarter was $28.8 million and we repurchased $23.7 million of our shares on the open
market.

We signed nine contracts in excess of
one million dollars during the quarter compared with seven in the same period last fiscal
year. In addition, the number of contracts greater than $200,000 and $50,000 increased 14%
and 15%, 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 performance management within our customers
businesses.

# Outlook for the balance
of the fiscal year

On September 14, 2005, we launched
Cognos 8 Business Intelligence. This major new product release offers a complete range of
BI functionality, including reporting, analysis, dashboarding, scorecarding, and event
management, now on a single, proven web-based architecture. This services-oriented
architecture was first introduced with Cognos ReportNet and will allow customers to easily
expand their BI deployment. With Cognos 8 BI, we believe our product portfolio is the most
comprehensive and technologically advanced in the BI industry.

With the launch of Cognos 8 BI and
its upcoming general availability in November 2005, we believe that we are well positioned
to benefit from licensing revenue from new customers as well as provide existing customers
with the opportunity to add to their current reporting and analysis capabilities. We
believe that Cognos 8 BI will make a significant contribution to our third and fourth
quarter revenue.

As the market for BI products
continues to grow, BI standardization, the increased investment within the Office of
Finance, and CPM remain key agenda items with our customers. The investments we made
during the first half of the fiscal year will help us capitalize on this new product
release as well as this growing BI market in the second half of fiscal 2006.

In the first half of fiscal 2006, the
Canadian dollar strengthened compared to the U.S. dollar. If that trend continues, it will
put pressure on our business model and operating margin percentage in the second half of
fiscal 2006. Accordingly, we will continue to manage our spending in an effort to mitigate
this effect.

In the future, we will continue to
focus on bringing innovative new products to market. We are currently developing new
releases of Cognos Planning and Cognos Controller in addition to the continuing
enhancement of Cognos 8 BI.

23

---

# RESULTS OFOPERATIONS

|                                  |  |                              |   | Percentage Change         
|--------------------------------- |  | ---------------------------- | - | --------------------------
|                                  |  |                              |   |                           
|($000s, except per share amounts) |  | Three months endedAugust 31, |   | Six months endedAugust 31,
|                                 
|                                  |  | 2005                         |   | 2004                      
|                                 
|Revenue                           |  | $212,042                     |   | $185,220                  
|Cost of revenue                   |  | 42,717                       |   | 35,077                    
|                                  |  |                              |  
|Gross margin                      |  | 169,325                      |   | 150,143                   
|Operating expenses                |  | 136,404                      |   | 116,981                   
|                                  |  |                              |  
|Operating income                  |  | $  32,921                    |   | $  33,162                 
|                                 
|Gross margin percentage           |  | 79.9                         | % | 81.1                      
|Operating margin percentage       |  | 15.5                         | % | 17.9                      
|                                 
|Net income                        |  | $28,719                      |   | $27,599                   
|                                  |  |                              |  
|Basic net income per share        |  | $0.32                        |   | $0.31                     
|                                  |  |                              |  
|Diluted net income per share      |  | $0.31                        |   | $0.30                     
|                                  |  |                              |  

Revenue for the quarter ended August
31, 2005 was $212.0 million, a 14% increase from revenue of $185.2 million for the same
quarter last year. Net income for the current quarter was $28.7 million, compared to net
income of $27.6 million for the same quarter last year. Diluted net income per share was
$0.31 for the current quarter, compared to diluted net income per share of $0.30 for the
same quarter last year. Basic net income per share was $0.32 and $0.31 for the quarters
ended August 31, 2005 and August 31, 2004, respectively.

Revenue for the six months ended
August 31, 2005 was $412.1 million, a 15% increase from revenue of $358.8 million for the
same period last year. Net income for the current six-month period was $52.5 million,
compared to net income of $47.7 million for the same period last year. Diluted net income
per share was $0.56 for the current six-month period, compared to diluted net income per
share of $0.51 for the same period last year. Basic net income per share was $0.58 and
$0.53 for the six-month periods ended August 31, 2005 and August 31, 2004,
respectively.

Gross margin for the three months
ended August 31, 2005 was $169.3 million, an increase of 13% over gross margin of $150.1
million for the same quarter last year. Gross margin percentage was 80% for the quarter
ended August 31, 2005, as compared to 81% for the corresponding quarter last fiscal year.
Gross margin for the six months ended August 31, 2005 was $327.2 million, an increase of
13% over gross margin of $290.5 million for the same period last year. Gross margin
percentage for the six months ended August 31, 2005 was 79% as compared to 81% for the
corresponding period last year.

24

---

Total operating expenses for the
quarter ended August 31, 2005 were $136.4 million, a 17% increase from operating expenses
of $117.0 million for the same quarter last year. The operating margin for the quarter
ended August 31, 2005 was 15.5% as compared to 17.9% for the corresponding quarter of the
previous fiscal year. Total operating expenses for the six months ended August 31, 2005
were $269.9 million, a 16% increase from operating expenses of $233.2 million for the same
period last year. The operating margin for the six months ended August 31, 2005 was 13.9%
as compared to 16.0% for the same period last year. The decrease in operating margin for
the three and six month periods ended August 31, 2005 is primarily attributable to
fluctuations in foreign currency, predominantly the Canadian dollar which strengthened
compared to the U.S. dollar during these periods. Also contributing were the ongoing
expenses resulting from our acquisition of Frango and our investment in headcount to
support our future growth.

The improvement in net income for the
three and six months ended August 31, 2005, as compared to the same periods in the prior
fiscal year, can be attributed to increased contribution driven by the increased revenue.
This increase was partially offset by the unfavorable impact of foreign currency
fluctuations and increased spending in targeted areas as we invested in staff development,
marketing, and our distribution channels for the launch of Cognos 8 BI, and to take
advantage of market opportunities in BI standardization and in the Office of Finance.

We operate internationally and, as a
result, a substantial portion of our business is conducted in foreign currencies.
Accordingly, our results are affected by 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 August 31,2005 over 2004 |   | Six Months Ended August 31,2005 over 2004 |   
| |                    
| |                     |  | Growth Excluding Foreign Exchange           |   | ForeignExchange                           |    | NetChange |    | Growth Excluding Foreign Exchange |   | ForeignExchange |    | NetChange |  
| |                    
| | Revenue             |  | 13.3                                        | % | 1.2                                       | %  | 14.5      | %  | 13.1                              | % | 1.7             | %  | 14.8      | %
| | Cost of Revenue and | 
| | Operating Expenses  |  | 14.6                                        | % | 3.2                                       | %  | 17.8      | %  | 13.9                              | % | 3.8             | %  | 17.7      | %
| | Operating Income    |  | 7.1                                         | % | (7.8                                      | )% | (0.7      | )% | 8.6                               | % | (8.6            | )% | 0.0       | %

25

---

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 endedAugust 31, |   | Six months endedAugust 31,
|                             
|                              |  | 2005                         |   | 2004                      
|                             
|Revenue                       |  | 100.0                        | % | 100.0                     
|                              |  |                             
|Cost of revenue               |  | 20.1                         |   | 18.9                      
|                              |  |                             
|Gross margin                  |  | 79.9                         |   | 81.1                      
|                              |  |                             
|Operating expenses            | 
|Selling, general, and         | 
|administrative                |  | 50.1                         |   | 48.8                      
|Research and 
    development |  | 13.5                         |   | 13.7                      
|Amortization of               | 
|acquisition-related           | 
|intangible assets             |  | 0.8                          |   | 0.7                       
|                              |  |                             
|Total operating expenses      |  | 64.4                         |   | 63.2                      
|                              |  |                             
|Operating income              |  | 15.5                         |   | 17.9                      
|Interest expense              |  | (0.2                         | ) | 0.0                       
|Interest income               |  | 1.7                          |   | 1.0                       
|                              |  |                             
|Income before taxes           |  | 17.0                         |   | 18.9                      
|Income tax provision          |  | 3.5                          |   | 4.0                       
|                              |  |                             
|Net income                    |  | 13.5                         | % | 14.9                      
|                              |  |                             

* not meaningful

# REVENUE

|                |  |                              |  | Percentage Change         
|--------------- |  | ---------------------------- |  | --------------------------
|                |  |                              |  |                           
|($000s)         |  | Three months endedAugust 31, |  | Six months endedAugust 31,
|               
|                |  | 2005                         |  | 2004                      
|               
|Product License |  | $  78,649                    |  | $  75,362                 
|Product Support |  | 92,062                       |  | 76,156                    
|Services        |  | 41,331                       |  | 33,702                    
|               
|Total Revenue   |  | $212,042                     |  | $185,220                  
|               

Our total revenue was $212.0 million
for the quarter ended August 31, 2005, an increase of $26.8 million or 14%, compared to
the quarter ended August 31, 2004. Our total revenue was $412.1 million for the six months
ended August 31, 2005, an increase of $53.3 million or 15%, compared to the six months
ended August 31, 2004.

26

---

Our total revenue was derived
primarily from our suite of BI products, principally Cognos ReportNet, PowerPlay, and
Cognos Planning. Contributing to a lesser extent were Impromptu®,
DecisionStream, Cognos Controller, Cognos Metrics Manager, Cognos Analytic Applications,
Cognos Visualizer, Cognos Finance, and NoticeCast®.

Industry Trends and
Geographic Information

We believe that our growth in revenue
continues to be driven by three main factors: (1) a desire by enterprises to standardize
on one BI platform, (2) the increased investment within the Office of Finance driven by
the increasing importance of compliance and transparency, and (3) a growing focus on CPM.

First, we believe BI has become a
leading priority within IT budgets as businesses try to leverage their investments in
enterprise applications and make sense of the enormous amount of data from those
applications. In particular, businesses are looking to standardize on one BI platform to
reduce the number of platforms and vendors they support and better align their operations
with their strategy. The breadth and depth of functionality of Cognos ReportNet, our
web-based query and reporting solution, as well as our newly released Cognos 8 BI make our
products the solution of choice.

Second, there is increased investment
in systems within the Office of Finance of most enterprises driven by the recent increased
attention on compliance and transparency. Organizations are looking to replace
spreadsheet-based applications and legacy systems with integrated planning, consolidation,
and financial reporting solutions that reduce the effort and cost of compliance. Further,
these organizations are looking to leverage these solutions as an efficient and dependable
platform to move beyond compliance to achieve best practices, specifically in the area of
rolling plans, planning standardization, and reduced time to close. This focus allows the
Office of Finance to extend beyond managing pure financial goals and towards overall
performance goals, governance, and CPM. We believe that our planning and consolidation
products help improve the accuracy, transparency, and timeliness of financial information
and, as a result, we are seeing increased demand for these products.

Finally, CPM is a growing segment in
the software industry. It blends BI with planning, budgeting, and scorecarding to provide
management performance visibility and support for the corporate decision-making process.
We believe that our market-leading BI, planning, and scorecarding products, along with the
recent addition of Cognos Controller, our consolidation product, deliver a complete CPM
solution. They provide multiple entry points into a CPM solution that are appealing to
both the finance and operations segments of enterprises. Our single platform for BI,
planning, and analytics differentiates us from our competition by enabling enterprises to
easily integrate new and existing IT assets into their CPM plan.

We signed 9 contracts greater than $1
million during the quarter, as compared to 7 during the corresponding period last year.
The number of contracts greater than $200,000 and $50,000 also increased during the
quarter as we are seeing an increase in enterprise-wide deployments of BI products and a
strengthening of our relationships with some of the worlds largest companies, and
with our strategic partners. We believe that the number of large contracts and order size
are indications of enterprisescale investment in our products by our customers which
is creating a foundation for future growth. Management uses the following summary of key
revenue indicators to track order size:

27

---

Key Revenue Indicators

|                                                    |  | Three months endedAugust 31, |  | Six months endedAugust 31, |  |       | 
|--------------------------------------------------- |  | ---------------------------- |  | -------------------------- |  | ----- | 
|                                                   
|                                                    |  | 2005                         |  | 2004                       |  | 2005  | 
|                                                   
|Orders (License, Support, Services)                 |  |                              |  |                            |  |       | 
|Transactions greater than $1 million                |  | 9                            |  | 7                          |  | 15    | 
|Transactions greater than $200,000                  |  | 124                          |  | 109                        |  | 228   | 
|Transactions greater than $50,000                   |  | 754                          |  | 655                        |  | 1,422 | 
|Average selling price (License orders only) ($000s) | 
|Greater than $50,000                                |  | 172                          |  | 176                        |  | 173   | 

The overall change in total revenue
from our three revenue categories in the quarter ended August 31, 2005 from August
31, 2004 was as follows: a 4% increase in product license revenue, a 21% increase in
product support revenue, and a 23% increase in services revenue. The change for the same
categories for the six months was as follows: 6%, 20%, and 23%, respectively.

Our operations are divided into three
main geographic regions: (1) the Americas, (2) Europe (consisting of the U.K. and
Continental Europe), and (3) Asia/Pacific (consisting of Australia and countries in the
Far East). 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

|             |  |                              |  | Percentage Change         
|------------ |  | ---------------------------- |  | --------------------------
|             |  |                              |  |                           
|($000s)      |  | Three months endedAugust 31, |  | Six months endedAugust 31,
|            
|             |  | 2005                         |  | 2004                      
|            
|The Americas |  | $122,593                     |  | $110,240                  
|Europe       |  | 67,596                       |  | 57,952                    
|Asia/Pacific |  | 21,853                       |  | 17,028                    
|             |  |                             
|Total        |  | $212,042                     |  | $185,220                  
|             |  |                             

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 endedAugust 31, |   | Six months endedAugust 31, |   |       |  
|------------ |  | ---------------------------- | - | -------------------------- | - | ----- | -
|            
|             |  | 2005                         |   | 2004                       |   | 2005  |  
|            
|The Americas |  | 57.8                         | % | 59.5                       | % | 57.8  | %
|Europe       |  | 31.9                         |   | 31.3                       |   | 32.5  |  
|Asia/Pacific |  | 10.3                         |   | 9.2                        |   | 9.7   |  
|             |  |                             
|Total        |  | 100.0                        | % | 100.0                      | % | 100.0 | %
|             |  |                             

28

---

The growth rates of our revenue in
Europe, Asia/Pacific and, to a much lesser extent, in the Americas can be affected by
foreign exchange rate fluctuations. The following table breaks down the year-over-year
percentage change in revenue for the three and six months ended August 31, 2005 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 August 31,2005 over 2004 |  | Six Months Ended August 31,2005 over 2004 | 
|            
|             |  | Growth Excluding Foreign Exchange           |  | ForeignExchange                           |  | NetChange |  | Growth Excluding Foreign Exchange |  | ForeignExchange |  | NetChange | 
|            
|The Americas |  | 9.6%                                        |  | 1.6%                                      |  | 11.2%     |  | 9.3%                              |  | 1.4%            |  | 10.7%     | 
|Europe       |  | 17.3%                                       |  | (0.7)%                                    |  | 16.6%     |  | 16.9%                             |  | 1.8%            |  | 18.7%     | 
|Asia/Pacific |  | 22.4%                                       |  | 5.9%                                      |  | 28.3%     |  | 24.1%                             |  | 5.5%            |  | 29.6%     | 
|Total        |  | 13.3%                                       |  | 1.2%                                      |  | 14.5%     |  | 13.1%                             |  | 1.7%            |  | 14.8%     | 

The growth rate of our revenue during
the three and six months ended August 31, 2005 was mostly attributable to increases in
volume of transactions as there was only a slight impact from fluctuations in foreign
currencies. We experienced moderate revenue growth in the Americas and stronger revenue
growth in Europe and Asia/Pacific as we continue to invest in our sales and distribution
channels in all three geographic areas, which includes the addition of the Frango sales
operations in Europe and Asia/Pacific. Any change in the valuation of the U.S. dollar
relative to other currencies will impact our revenue in the future.

Product License Revenue

|                            |  |                              |   | Percentage Change         
|--------------------------- |  | ---------------------------- | - | --------------------------
|                            |  |                              |   |                           
|($000s)                     |  | Three months endedAugust 31, |   | Six months endedAugust 31,
|                           
|                            |  | 2005                         |   | 2004                      
|                           
|Product license revenue     |  | $78,649                      |   | $75,362                   
|Percentage of total revenue |  | 37.1                         | % | 40.7                      

Product license revenue was $78.6
million in the quarter ended August 31, 2005, an increase of $3.3 million or 4% from the
quarter ended August 31, 2004; and was $149.8 million for the six months ended August 31,
2005, an increase of $8.4 million or 6% compared to the corresponding period in the prior
fiscal year. The increase in product license revenue during the three and six months ended
August 31, 2005 as compared to the same periods in the prior year is primarily
attributable to increased sales of Cognos ReportNet, Cognos Planning and Cognos
Controller. This increase was partially offset by a decline in license revenue of our OLAP
product, PowerPlay. Product license revenue accounted for 37% of total revenue in the
three months ended August 31, 2005 compared to 41% for the corresponding quarter in the
prior fiscal year, and 36% and 39% for the six months ended August 31, 2005 and August 31,
2004, respectively.

29

---

The breadth of our solution is also
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 69% of our license
revenue came from existing customers in the three-month period ended August 31, 2005.

We license our software through our
direct sales force and value-added resellers, system integrators, and OEMs. Direct sales
accounted for approximately 74% and 73% of our license revenue for the second quarter of
fiscal 2006 and 2005, 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 larger and more strategic, we believe that our
relationships with systems integrators will help us succeed as the role of systems
integrators in these large standardization opportunities is increasing. We are also
expending resources developing our indirect sales activities in order to have coverage in
every desirable market. We will continue to commit management time and financial resources
to developing relationships with systems integrators and direct and indirect international
sales and support channels.

Product Support Revenue

|                            |  |                              |   | Percentage Change         
|--------------------------- |  | ---------------------------- | - | --------------------------
|                            |  |                              |   |                           
|($000s)                     |  | Three months endedAugust 31, |   | Six months endedAugust 31,
|                           
|                            |  | 2005                         |   | 2004                      
|                           
|Product support revenue     |  | $92,062                      |   | $76,156                   
|Percentage of total revenue |  | 43.4                         | % | 41.1                      

Product support revenue was $92.1
million in the quarter ended August 31, 2005, an increase of $15.9 million or 21% from the
quarter ended August 31, 2004; and was $180.6 million in the six months ended August 31,
2005, an increase of $29.6 million or 20% compared to the corresponding period in the
prior fiscal year. The increase in support revenue was the result of our strong renewal
rates on our support contracts and the expansion of our customer base, including the
addition of Frangos customer base. Exchange rate fluctuations had a slight impact on
support revenue for the quarter and the six-month period ended August 31, 2005.

Product support revenue accounted for
43% and 41% of our total revenue in the quarters ended August 31, 2005 and August 31, 2004,
respectively, and was 44% and 42% of total revenue in the six months ended August 31, 2005
and August 31, 2004, respectively.

30

---

Services Revenue

|                            |  |                              |   | Percentage Change         
|--------------------------- |  | ---------------------------- | - | --------------------------
|                            |  |                              |   |                           
|($000s)                     |  | Three months endedAugust 31, |   | Six months endedAugust 31,
|                           
|                            |  | 2005                         |   | 2004                      
|                           
|Services revenue            |  | $41,331                      |   | $33,702                   
|Percentage of total revenue |  | 19.5                         | % | 18.2                      

Services revenue (training,
consulting, and other revenue) was $41.3 million in the quarter ended August 31, 2005, an
increase of $7.6 million or 23% from the quarter ended August 31, 2004; and was $81.8
million in the six months ended August 31, 2005, an increase of $15.3 million or 23%
compared to the corresponding period in the prior fiscal year. Services revenue accounted
for 19% and 18% of our total revenue for the three months ended August 31, 2005 and August
31, 2004, respectively, and accounted for 20% and 19% for the six months ended August 31,
2005 and August 31, 2004, respectively.

The increase in services revenue for
both the three and six months ended August 31, 2005 was primarily attributable to an
increase in consulting revenue as we delivered on our contract commitments. As our
business moves more towards applications based software, our customers can benefit from an
increased level of technical expertise and support to enhance their return on investment
from these applications using our software tools to meet their specific needs. Exchange
rate fluctuations had a slight impact on services revenue for the quarter and the
six-month period ended August 31, 2005.

31

---

# COST OFREVENUE

Cost of Product License

|                              |  |                              |   | Percentage Change         
|----------------------------- |  | ---------------------------- | - | --------------------------
|                              |  |                              |   |                           
|($000s)                       |  | Three months endedAugust 31, |   | Six months endedAugust 31,
|                             
|                              |  | 2005                         |   | 2004                      
|                             
|Cost of product license       |  | $1,409                       |   | $546                      
|Percentage of license revenue |  | 1.8                          | % | 0.7                       

The cost of product license revenue
was $1.4 million, an increase of $0.9 million or 158% in the quarter ended August 31,
2005, and was $2.6 million, an increase of $1.5 million or 125% in the six months ended
August 31, 2005 compared to the corresponding periods in the prior fiscal year. These
costs represented 2% of product license revenue for the three and six months ended August
31, 2005, as compared to 1% of product license revenue for both comparative periods in the
prior fiscal year.

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 change in cost of product
license is as follows:

|($000s)                     |  | Year-over-year Change
from August 31,2004 to 2005
|--------------------------- |  | -------------------------------------------------
|                           
|                            |  | Threemonths                                      
|                           
|Royalty cost                |  | $802                                             
|Other                       |  | 61                                               
|                           
|Total year-over-year change |  | $863                                             
|                           

The increase in these costs for both
the three and six months ended August 31, 2005 was the result of increases in royalties
related to suppliers whose technology is embedded in our software.

32

---

# Cost of Product Support

|                              |  |                              |   | Percentage Change         
|----------------------------- |  | ---------------------------- | - | --------------------------
|                              |  |                              |   |                           
|($000s)                       |  | Three months endedAugust 31, |   | Six months endedAugust 31,
|                             
|                              |  | 2005                         |   | 2004                      
|                             
|Cost of product support       |  | $8,797                       |   | $7,074                    
|Percentage of support revenue |  | 9.6                          | % | 9.3                       

The cost of product support revenue
was $8.8 million, an increase of $1.7 million or 24% in the quarter ended August 31, 2005,
and was $17.7 million, an increase of $3.4 million or 24% in the six months ended August
31, 2005 compared to the corresponding periods in the prior fiscal year. The cost of
product support represented 10% of total product support revenue for both the three and
six months ended August 31, 2005, as compared to 9% for the corresponding periods in the
prior fiscal year.

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. The
change in cost of product support is as follows:

|($000s)                     |  | Year-over-year Change
from August 31,2004 to 2005
|--------------------------- |  | -------------------------------------------------
|                           
|                            |  | Threemonths                                      
|                           
|Staff-related costs         |  | $1,368                                           
|Other                       |  | 355                                              
|                           
|Total year-over-year change |  | $1,723                                           
|                           

The increase in the cost of product
support for the three and six month periods ended August 31, 2005 was primarily the result
of increases in staff-related costs to service our growing customer base, including the
addition of Frango staff into our support organization. The average number of employees
within the support organization increased 16% and 18% in the three and six months ended
August 31, 2005, respectively, as compared to the same periods last year. The unfavorable
effect of fluctuations of foreign currencies, especially the Canadian dollar, relative to
the U.S. dollar increased cost of product support by approximately 6% and 7% for the three
and six months ended August 31, 2005, respectively, as compared to the same periods last
year.

33

---

Cost of Services

|                               |  |                              |   | Percentage Change         
|------------------------------ |  | ---------------------------- | - | --------------------------
|                               |  |                              |   |                           
|($000s)                        |  | Three months endedAugust 31, |   | Six months endedAugust 31,
|                              
|                               |  | 2005                         |   | 2004                      
|                              
|Cost of services               |  | $32,511                      |   | $27,457                   
|Percentage of services revenue |  | 78.7                         | % | 81.5                      

The cost of services revenue was
$32.5 million, an increase of $5.1 million or 18% in the quarter ended August 31, 2005 and
was $64.6 million, an increase of $11.7 million or 22% in the six months ended August 31,
2005 compared to the corresponding periods in the prior fiscal year. The cost of services
represented 79% of services revenue for both the three and six months ended August 31,
2005, respectively, as compared to 81% and 80% for the corresponding periods in the prior
fiscal year.

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

|($000s)                       |  | Year-over-year Change
from August 31,2004 to 2005
|----------------------------- |  | -------------------------------------------------
|                             
|                              |  | Threemonths                                      
|                             
|Staff-related costs           |  | $1,400                                           
|Services purchased externally |  | 3,149                                            
|Other                         |  | 505                                              
|                             
|Total year-over-year change   |  | $5,054                                           
|                             

The increase in cost of services for
the three and six month periods ended August 31, 2005 was primarily attributable to
increases in staff-related costs, including the addition of Frango personnel, and services
purchased externally. Subcontractors are currently an important part of our services
offering and are engaged to fill excess demand that cannot be met by internal Cognos
service consultants. This demand can be in the form of increased volume or requirements
for industry specialization. While we have recently hired new employees in this area, we
will continue to fill any gaps by engaging subcontractors. The average number of employees
within the services organization increased 22% and 23% in the three and six months ended
August 31, 2005, respectively, as compared to the same periods last year. The unfavorable
effect of fluctuations of foreign currencies had a slight impact on cost of services,
increasing these costs by approximately 1% and 2% for the three and six months ended
August 31, 2005, respectively, as compared to the same periods last year, as a portion of
these services are provided in currencies other than the U.S. dollar.

34

---

# OPERATINGEXPENSES

Selling, General, and Administrative

|                            |  |                              |   | Percentage Change         
|--------------------------- |  | ---------------------------- | - | --------------------------
|                            |  |                              |   |                           
|($000s)                     |  | Three months endedAugust 31, |   | Six months endedAugust 31,
|                           
|                            |  | 2005                         |   | 2004                      
|                           
|Selling, general, and       |  |                              |   |                           
|administrative              |  | $106,241                     |   | $90,371                   
|Percentage of total revenue |  | 50.1                         | % | 48.8                      

Selling, general, and administrative
(SG&A) expenses were $106.2 million, an increase of $15.9 million
or 18% in the quarter ended August 31, 2005, and were $209.3 million, an increase of $28.2
million or 16% in the six months ended August 31, 2005 compared to the corresponding
periods in the prior fiscal year. These costs represented 50% and 51% of total revenue for
the three and six months ended August 31, 2005, respectively, as compared to 49% and 50%
for the corresponding periods in the prior fiscal year.

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. The
change in SG&A expenses is as follows:

|($000s)                     |  | Year-over-year Change
from August 31,2004 to 2005
|--------------------------- |  | -------------------------------------------------
|                           
|                            |  | Threemonths                                      
|                           
|Staff-related costs         |  | $  7,578                                         
|Professional services       |  | 2,486                                            
|Staff development           |  | 2,039                                            
|Travel & living             |  | 1,622                                            
|Facilities                  |  | 1,537                                            
|Other                       |  | 608                                              
|                           
|Total year-over-year change |  | $15,870                                          
|                           

The increase in SG&A expenses in
the three and six months ended August 31, 2005 was the result of increases in
staff-related costs resulting from higher compensation, as well as associated benefits, as
compared to the same periods last year, driven by an increase in headcount including the
addition of Frango employees. The average number of employees within SG&A increased by
12% in both the three and six months ended August 31, 2005, when compared to the
corresponding periods in the prior fiscal year. Contributing to the increase for both the
three and six months ended August 31, 2005 was spending in targeted areas such as
professional services and staff development for the launch of Cognos 8 BI and to
take advantage of market opportunities in BI standardization and in the Office of Finance.
Contributing to a lesser extent were increases in travel and living, and facilities costs.
The unfavorable effect of fluctuations of foreign currencies relative to the U.S. dollar
increased SG&A expenses by approximately 3% for both the three and six months ended
August 31, 2005, when compared to the corresponding periods in the prior fiscal year.

35

---

# Research and Development

|                            |  |                              |   | Percentage Change         
|--------------------------- |  | ---------------------------- | - | --------------------------
|                            |  |                              |   |                           
|($000s)                     |  | Three months endedAugust 31, |   | Six months endedAugust 31,
|                           
|                            |  | 2005                         |   | 2004                      
|                           
|Research and development    |  | $28,526                      |   | $25,382                   
|Percentage of total revenue |  | 13.5                         | % | 13.7                      

Research and development
(R&D) expenses were $28.5 million, an increase of $3.1 million or
12% in the quarter ended August 31, 2005, and were $57.4 million, an increase of $7.7
million or 15% for the six months ended August 31, 2005 compared to the corresponding
periods in the prior fiscal year. R&D costs were 13% and 14% of revenue for the three
and six months ended August 31, 2005, respectively, as compared to 14% of revenue for both
of the corresponding periods in the prior fiscal year.

R&D expenses are primarily
staff-related costs attributable to the design and enhancement of existing products along
with the creation of new products. The change in R&D expenses is as follows:

|($000s)                     |  | Year-over-year Change
from August 31,2004 to 2005
|--------------------------- |  | -------------------------------------------------
|                           
|                            |  | Threemonths                                      
|                           
|Staff-related costs         |  | $1,575                                           
|Other                       |  | 1,569                                            
|                           
|Total year-over-year change |  | $3,144                                           
|                           

The increase in R&D expenses for
the three and six months ended August 31, 2005 was the result of increases in
staff-related costs resulting from higher compensation, as well as associated benefits, as
compared to the previous fiscal year, driven by the increase in headcount. Also
contributing to the increase in R&D costs was the integration of Frangos R&D
operations. The average number of employees within R&D increased by 9% and 8% for the
three and six months ended August 31, 2005, respectively, when compared to the
corresponding periods of the prior fiscal year. The unfavorable effect of fluctuations of
foreign currencies, especially the Canadian dollar, relative to the U.S. dollar increased
R&D expenses by approximately 6% for both the three and six months ended August 31,
2005, when compared to the corresponding periods of the prior fiscal year.

36

---

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 September 2005, we launched Cognos 8 BI. Cognos 8 BI offers a complete
range of BI functionality, including reporting, analysis, dashboarding, scorecarding, and
event management, on a single, proven web-based architecture. This services oriented
architecture was first introduced with Cognos ReportNet and will allow customers to easily
expand their BI deployment.

In the future, we will continue to
focus on bringing innovative new products to market. We are currently developing new
releases of Cognos Planning and Cognos Controller in addition to the continuing
enhancement of Cognos 8 BI.

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 six months ended August 31, 2005 and August 31, 2004. 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.

# Amortization of
Acquisition-related Intangible Assets

|                    |  |                              |  | Percentage Change         
|------------------- |  | ---------------------------- |  | --------------------------
|                    |  |                              |  |                           
|($000s)             |  | Three months endedAugust 31, |  | Six months endedAugust 31,
|                   
|                    |  | 2005                         |  | 2004                      
|                   
|Amortization of     |  |                              |  |                           
|acquisition-related | 
|intangible assets   |  | $1,637                       |  | $1,228                    

Amortization of acquisition-related
intangible assets was $1.6 million, an increase of $0.4 million or 33% for the quarter
ended August 31, 2005 and was $3.3 million, an increase of $0.8 million or 33% for the six
months ended August 31, 2005 compared to the corresponding periods in the prior year. The
increase in this expense in the three and six months ended August 31, 2005 was due to the
amortization of acquired technology and contractual relationships as a result of the
acquisition of Frango during the third quarter of fiscal 2005.

37

---

# Net Interest and Other
Income

|                              |  |                              |  | Percentage Change         
|----------------------------- |  | ---------------------------- |  | --------------------------
|                              |  |                              |  |                           
|($000s)                       |  | Three months endedAugust 31, |  | Six months endedAugust 31,
|                             
|                              |  | 2005                         |  | 2004                      
|                             
|Net interest and other income |  | $3,051                       |  | $1,773                    

Net interest income was $3.1 million,
an increase of $1.3 million or 72% in the quarter ended August 31, 2005 and was $5.8
million, an increase of $2.7 million or 88% in the six months ended August 31, 2005
compared to the corresponding periods in the prior fiscal year. The change in net interest
and other income is as follows:

|($000s)                                 |  | Year-over-year Change
from August 31,2004 to 2005
|--------------------------------------- |  | -------------------------------------------------
|                                       
|                                        |  | Threemonths                                      
|                                       
|Increase in interest revenue            |  | $1,776                                           
|Increase in interest and other expenses |  | (498                                             
|                                       
|Total year-over-year change             |  | $1,278                                           
|                                       

The increase in interest revenue
during the three and six months ended August 31, 2005 was attributable to an increase in
the average portfolio size accompanied by an increase in the average yield on investments
as compared to the corresponding periods in the prior fiscal year. The increase in
interest and other expenses is mainly attributable to the amortization of the premium on
our cash flow hedges as compared to the same period in the prior fiscal year.

38

---

# Income Tax Provision

|                   |  |                              |   | Percentage Change         
|------------------ |  | ---------------------------- | - | --------------------------
|                   |  |                              |   |                           
|($000s)            |  | Three months endedAugust 31, |   | Six months endedAugust 31,
|                  
|                   |  | 2005                         |   | 2004                      
|                  
|Tax expense        |  | $7,253                       |   | $7,336                    
|Effective tax rate |  | 20.2                         | % | 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 six months ended August 31, 2005, we recorded an
income tax provision of $7.3 million and $10.6 million, respectively, representing an
effective income tax rate of 20% and 17%, respectively. Comparatively, in the three and
six months ended August 31, 2004, we recorded an income tax provision of $7.3 million and
$12.7 million, respectively, representing an effective income tax rate of 21% for both
periods. We estimate our effective tax rate for the current fiscal year to be 21%,
exclusive of any one-time events. For the three-month period ended August 31, 2005, this
estimated effective tax rate was reduced to approximately 20% by adjustments relating to
various tax audits and prior year tax provisions. For the six-month period ended August
31, 2005, the estimated effective tax rate was reduced to approximately 17% by, in
addition to the tax adjustments in the current quarter, the first quarter adjustments
related to the recognition of benefits resulting from (i) a tax court decision that
allowed corporations to claim investment tax credits on stock-based compensation for
research and development personnel relating to fiscal years 2004 and 2005 and (ii) a
change in tax withholding legislation relating to one of the Corporations
subsidiaries.

39

---

# LIQUIDITY AND
CAPITAL
RESOURCES

|($000s)                                            |  | As atAugust 31,2005 | As atFebruary 28,2005 | PercentageChange
|-------------------------------------------------- |  | ------------------- | --------------------- | ----------------
|                                                  
|Cash and cash equivalents                          |  | $405,112            |                       | $378,348        
|Short-term investments                             |  | 96,140              |                       | 144,552         
|                                                   |  |                    
|Cash, cash equivalents, and short-term investments |  | $501,252            |                       | $522,900        
|Working capital                                    |  | 368,280             |                       | 344,236         

|($000s)                         |  | Six months endedAugust 31, | Percentage ChangeSix months endedAugust 31,
|------------------------------- |  | -------------------------- | -------------------------------------------
|                               
|                                |  | 2005                       |                                            
|                               
|Net cash provided by (used in): |  |                            |                                            
|Operating activities            |  | $ 23,479                   |                                            
|Investing activities            |  | 37,065                     |                                            
|Financing activities            |  | (30,572                    | )                                          

|                             |  | As atAugust 31,2005 | As atAugust 31,2004
|---------------------------- |  | ------------------- | -------------------
|                            
|Days sales outstanding (DSO) |  | 60                  |                    

* not meaningful

# Cash, Cash Equivalents,
and Short-term Investments

As of August 31, 2005, we held $501.3
million in cash, cash equivalents, and short-term investments, a decrease of $21.6 million
from February 28, 2005. This decrease is primarily attributable to share repurchases of
$48.9 million partially offset by cash flow from operations of $23.5 million. Cash and
cash equivalents include investments which are highly liquid and held to maturity. Cash
equivalents typically include commercial paper and term deposits, bankers
acceptances and bearer deposit notes 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.

We group 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

---

# Working Capital

Working capital represents our
current assets less our current liabilities. As of August 31, 2005, working capital was
$368.3 million, an increase of $24.0 million from February 28, 2005. The increase in
working capital can be attributed to a net decrease in current liabilities, especially
salaries, commissions and related items and deferred revenue. Offsetting this increase
were decreases in accounts receivable and short-term investments.

Days sales outstanding (DSO) was 60
days at August 31, 2005 as compared to 56 days as at August 31, 2004. We calculate our
days sales outstanding ratio based on ending accounts receivable balances and quarterly
revenue.

# Long-term Liabilities

As at August 31, 2005 and February
28, 2005, we had no long-term debt.

# Cash Provided by
Operating Activities

Cash provided by operating activities
(after changes in non-cash working capital items) for the six months ended August 31, 2005
was $23.5 million, a decrease of $39.0 million compared to the comparative period last
year. The decrease is primarily attributable to changes in working capital, most notably
the payment of year end bonuses, commissions and income taxes, compared to the same period
last year.

# Cash Provided by
Investing Activities

Cash provided by investing activities
was $37.1 million for the six months ended August 31, 2005, a decrease of $42.4 million
compared to the prior fiscal year. During the six months ended August 31, 2005 and August
31, 2004, we had a net decrease in short-term investments as many of our investments
matured during these periods. The decrease however was greater in the prior fiscal period.
In the six months ended August 31, 2005, our proceeds on maturity of short-term
investments, net of purchases, were $48.4 million. In comparison, during the six months
ended August 31, 2004, our proceeds on maturity of short-term investments, net of
purchases, were $87.7 million. In addition, during the six months ended August 31, 2005,
we spent $10.9 million on fixed asset additions as compared to $7.7 million in the
corresponding period last year. The additions for both periods related primarily to
computer equipment and software, office furniture and leasehold improvements.

# Cash Used in Financing
Activities

Cash used in financing activities was
$30.6 million for the six months ended August 31, 2005, an increase in financing
activities of $29.7 million compared to the same period of the prior fiscal year. We
issued 766,000 common shares for proceeds of $18.6 million, during the six months ended
August 31, 2005, compared to the issue of 1,102,000 shares for proceeds of $19.3 million
during the corresponding period in the prior fiscal year. The issuance of shares in the
six months ended August 31, 2005 was pursuant to our stock purchase plan and the exercise
of stock options by employees, officers, and directors.

We repurchase shares on the open
market under a share repurchase program and under a restricted share unit plan. During the
six months ended August 31, 2005, we repurchased 1,266,000 shares for a total
consideration of $48.9 million under the share repurchase program and 5,000 shares for
$0.2 million under the restricted share unit plan. Comparatively, for the six months ended
August 31, 2004 we repurchased 587,000 shares at a value of $19.9 million under the share
repurchase program and 10,000 shares for $0.3 million under the restricted share unit
plan. Purchases made under the share repurchase program were part of distinct open market
share repurchase programs under the rules of, and approved by, The Toronto Stock Exchange.
The share repurchase programs have historically been adopted in October of each year and
run for one year. They allow the Corporation to purchase in the twelve month period no
more than 5% of the issued and outstanding shares of the Corporation on the date the plan
is adopted. These programs do not commit the Corporation to make any share repurchases.
Purchases can be made on The Nasdaq National Market or The Toronto Stock Exchange at
prevailing open market prices and are paid out of general corporate funds. We cancel all
shares repurchased under the share repurchase programs.

41

---

# Contracts and Commitments

We have an unsecured credit facility
subject to annual renewal. 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 August 31, 2005 and 2004, 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.

During fiscal 2005, the Corporation
entered into cash flow hedges in order to offset the risk associated with the effects of
certain foreign currency exposures related to an intercompany loan and the corresponding
interest payments between subsidiaries with different functional currencies. As of August
31, 2005, the Corporation had cash flow hedges, with maturity dates between February 28,
2006 and January 14, 2008, to exchange the U.S. dollar equivalent of $78.8 million in
foreign currency. The estimated fair value of these contracts at August 31, 2005 was not
material. We entered into these foreign currency exchange forward contracts with major
Canadian chartered banks, and therefore we do not anticipate non-performance by these
counterparties. The amount of the exposure on account of any non-performance is restricted
to the unrealized gains in such contracts.

In connection with the acquisition of
Frango, we undertook a restructuring plan in conjunction with the business combination.
The restructuring primarily relates to involuntary employee separations of approximately
20 employees of Frango and accruals for vacating leased premises of Frango. During the
six-month period ended August 31, 2005, the total cash payments made in relation to the
accrual were $2.2 million, and cash payments remaining at August 31, 2005 were $1.9
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 paid during fiscal 2006. 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 28, 2005.

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.

42

---

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.

# CRITICAL
ACCOUNTINGESTIMATES

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 are believed to be reasonable under the circumstances. The
estimates form the basis for making judgments about the carrying values of assets and
liabilities 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
|- |  | ---------------------------

| |  | Business
Combinations
|- |  | ---------------------

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

Revenue Recognition  We
recognize revenue in accordance with Statement of Position (SOP) No.
97-2, Software Revenue Recognition as amended by SOP No. 98-9, Software Revenue
Recognition with Respect to Certain Arrangements (collectively SOP
97-2). As such, we exercise judgment and use estimates in connection with the
determination of the amount of software license, maintenance and professional services
revenue to be recognized in each accounting period.

Under the residual method prescribed
by SOP 97-2, a portion of the arrangement fee is first allocated to undelivered elements
included in the arrangement based on vendor specific objective evidence with the remainder
of the arrangement fee being allocated to the delivered elements of the arrangement.
Cognos contracts commonly include product license, product support, and services (e.g.
education, consulting, etc.). Each product license arrangement requires careful analysis
to ensure that all of the individual elements in the transaction have been identified,
along with the fair value of each element.

We allocate revenue to each
undelivered element based on its respective fair value, with the fair value determined by
the price charged when that element is sold separately. The fair value of the services
portion of the arrangement is established according to our standard price list. Quantity
discounts are built into this price list and reflect fees charged when services are sold
separately from a product license. We determine the fair value of the product support
portion of the arrangement based on the product support renewal rate if product support is
negotiated separately and the rate is reflective of the expected renewal rate for the
first support period not covered by the arrangement. If product support is not separately
negotiated in the agreement, product support is separated based on a percentage of
negotiated product license fees that is consistent with similar transactions. If evidence
of fair value cannot be established for the undelivered elements of a product license
agreement, the entire amount of revenue from the arrangement is deferred and recognized
over the period that these elements are delivered.

43

---

We sell off-the shelf software,
however SOP 97-2 requires that judgment be applied to distinguish whether multiple
elements in an arrangement can be treated as separate accounting units. In order to
account separately for the services element of an arrangement that includes both product
license and services, the services (a) must not be essential to the functionality of any
other element of the transaction and (b) must be stated separately such that the total
price of the arrangement can be expected to vary as the result of the inclusion or
exclusion of the services. If 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. While the
service element must be stated separately, the service element does not have to be priced
separately in the contract in order to separately account for the services as a separate
element of the transaction.

We recognize revenue for resellers,
value added resellers, original equipment manufacturers, and strategic system integrators
(collectively third-parties) in a similar manner to our recognition of
revenue for end-users.

For substantially all of our
software arrangements, we defer revenue for the fair value of the product support and
services to be provided to the customer and recognize revenue for the product license
when persuasive evidence of an arrangement exists and delivery of the software has
occurred, provided the fee is fixed or determinable and collection is deemed probable.

We evaluate each of these criteria
as follows:

| |  | Persuasive
evidence of an arrangement exists:      Our standard business practice is that persuasive
evidence exists when we have a binding contract between ourselves and a customer for the
provision of software or services.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Delivery
has occurred:      Delivery is considered to occur when media containing the licensed programs
is provided to a common carrier or, in the case of electronic delivery, the customer is
given access to download the licensed program. Our typical end user license agreement
does not include customer acceptance provisions. We recognize revenue from third-parties
in the same fashion as end-user licenses unless fee payments are based upon the number of
copies made or ordered. In cases where the fees are linked to the number of copies,
revenue is recognized upon sell-through to the end customer.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
fee is fixed or determinable:      A fee is fixed or readily determinable if it is a fixed
amount of money or an amount that can be determined at the commencement of the contract,
and is payable on Cognos standard payment terms. Fees are generally considered fixed and
determinable unless a significant portion (more than 10%) of the licensing fee is due
more that 12 months after delivery. In addition, we only consider the fee to be fixed or
determinable if the fee is not subject to refund or adjustment. Our typical end user and
third-party license agreement does not allow for refunds, returns, or adjustments.
However, in the rare circumstances where this might occur and these provisions are agreed
upon, revenue is recognized upon the expiration of the rights of exchange or return. For
third-parties, if they are newly formed, undercapitalized, or in financial difficulty, or
if uncertainties about the number of copies to be sold by the partner exist, fees are not
considered fixed and determinable. If the arrangement fee is not fixed or determinable,
we recognize the revenue as amounts become due and payable.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Collectibility
is probable:      We extend credit to credit worthy customers in order to facilitate our
business. Credit is extended through the process of risk identification, evaluation, and
containment. In practical terms, this process will take the form of: customer credit
checks; established credit limits for customers (where necessary); and predetermined
terms of sale. Collection is deemed probable if we expect that the customer will be able
to pay amounts under the arrangement as payments become due. If we determine that
collection is not probable, we defer the revenue and recognize the revenue upon cash
collection.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Our customers typically pre-pay
product support for the first year in connection with a new product license, and the
related revenue is deferred and recognized ratably over the term of the initial product
support contract. Product support is renewable by the customer on an annual basis
thereafter. Rates for product support, including subsequent renewal rates, are typically
established based upon a specified percentage of net product license fees as set forth in
the arrangement. Services revenue primarily consists of implementation services related to
the installation of our products and training revenue. Our software is ready to use by the
customer upon receipt. While many of our customers may choose to configure the software to
fit their specific needs, our implementation services do not involve significant
customization to or development of the underlying software code. Substantially all of our
services arrangements are billed on a time and materials basis and, accordingly, are
recognized as the services are performed.

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 our judgment to assess the collectibility of specific accounts
and, based on this assessment, an allowance is maintained for 100% of all accounts over
360 days and specific accounts deemed to be uncollectible. For those receivables not
specifically identified as uncollectible, an allowance is maintained for 2% of those
receivables at August 31, 2005. In order to determine the percentage used, we analyze, on
an annual basis, the geographical aging of the accounts, the nature of the receivables
(i.e. license, maintenance, consulting), our historical collection experience, and current
economic conditions.

In the past, changes in these factors
have resulted in adjustments to our allowance for doubtful accounts. These adjustments
have been accounted for as changes in estimates, the effect of which has not been
significant on our results of operations and financial condition. As these factors change,
the estimates made by management will also change, which will impact our provision for
doubtful accounts in the future. Specifically, if the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make payments, an
additional provision for doubtful accounts 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
based on our knowledge and understanding of local and international tax legislation in
determining our worldwide tax provision and it may take a considerable period of time for
the ultimate tax outcome to be known. In the past, we have made adjustments as a result of
these changes in circumstance. These adjustments have been accounted for as changes in
estimates. The effect of these changes has not been significant on our results of
operations and financial condition. We believe our estimates are reasonable, however, we
will continue to adjust our estimates as circumstances change. Therefore, the ultimate tax
outcome could differ materially from the amounts recorded in our financial statements.
These differences could have a material effect on our financial position and our net
income in the period such determination is made.

We record a valuation allowance to
reduce our deferred tax assets to the amount that is more likely than not to be realized.
Although we have considered forecasted taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for a valuation allowance, there is no assurance
that the valuation allowance will not need to be increased to cover additional deferred
tax assets that may not be realized.

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Our valuation allowance pertains
primarily to 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 acquisitions 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 where applicable. The ultimate tax
liability related to the undistributed earnings could differ materially from the
liabilities recorded in our financial statements. These differences could have a material
effect on our income tax liabilities and our net income.

Business Combinations We account for acquisitions of companies in accordance with Statement of Financial
Accounting Standards (SFAS) No. 141, Business Combinations. We allocate
the 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. We also make
estimates about the useful life 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 life of those intangible assets. In the
past, we have made adjustments to the valuation allowance on deferred tax assets related
to loss carry forwards acquired through acquisitions and the restructuring accrual related
to acquisitions. These adjustments did not affect our result of operations. Instead, these
adjustments were applied to goodwill.

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 Goodwill and Long-lived Assets.

Intangible assets currently 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.

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In accordance with SFAS 142, we
continuously evaluate the remaining useful life of our intangible assets being amortized
to determine whether events or circumstances warrant a revision to the estimated remaining
amortization period.

Other estimates associated with the
accounting for acquisitions include restructuring costs. Restructuring costs primarily
relate to involuntary employee separations and accruals for vacating duplicate premises.
Restructuring costs associated with the pre-acquisition activities of an entity acquired
are accounted for in accordance with Emerging Issues Task Force No. 95-3, Recognition
of Liabilities in Connection with a Business Combination(EITF
95-3). To calculate restructuring costs accounted for under EITF 95-3,
management estimates the number of employees that will be involuntarily terminated and the
associated costs and the future costs to operate and sublease duplicate facilities once
they are vacated. Changes to the restructuring plan could result in material adjustments
to the restructuring accrual.

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. The Corporation 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 compares 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. To date, we have not needed to perform
the second step in testing goodwill impairment. If the carrying amount of goodwill were to
exceed 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. Events or changes in facts or
circumstances can include a strategic change in business direction, decline or
discontinuance of a product line, a reduction in our customer base, or a restructuring. If
one of these events or circumstances indicates 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 as calculated using a net
realizable value methodology. 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 December 2004, the FASB issued
SFAS No. 123 (Revised), Share-based Payment(SFAS 123R) which is
a revision of SFAS 123 and supersedes Accounting Principles Board (APB)
Opinion 25, Accounting for Stock Issued to Employees, (APB 25)
and SFAS No. 148, Accounting for Stock-based Compensation  Transition and
Disclosure. 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 fiscal years beginning after June 15, 2005. Early adoption is
permitted. We are currently examining the different changes contemplated by the new rules
and we have yet to determine which transitional provision we will follow. The impact on
our financial statements of applying one of the acceptable fair value based methods of
accounting for stock options is disclosed in Note 3 Stock-based
Compensation.

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In March 2005, the Securities and
Exchange Commission (SEC) released SEC Staff Accounting Bulletin No.
107, Share-Based Payment(SAB 107). SAB 107 provides the
SEC staff position regarding the application of SFAS 123R. SAB 107 contains interpretive
guidance related to the interaction between SFAS 123R and certain SEC rules and
regulations, as well as provides the staffs views regarding the valuation of
share-based payment arrangements for public companies. SAB 107 also highlights the
importance of disclosures made related to the accounting for share-based payment
transactions. We are currently evaluating SAB 107 and we will be incorporating it as part
of our adoption of SFAS 123R.

In May 2005, the FASB issued SFAS No.
154, Accounting Changes and Error Corrections(SFAS 154)
which supersedes APB Opinion No. 20, Accounting Changes and SFAS No. 3,
Reporting Accounting Changes in Interim Financial Statements. SFAS 154 changes the
requirements for the accounting for and reporting of changes in accounting principle. The
statement requires the retroactive application to prior periods financial statements
of changes in accounting principles, unless it is impracticable to determine either the
period specific effects or the cumulative effect of the change. SFAS 154 does not change
the guidance for reporting the correction of an error in previously issued financial
statements or the change in an accounting estimate. SFAS 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December 15, 2005.
We do not expect the adoption of SFAS 154 to have a material impact on our
consolidated results of operations and financial condition.

# 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
including the introduction of Cognos 8 BI, 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.

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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 integrated products) or new
technologies. The software market may continue to consolidate by merger or acquisition and
larger software vendors, including enterprise resource planning (ERP)
software vendors, may continue to expand their product offering. For example, ERP vendor,
Oracle Corporation, has recently announced that it will acquire Siebel Systems, Inc. and
has also recently acquired one of its major ERP competitors, PeopleSoft, Inc. If one or
more of our competitors merges or partners with another of our competitors or ERP vendors
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 either because of an improvement in one of our competitors
competitive position or due to distraction caused by an unsolicited acquisition. Entry or
expansion of other large software vendors, including ERP vendors, into this market may
establish competitors which have substantially greater financial and other resources with
which to pursue research and development, manufacturing, marketing, and distribution of
their products. Their current customer base and relationships may also provide them with a
competitive advantage. 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.

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

As our business continues to evolve
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 positive or
negative effect on our 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. They are also
often more complex than smaller transactions. These factors could 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 require additional resources to execute the
transaction. 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. For example, in the second quarter of fiscal year
2006, we closed nine contracts greater than $1 million, compared to seven in the second
quarter of fiscal year 2005.

The introduction of a new
product could erode revenue from existing products and a delay in the release schedule
for the product may have a material adverse impact on our financial results.

We may develop technology or a
product that constitutes a marked advance over both our own products and those of our
competitors. We believe Cognos 8 Business Intelligence is an example of such a product.
With the introduction of 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. This may
occur despite our efforts to put in place measures and programs to minimize such a
decline. In addition, we may lose existing customers who choose a competitors
product rather than upgrade or migrate to our new product. This could result in a
temporary or permanent revenue shortfall and materially affect our business. A delay in
our release schedule for a new product such as Cognos 8 Business Intelligence may also
result in us not being able to recognize revenue as previously anticipated during a
particular period and it may delay the purchase of the product by customers. This could
result in a temporary or permanent revenue shortfall and materially affect our business
and financial results.

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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 our
historical or expected conversion rate of the pipeline could adversely affect our budget
or planning and could consequently materially affect our operating results and our stock
price could suffer.

Currency fluctuations may
adversely affect us.

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, particularly the euro and the Canadian dollar, may have a
material adverse effect on our business, financial condition, and operating results as we
report in U.S. dollars. For example, the Canadian dollar has continued to strengthen
during the second quarter of fiscal 2006, leading to higher than anticipated expenses when
reported in U.S. dollars. 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.

We operate
internationally and face risks attendant to those operations.

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.

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 bring them to market in a timely
manner. 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.

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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 as well as our ability to train and
develop personnel. The failure to attract and retain or to train and develop key personnel
could adversely affect our future growth and profitability.

Our total revenue and
operating results may fluctuate, which could affect the price of our common stock.

We have experienced revenue growth
from our products in the past. We cannot, however, 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.

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 other
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 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 completing 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.

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 and CPM 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.

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

Natural or other disasters like the
recent effects of hurricanes in the United States, 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.

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;
assumption of disclosed and undisclosed liabilities; dealing with unfamiliar laws, customs
and practices in foreign jurisdictions; and the effectiveness of the acquired
companys internal controls and procedures. 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.

We may have exposure to
greater or lower 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, positively or negatively, in the quarter or quarters for which such determination
is made. For example, in the second quarter of fiscal 2006, the estimated effective tax
rate for the year was reduced due to adjustments relating to various tax audits and prior
year tax provisions and, in the first quarter of fiscal 2006, the estimated effective tax
rate for the fiscal year was adjusted downward for the recognition of one-time benefits
resulting from (i) a tax court decision that allowed corporations to claim investment tax
credits on stock-based compensation for research and development personnel relating to
fiscal years 2004 and 2005 and (ii) a change in tax withholding legislation relating to
one of the Corporations subsidiaries.

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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,
our intellectual property may be misappropriated 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.

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. Although 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, defects and errors may still occur. 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 and CPM 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 the manner in which we have had experience. For example,
beginning with fiscal years starting 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 six months ending August 31, 2005, 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 August 31, 2005, 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 one 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 there is an adverse change in foreign exchange rates versus the U.S.
dollar, it could have a material adverse effect on our business, results of operations,
and financial condition.

54

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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 a date  within 90 days  before the filing  date of this quarterly  report.  Based on
this  evaluation,  the Chief Executive  Officer and Chief Financial  Officer  conclude
that the disclosure controls and procedures (as defined in 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 accumulated  and  communicated to our management,  including our Chief Executive
Officer and Chief Financial Officer,  as appropriate to allow timely decisions regarding
required  disclosure  and 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.

55

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PART II  OTHER
INFORMATION

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

|PURCHASES OF EQUITY
SECURITIES
|------------------------------
|                              
|                              
|
|                              
|
|                              
|June 1 to  June 30, 2005      
|July 1 to July 31, 2005       
|August 1 to August 31, 2005   
|                              
|Total                         
|                              

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. On June 23, 2005, the Shareholders of the
Corporation approved the extension of the term of the plan to September 30, 2015 and
increased the number of authorized shares to 3,000,000. 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. During the quarter ended August 31, 2005, Cognos repurchased 5,000
shares at an average price of $35.56 for the restricted share unit plan.

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. On June 22,
2005, the Board of Directors of Cognos approved additional purchases up to a total of
$100,000,000 with no increase in the number of shares. During the quarter ended August 31,
2005, Cognos repurchased 649,100 shares at an average price of $36.50 under the stock
repurchase program.

56

---

|Item 4. |  | Submission
of Matters to a Vote of Security Holders
|------- |  | ---------------------------------------------------

|a) |  | The
Corporation held its Annual and Special Meeting of Shareholders on June 23,
               2005.
|-- |  | ----------------------------------------------------------------------------------------------------

|b) |  | At the Annual and  Special  Meeting,  shareholders  elected the persons  listed  below as  directors  of the  Corporation  and
     approved the appointment of Ernst & Young LLP as the  Corporation's  independent  auditors for the fiscal year ending February 28,
     2006 and authorized the Audit  Committee of the Board to fix their  remuneration.  Shareholders  also approved (i) an amendment to
     the Cognos  Incorporated  2003-2008 Stock Option Plan to increase the shares of common stock reserved for awards thereunder by 1.8
     million shares, (ii) an amendment to the Cognos Incorporated  2002-2005  Restricted Share Unit Plan to extend its term to 2015, to
     increase the number of authorized  shares to 3,000,000,  and to delete  Section 4B, and (iii) an amendment to the Cognos  Employee
     Stock Purchase Plan to extend its term to 2008. The voting results of the meeting are presented in the following table:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Voting Results Annual and Special Meeting of
ShareholdersJune 23, 2005

|                                                                                                                                                                    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                    
|Election of Directors                                                                                                                                               
|                                                                                                                                                                    
|Robert G. Ashe                                                                                                                                                      
|                                                                                                                                                                    
|John E. Caldwell                                                                                                                                                    
|                                                                                                                                                                    
|Paul D. Damp                                                                                                                                                        
|                                                                                                                                                                    
|Pierre Y. Ducros                                                                                                                                                    
|                                                                                                                                                                    
|Robert W. Korthals                                                                                                                                                  
|                                                                                                                                                                    
|John J. Rando                                                                                                                                                       
|                                                                                                                                                                    
|Bill V. Russell                                                                                                                                                     
|                                                                                                                                                                    
|James M. Tory                                                                                                                                                       
|                                                                                                                                                                    
|Renato Zambonini                                                                                                                                                    
|                                                                                                                                                                    
|Appointment of Auditors                                                                                                                                             
|                                                                                                                                                                    
|Amendment to the 2003-2008 Stock Option Plan to increase the
shares of common stock reserved for awards thereunder by 1.8 million shares                            
|                                                                                                                                                                    
|Amendment to the 2002-2005 Restricted Share Unit Plan to
extend its term to 2015, to increase the number of authorized shares to 3,000,000, and to delete Section 4B
|                                                                                                                                                                    
|Amendment to the Employee Stock Purchase Plan to extend its
term to 2008                                                                                            
|                                                                                                                                                                    

57

---

|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)                                                                                                                  | 
|   |  | 10.30    |  | Amended and Restated 2003-2008 Stock Option Plan                                                                                                                                                                                                                                  | 
|   |  | 10.31    |  | Amended and Restated 2002-2015 Restricted Share Unit Plan                                                                                                                                                                                                                         | 
|   |  | 10.32    |  | Amended and Restated Cognos Employee Stock Purchase Plan                                                                                                                                                                                                                          | 
|   |  | 10.33    |  | FY06 Compensation Plan for Robert G. Ashe                                                                                                                                                                                                                                         | 
|   |  | 10.34    |  | FY06 Compensation Plan for Tom Manley                                                                                                                                                                                                                                             | 
|   |  | 10.35    |  | FY06 Compensation Plan for Anthony Sirianni                                                                                                                                                                                                                                       | 
|   |  | 10.36    |  | FY06 Compensation Plan for Peter Griffiths                                                                                                                                                                                                                                        | 
|   |  | 10.37    |  | FY06 Compensation Plan for David Laverty                                                                                                                                                                                                                                          | 
|   |  | 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     |  | Managements  Discussion  and  Analysis of
Financial  Condition  and Results of  Operations  Canadian Supplement                                                                                                                                                                 | 

58

---

# 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)                                                                                                                                          
|               
|October 4, 2005 |  | /s/ Tom Manley                                                                                                                                        
|                |  |                                                                                                                                                       
|Date            |  | Tom ManleySenior Vice President, Finance &
Administration and    Chief Financial Officer (Principal Financial    Officer and Chief Accounting Officer)

59

---

EXHIBIT INDEX

|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                                         |  | PAGE | 
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | 
|           
|10.30       |  | Amended and Restated 2003-2008 Stock Option Plan                                                                                                                                                    |  | 61   | 
|           
|10.31       |  | Amended and Restated 2002-2015 Restricted Share Unit Plan                                                                                                                                           |  | 69   | 
|           
|10.32       |  | Amended and Restated Cognos Employee Stock Purchase Plan                                                                                                                                            |  | 73   | 
|           
|10.33       |  | FY06 Compensation Plan for Robert G. Ashe                                                                                                                                                           |  | 77   | 
|           
|10.34       |  | FY06 Compensation Plan for Tom Manley                                                                                                                                                               |  | 78   | 
|           
|10.35       |  | FY06 Compensation Plan for Anthony Sirianni                                                                                                                                                         |  | 79   | 
|           
|10.36       |  | FY06 Compensation Plan for Peter Griffiths                                                                                                                                                          |  | 80   | 
|           
|10.37       |  | FY06 Compensation Plan for David Laverty                                                                                                                                                            |  | 81   | 
|           
|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  |  | 82   | 
|           
|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 |  | 83   | 
|           
|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                       |  | 84   | 
|           
|99.1        |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations  Canadian Supplement                                                                                         |  | 85   | 
|           

60