---

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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, 2003

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 Securities Exchange
Act of 1934). 
YES X    NO

The number of shares outstanding of
the registrants only class of Common Stock as of September 30, 2003, was 89,526,232.

---

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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 1.                       
|                              
|Item 6.                       
|                              
|Signatures                    

2

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PART I  FINANCIAL INFORMATION

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

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

|                                         |  | Three months endedAugust 31, |   | Six months ended  August 31, |  
|---------------------------------------- |  | ---------------------------- | - | ---------------------------- | -
|                                        
|                                         |  | 2003                         |   | 2002                         |  
|                                        
|Revenue                                  |  |                              |   |                              |  
|Product license                          |  | $   62,234                   |   | $   55,039                   |  
|Product support                          |  | 66,162                       |   | 51,237                       |  
|Services                                 |  | 29,785                       |   | 22,828                       |  
|                                        
|Total revenue                            |  | 158,181                      |   | 129,104                      |  
|                                        
|Cost of revenue                          | 
|Cost of product license                  |  | 1,106                        |   | 714                          |  
|Cost of product support                  |  | 6,887                        |   | 5,029                        |  
|Cost of services                         |  | 21,503                       |   | 17,073                       |  
|                                        
|Total cost of revenue                    |  | 29,496                       |   | 22,816                       |  
|                                        
|Gross margin                             |  | 128,685                      |   | 106,288                      |  
|                                        
|Operating expenses                       | 
|Selling, general, and administrative     |  | 81,578                       |   | 67,767                       |  
|Research and development                 |  | 21,714                       |   | 19,029                       |  
|Amortization of intangible assets        |  | 1,908                        |   | 722                          |  
|                                        
|Total operating expenses                 |  | 105,200                      |   | 87,518                       |  
|                                        
|Operating income                         |  | 23,485                       |   | 18,770                       |  
|Interest expense                         |  | (154                         | ) | (185                         | )
|Interest income                          |  | 1,543                        |   | 1,619                        |  
|                                        
|Income before taxes                      |  | 24,874                       |   | 20,204                       |  
|Income tax provision                     |  | 6,716                        |   | 6,465                        |  
|                                        
|Net income                               |  | $   18,158                   |   | $   13,739                   |  
|                                        
|Net income per share                     | 
|Basic                                    |  | $0.20                        |   | $0.16                        |  
|                                        
|Diluted                                  |  | $0.20                        |   | $0.15                        |  
|                                        
|Weighted average number of shares (000s) | 
|Basic                                    |  | 89,181                       |   | 87,902                       |  
|                                        
|Diluted                                  |  | 91,806                       |   | 90,046                       |  
|                                        

(See accompanying notes)

3

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

|                                                               |  | August 31,2003 | February 28,2003
|-------------------------------------------------------------- |  | -------------- | ----------------
|                                                              
|Assets                                                         |  | (Unaudited)    |                 
|Current assets                                                 |  |                |                 
|Cash and cash equivalents                                      |  | $ 186,182      |                 
|Short-term investments                                         |  | 98,260         |                 
|Accounts receivable                                            |  | 108,574        |                 
|Prepaid expenses and other current assets                      |  | 13,297         |                 
|Deferred tax assets                                            |  | 4,258          |                 
|                                                              
|                                                               |  | 410,571        |                 
|Fixed assets                                                   |  | 67,890         |                 
|Intangible assets                                              |  | 25,593         |                 
|Goodwill                                                       |  | 170,221        |                 
|                                                              
|                                                               |  | $ 674,275      |                 
|                                                              
|Liabilities                                                    | 
|Current liabilities                                            | 
|Accounts payable                                               |  | $   23,183     |                 
|Accrued charges                                                |  | 28,160         |                 
|Salaries, commissions, and related items                       |  | 36,668         |                 
|Income taxes payable                                           |  | 4,244          |                 
|Deferred revenue                                               |  | 132,195        |                 
|                                                              
|                                                               |  | 224,450        |                 
|Long-term liabilities                                          |  | --             |                 
|Deferred income taxes                                          |  | 18,483         |                 
|                                                              
|                                                               |  | 242,933        |                 
|                                                              
|Stockholders' Equity                                           | 
|Capital stock                                                  | 
|Common shares and additional paid-in capital                   | 
|(August 31, 2003 - 89,350,642; February 28, 2003 - 88,124,914) |  | 191,704        |                 
|Treasury shares                                                | 
|(August 31, 2003 - 43,500; February 28, 2003 - 22,500)         |  | (1,065         | )               
|Deferred stock-based compensation                              |  | (1,085         | )               
|Retained earnings                                              |  | 244,076        |                 
|Accumulated other comprehensive loss                           |  | (2,288         | )               
|                                                              
|                                                               |  | 431,342        |                 
|                                                              
|                                                               |  | $ 674,275      |                 
|                                                              



(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, |  
|----------------------------------------------------------------- |  | ----------------------------- | - | --------------------------- | -
|                                                                 
|                                                                  |  | 2003                          |   | 2002                        |  
|                                                                 
|Cash flows from operating activities                              |  |                               |   |                             |  
|Net income                                                        |  | $   18,158                    |   | $   13,739                  |  
|Non-cash items                                                    | 
|Depreciation and amortization                                     |  | 7,318                         |   | 5,306                       |  
|Amortization of deferred stock-based compensation                 |  | 221                           |   | 185                         |  
|Amortization of other deferred compensation                       |  | 62                            |   | 148                         |  
|Deferred income taxes                                             |  | 7,007                         |   | (178                        | )
|Loss on disposal of fixed assets                                  |  | 9                             |   | 4                           |  
|                                                                 
|                                                                  |  | 32,775                        |   | 19,204                      |  
|Change in non-cash working capital                                | 
|Decrease (increase) in accounts receivable                        |  | (5,109                        | ) | (2,791                      | )
|Increase in prepaid expenses and other current assets             |  | (772                          | ) | (585                        | )
|Decrease in accounts payable                                      |  | (2,153                        | ) | (2,046                      | )
|Decrease in accrued charges                                       |  | (1,263                        | ) | (7,332                      | )
|Increase (decrease) in salaries, commissions, and related items   |  | 2,005                         |   | 2,651                       |  
|Increase (decrease) in income taxes payable                       |  | 1,297                         |   | (421                        | )
|Decrease in deferred revenue                                      |  | (5,069                        | ) | (5,639                      | )
|                                                                 
|Net cash provided by operating activities                         |  | 21,711                        |   | 3,041                       |  
|                                                                 
|Cash flows from investing activities                              | 
|Maturity of short-term investments                                |  | 53,058                        |   | 57,195                      |  
|Purchase of short-term investments                                |  | (88,339                       | ) | (42,017                     | )
|Additions to fixed assets                                         |  | (5,454                        | ) | (3,500                      | )
|Acquisition costs                                                 |  | (122                          | ) | --                          |  
|                                                                 
|Net cash provided by (used in) investing activities               |  | (40,857                       | ) | 11,678                      |  
|                                                                 
|Cash flows from financing activities                              | 
|Issue of common shares                                            |  | 5,643                         |   | 1,960                       |  
|Purchase of treasury shares                                       |  | --                            |   | --                          |  
|Repurchase of shares                                              |  | --                            |   | (3,150                      | )
|Decrease in long-term debt and long-term liabilities              |  | --                            |   | (3,087                      | )
|                                                                 
|Net cash provided by (used in) financing activities               |  | 5,643                         |   | (4,277                      | )
|                                                                 
|Effect of exchange rate changes on cash                           |  | (985                          | ) | (2,372                      | )
|                                                                 
|Net increase (decrease) in cash and cash equivalents              |  | (14,488                       | ) | 8,070                       |  
|Cash and cash equivalents, beginning of period                    |  | 200,670                       |   | 281,030                     |  
|                                                                 
|Cash and cash equivalents, end of period                          |  | 186,182                       |   | 289,100                     |  
|Short-term investments, end of period                             |  | 98,260                        |   | 42,161                      |  
|                                                                 
|Cash, cash equivalents, and short-term investments, end of period |  | $ 284,442                     |   | $ 331,261                   |  
|                                                                 

(See accompanying notes)

5

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COGNOS INCORPORATED

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

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

| | The
accompanying unaudited consolidated financial statements have been prepared by the
Corporation in United States (U.S.) dollars and in accordance with generally accepted
accounting principles (GAAP) in the U.S. with respect to interim financial statements,
applied on a consistent basis. Accordingly, they do not include all of the information and
footnotes required for compliance with GAAP in the U.S. for annual financial statements.
These unaudited condensed notes to the consolidated financial statements should be read in
conjunction with the audited financial statements and notes included in the
Corporations Annual Report for the fiscal year ended February 28, 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

6

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COGNOS INCORPORATED

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

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

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

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

| | The
Corporation applies APB Opinion 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.,
under purchase accounting methodology, compensation cost has been recognized in the
financial statements. For restricted share units the fair value of each unit is calculated
at the date of grant. Compensation cost relating to the restricted share unit plan is
recognized in the financial statements over the vesting period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2002 FASB issued Statement No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure (SFAS 148).This statement provides
alternative methods of transition for a voluntary change to the fair value based method of
accounting for stock-based compensation. The statement also requires new and more
prominent disclosures about the effects of stock-based compensation on reported results
which are provided below. The Corporation has chosen to continue to apply APB Opinion 25
to account for stock-based compensation.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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COGNOS INCORPORATED

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

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

|                                           |  | Three months endedAugust 31, |   | Six months endedAugust 31, |  
|------------------------------------------ |  | ---------------------------- | - | -------------------------- | -
|                                          
|                                           |  | 2003                         |   | 2002                       |  
|                                          
|Net income:                                |  |                              |   |                            |  
|As reported                                |  | $ 18,158                     |   | $ 13,739                   |  
|Add: Stock-based employee                  | 
|compensation included above                |  | 221                          |   | 185                        |  
|Less: Stock-based employee                 | 
|compensation using fair value based        | 
|method                                     |  | (5,813                       | ) | (6,892                     | )
|                                          
|Pro forma                                  |  | $ 12,566                     |   | $   7,032                  |  
|                                          
|Basic net income per share:                | 
|As reported                                |  | $0.20                        |   | $0.16                      |  
|Add: Stock-based employee                  | 
|compensation included above                |  | --                           |   | --                         |  
|Less: Stock-based employee                 | 
|compensation using fair value based method |  | (0.06                        | ) | (0.08                      | )
|                                          
|Pro forma                                  |  | $0.14                        |   | $0.08                      |  
|                                          
|Diluted net income per share:              | 
|As reported                                |  | $0.20                        |   | $0.15                      |  
|Add: Stock-based employee                  | 
|compensation included above                |  | --                           |   | --                         |  
|Less: Stock-based employee                 | 
|compensation using fair value based method |  | (0.06                        | ) | (0.07                      | )
|                                          
|Pro forma                                  |  | $0.14                        |   | $0.08                      |  
|                                          
|Weighted average number of shares:         | 
|Basic                                      |  | 89,181                       |   | 87,902                     |  
|                                          
|Diluted                                    |  | 91,806                       |   | 90,046                     |  
|                                          

8

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COGNOS INCORPORATED

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

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

|                                 |  | Three months ended  August 31, |   | Six months ended   August 31, |  
|-------------------------------- |  | ------------------------------ | - | ----------------------------- | -
|                                
|                                 |  | 2003                           |   | 2002                          |  
|                                
|Risk-free interest rates         |  | 2.9                            | % | N/A                           | *
|Expected life of options (years) |  | 4.3                            |   | N/A                           | *
|Expected volatility              |  | 57.2                           | % | N/A                           | *
|Dividend yield                   |  | 0.0                            | % | N/A                           | *

| | * During the three months ended May 31, 2003 and August 31, 2002 no options were granted.
| | -----------------------------------------------------------------------------------------

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

| | During
the three and six months ended August 31, 2003 there were additions to goodwill of
$122,000 and $230,000 respectively. During the three and six months ended August 31, 2002
there were additions to goodwill of $138,000 and $178,000, respectively. All additions
during the three and six months ended August 31, 2003 and August 31, 2002 were related to
additional consideration paid to the former shareholders of Teijin Cognos Incorporated
(TCI). The consideration was based on the net revenue of TCI during each quarter. The
Corporation has designated the beginning of its fiscal year as the date for the annual
impairment test, and performed the required test as of March 1, 2003. Based on this test,
goodwill is not considered to be impaired.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                  |  | Three months ended  August 31, |         | Six months ended  August 31, | 
|----------------- |  | ------------------------------ | ------- | ---------------------------- | 
|                 
|                  |  | 2003                           |         | 2002                         | 
|                 
|                  |  | ($000s)                        | ($000s)
|Beginning balance |  | $170,099                       |         | $15,270                      | 
|Additions         |  | 122                            |         | 138                          | 
|                 
|Closing balance   |  | $170,221                       |         | $15,408                      | 
|                 

9

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COGNOS INCORPORATED

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

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

|                          |  | As at August 31,2003 | As at February 28,2003 
|------------------------- |  | -------------------- | -----------------------
|                         
|                          |  | Cost                 | AccumulatedAmortization
|                         
|                          |  | ($000s)              | ($000s)                
|Acquired Technology       |  | $ 33,381             |                        
|                          |  |                      |                        
|Deferred Compensation     |  | 8,945                |                        
|Contractual Relationships |  | 7,800                |                        
|                          |  |                      |                        
|                          |  | 50,126               |                        
|                          |  |                      |                        
|                          |  | (24,533              | )                      
|                          |  |                      |                        
|Net book value            |  | $ 25,593             |                        
|                          |  |                      |                        

| | Amortization
of intangible assets was $1,908,000 and $722,000 in the quarters ended August 31, 2003 and
August 31, 2002, respectively, and was $3,815,000 and $1,599,000 in the six months ended
August 31, 2003 and August 31, 2002 respectively. The estimated amortization expense
related to intangible assets is as follows ($000s):
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2004 (Q3 to Q4)     |  | $3,675 | 
|------------------- |  | ------ | 
|2005                |  | 4,922  | 
|2006                |  | 4,915  | 
|2007                |  | 4,915  | 
|2008                |  | 4,375  | 
|2009                |  | 975    | 
|2010 and thereafter |  | 1,816  | 
|                   

|6. |  | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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COGNOS INCORPORATED

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

|7. |  | Net
Income per Share
|-- |  | --------------------

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

|                                                       |  | Three months ended August 31, |  | Six months ended August 31, | 
|------------------------------------------------------ |  | ----------------------------- |  | --------------------------- | 
|                                                      
|                                                       |  | 2003                          |  | 2002                        | 
|                                                      
|Basic Net Income per Share                             |  |                               |  |                             | 
|Net income                                             |  | $18,158                       |  | $13,739                     | 
|                                                      
|Weighted average number of shares outstanding          |  | 89,181                        |  | 87,902                      | 
|                                                      
|Basic net income per share                             |  | $0.20                         |  | $0.16                       | 
|                                                      
|Diluted Net Income per Share                           | 
|Net income                                             |  | $18,158                       |  | $13,739                     | 
|                                                      
|Weighted average number of shares outstanding          |  | 89,181                        |  | 87,902                      | 
|Dilutive effect of stock options                       |  | 2,625                         |  | 2,144                       | 
|                                                      
|Adjusted weighted average number of shares outstanding |  | 91,806                        |  | 90,046                      | 
|                                                      
|Diluted net income per share                           |  | $0.20                         |  | $0.15                       | 
|                                                      
|                                                      

|8. |  | Comprehensive
Income
|-- |  | --------------------

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

11

---

COGNOS INCORPORATED

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

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

|                                         |  | Three months ended August 31, |  | Six months ended August 31, |  
|---------------------------------------- |  | ----------------------------- |  | --------------------------- | -
|                                        
|                                         |  | 2003                          |  | 2002                        |  
|                                        
|Net income                               |  | $ 18,158                      |  | $ 13,739                    |  
|Other comprehensive income:              | 
|Foreign currency translation adjustments |  | 291                           |  | (3,105                      | )
|                                        
|Comprehensive income                     |  | $ 18,449                      |  | $ 10,634                    |  
|                                        
|                                        

|9. |  | Segmented
Information
|-- |  | ---------------------

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

|10. |  | Stockholders Equity
|--- |  | --------------------

| | The
Corporation issued 360,000 common shares valued at $5.6 million, and 133,000 common shares
valued at $2.0 million during the quarters ended August 31, 2003 and August 31, 2002,
respectively. The Corporation issued 1,226,000 common shares valued at $18.1 million and
429,000 common shares, valued at $5.7 million and during the six months ended August 31,
2003 and August 31, 2002, respectively. The issuance of shares in the three months ended
August 31, 2003 was pursuant to our stock purchase plan and the exercise of stock options
by employees, and officers, whereas the issuance of shares in the six months ended August
31, 2003 was pursuant to our stock purchase plan and the exercise of stock options by
employees, officers and directors. The Corporation did not repurchase common shares during
the quarter and six months ended August 31, 2003, but repurchased 180,000 common shares
valued at $3.2 million and 568,000 common shares valued at $13.1 million during the three
and six months ended August 31, 2002. Repurchased shares were part of an open market share
repurchase program, except the shares purchased during the quarter ended August 31, 2002
which were purchased under our secondary offering of common shares.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | The
Corporation undertook a restructuring plan in conjunction with the acquisition of Adaytum
during January 2003. In accordance with Emerging Issues Task Force (EITF) No. 95-3,
Recognition of Liabilities in Connection with a Business Combination (EITF
95-3) the liability associated with this restructuring is considered a liability assumed
in the purchase price allocation. This restructuring primarily relates to involuntary
employee separations of approximately 90 employees of Adaytum, accruals for abandoning
leased premises of Adaytum, and related write-downs of leasehold improvements as well as
asset write-downs of Adaytum. The employee separations impact all functional groups and
geographic regions of Adaytum. The remaining accrual is included on the balance sheet as
accrued charges and salaries, commissions, and related items and is expected to be paid
during fiscal 2004. The Corporation does not believe that any unresolved contingencies,
purchase price allocation issues, or additional liabilities exist that would result in a
material adjustment to the acquisition cost allocation.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

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COGNOS INCORPORATED

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

|                                |  | Employeeseparations | Otherrestructuringaccruals | Totalaccrual | Assetwrite-downs | Total  
|------------------------------- |  | ------------------- | -------------------------- | ------------ | ---------------- | -------
|                               
|Restructuring                   |  | $ 3,888             |                            | $ 3,976      |                  | $ 7,864
|Cash payments                   |  | (248                | )                          | (11          | )                | (259   
|Asset write-downs               |  | --                  |                            | --           |                  | --     
|                               
|Balance as at February 28, 2003 |  | $ 3,640             |                            | $ 3,965      |                  | $ 7,605
|Cash payments                   |  | (3,261              | )                          | (242         | )                | (3,503 
|                               
|Balance as at August 31, 2003   |  | $    379            |                            | $ 3,723      |                  | $ 4,102
|                               
|                               

|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. We have updated our income statement
presentation to segregate from selling, general, and administrative expenses $17,073,000
and $32,620,000 for the three and six months ended August 31, 2002, respectively and
created a new line item for the cost of providing services. Additionally we have
segregated from selling, general, and administrative expenses $722,000 and $1,599,000 for
the three and six months ended August 31, 2002, respectively and created a new line item
for amortization of intangible assets within operating expenses. This reclassification was
made to provide more information to the users of our financial statements. This change in
presentation does not affect previously reported assets, liabilities, or results of
operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

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COGNOS INCORPORATED

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

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

| | In
January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No.
46, Consolidation of Variable Interest Entities (Fin 46). FIN 46 expands
upon existing guidance that addresses when a company should include in its financial
statements the assets, liabilities, and activities of another company. A variable interest
entity is any legal structure used for business purposes that either (a) does not have
equity investors or has equity investors that lack characteristics of control; or (b) the
equity investment at risk does not provide sufficient financial resources for the entity
to support its activities. Under FIN 46 a variable interest entity must be consolidated by
a company if that company is expected to absorb a majority of the entitys expected
losses or to receive a majority of the entitys expected residual returns. The
consolidation requirements are currently applicable to variable interests created after
January 31, 2003. For variable interest entities created before January 31, 2003 the
consolidation requirements are applicable in our third quarter of fiscal 2004 beginning
September 1, 2003. FIN 46 also requires certain disclosures about variable interest
entities where those entities are not required to be consolidated. Upon adoption, none of
the provisions of FIN 46 have, or are expected to have, an impact on the Corporation.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2003 the FASB issued FASB Statement No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities (SFAS 149). SFAS 149 is intended
to amend and clarify financial accounting for reporting for derivative instruments,
including derivatives embedded in other contracts and hedging activities. The amendments
improve financial reporting by: requiring that contracts with comparable characteristics
be accounted for similarly; clarifying the circumstances under which a contract with an
initial net investment meets the characteristics of a derivative; and clarifying when a
derivative contains a financing component that requires special reporting in the statement
of cash flows. SFAS 149 is effective for contracts entered into, or modified after, June
30, 2003. The adoption of SFAS 149 did not have a material effect on the business, results
of operations, or financial condition of the Corporation.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2003, the FASB issued FASB Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity (SFAS 150)
which establishes standards for classifying and measuring certain financial instruments
issued by a company with characteristics of both liabilities and equity. The statement is
effective for all financial instruments created on or modified after May 31, 2003 and
otherwise effective at the beginning of the Corporations third quarter of fiscal
2004 beginning September 1, 2003. The Corporation has not issued any such instruments and
therefore the Corporation believes that the adoption of SFAS 150 will not have a material
effect on the business, results of operations, and financial condition of the Corporation.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

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Item 2.

# COGNOS INCORPORATED

# MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

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

The following information should be
read in conjunction with the unaudited Consolidated Financial Statements and Notes
included in Item 1 of this Quarterly Report and can also be read in conjunction with the
audited Consolidated Financial Statements and Notes, and Managements Discussion and
Analysis of Financial Condition and Results of Operations contained in our Annual Report
for the fiscal year ended February 28, 2003 (fiscal 2003).

# OVERVIEW

Cognos is a leading global provider
of business intelligence (BI) software. Our solution helps improve business performance by
enabling effective decision-making at all levels of the organization through the
consistent reporting and analysis of data derived from various sources. Using our
software, customers can gain valuable insights that can be used to improve operational
effectiveness, enhance customer satisfaction, accelerate corporate response times and,
ultimately, increase revenues and profits. Our integrated solution consists of our suite
of business intelligence components, analytical applications, and performance management
applications. To complement this solution, on January 10, 2003 we acquired privately-held
Adaytum, Inc. (Adaytum), a leading global provider of enterprise performance planning
software.

Our customers can strategically apply
our software solution across the extended enterprise to address their need for corporate
performance management (CPM). By allowing timely analysis of data from disparate systems,
CPM enables organizations to measure execution against business strategy to ensure the two
are aligned at all levels. Our solution for CPM allows users to effectively manage the
full business cycle with planning, budgeting, reporting, analysis, and scorecarding
products.

In September 2003 we launched Cognos
ReportNet, a Web-based enterprise query and reporting solution. Cognos ReportNet
delivers production reports such as invoices, statements, and statutory reports as well as
ad hoc query, managed reports, and the broad range of business reports all from a single
architecture. ReportNet offers a web-based report and query authoring environment which
allows users to create, modify, and distribute reports across a global enterprise.
ReportNet can be integrated into any environment due to its web services based
architecture, delivers enterprise scalability, runs reports in multiple languages and
allows for flexible report presentation. Although formally launched in September,
ReportNet was available for sale on a limited basis within the first and second quarters
of fiscal 2004.

# APPLICATION OF
CRITICAL
ACCOUNTING
POLICIES AND
ESTIMATES

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

15

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

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

Product support includes the right to
receive support services and unspecified upgrades or enhancements. Unspecified upgrades
and enhancements are product support only if they are offered on a when-and-if-available
basis. Revenue from product support contracts is recognized ratably over the life of the
contract. Incremental costs directly attributable to the acquisition of product support
contracts, and that would not have been incurred but for the acquisition of that contract,
are deferred and expensed in the period the related revenue is recognized. These costs
include commissions payable on sales of support contracts.

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

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

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

16

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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. As is common in companies with
a global presence, we have used prudent tax planning strategies. Tax planning strategies
by their nature involve complicated transactions. Those transactions are subject to review
or audit by taxation authorities and the ultimate tax outcome bears a measure of
uncertainty. We must therefore make estimates and judgments and it may take a considerable
period for the ultimate tax outcome to be known. Although we believe our estimates are
reasonable, 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.

We record a valuation allowance to
reduce our deferred tax assets to the amount that is more likely than not to be realized.
We have considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance. Our valuation allowance
pertains primarily to the net operating loss carryforwards resulting from the acquisition
of Adaytum during fiscal 2003. 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. In the event we were to subsequently determine that we would be able to realize
our deferred tax assets unrelated to acquisitions in excess of our 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 asset in the future, an adjustment to the deferred tax asset
would reduce income in the period such determination was made.

We provide for withholding taxes on
the undistributed earnings of our foreign subsidiaries. The ultimate tax liability related
to the undistributed earnings could differ 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.

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

Historically our acquisitions have
resulted in the recognition of significant amounts of goodwill and acquired intangible
assets. The allocation of purchase price to these intangible assets and goodwill requires
that 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 lives of the acquired intangible assets. Should different
conditions prevail, we could incur write-downs of goodwill, write-downs of intangible
assets, or changes in the estimation of useful lives of those intangible assets.

17

---

In accordance with SFAS 142 goodwill
is not amortized, but is subject to annual impairment testing which is discussed in
greater detail below under Impairment of Long-lived Assets. Prior to our adoption
of SFAS 142 we amortized goodwill over 5 years using the straight-line method.

Acquired intangible assets include
acquired technology, contractual relationships, and deferred compensation. 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 which 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.
Deferred compensation includes consideration associated with acquisitions. Deferred
compensation is recorded when its future payment is determinable and is payable contingent
upon the continued tenure of the principals of the acquired companies who have become our
employees. Under generally accepted accounting principles these amounts are accounted for
as compensation rather than as a component of purchase price. We adopted FASB Statement
No. 142 Goodwill and Other Intangible Assets (SFAS 142) beginning March 1, 2002 and
accordingly we evaluate the remaining useful life of our intangible assets being amortized
each reporting period to determine whether events or circumstances warrant a revision to
the estimated remaining amortization period.

Impairment of Goodwill and
Long-lived Assets In accordance with SFAS 142 goodwill is subject to annual
impairment tests, or on a more frequent basis if events or conditions indicate that
goodwill may be impaired. Goodwill is tested for impairment at a level of reporting
referred to as a reporting unit. 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. When the carrying amount of
goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized.

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

18

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# NEW
ACCOUNTING
PRONOUNCEMENTS

In January 2003, the Financial
Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of
Variable Interest Entities (Fin 46). FIN 46 expands upon existing guidance that
addresses when a company should include in its financial statements the assets,
liabilities, and activities of another company. A variable interest entity is any legal
structure used for business purposes that either (a) does not have equity investors or has
equity investors that lack characteristics of control; or (b) the equity investment at
risk does not provide sufficient financial resources for the entity to support its
activities. Under FIN 46 a variable interest entity must be consolidated by a company if
that company is expected to absorb a majority of the entitys expected losses or to
receive a majority of the entitys expected residual returns. The consolidation
requirements are currently applicable to variable interests created after January 31,
2003. For variable interest entities created before January 31, 2003 the consolidation
requirements are applicable in our third quarter of fiscal 2004 beginning September 1,
2003. FIN 46 also requires certain disclosures about variable interest entities where
those entities are not required to be consolidated. Upon adoption none of the provisions
of FIN 46 have, or are expected to have, an impact on us.

In April 2003 the FASB issued FASB
Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149). SFAS 149 is intended to amend and clarify financial accounting
for reporting for derivative instruments, including derivatives embedded in other
contracts and hedging activities. The amendments improve financial reporting by: requiring
that contracts with comparable characteristics be accounted for similarly; clarifying the
circumstances under which a contract with an initial net investment meets the
characteristics of a derivative; and clarifying when a derivative contains a financing
component that requires special reporting in the statement of cash flows. SFAS 149 is
effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS
149 did not have a material effect on our business, results of operations, and financial
condition.

In May 2003, the FASB issued FASB
Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity (SFAS 150) which establishes standards for classifying and
measuring certain financial instruments issued by a company with characteristics of both
liabilities and equity. The statement is effective for all financial instruments created
on or modified after May 31, 2003 and otherwise effective at the beginning of our third
quarter of fiscal 2004 beginning September 1, 2003. We have not issued any such
instruments and therefore we believe that the adoption of SFAS 150 will not have a
material effect on our business, results of operations, and financial condition.

19

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# SHAREHOLDER
PROPOSAL

At our Annual General Meeting on June
19, 2003 our shareholders voted in favor of a proposal requesting that our Board of
Directors establish a policy to expense in our annual income statement the costs of all
future stock options issued to our senior executives. As permitted by GAAP (See note 3 of
the Notes to the Consolidated Financial Statements), we do not record any expense in
respect of stock options on the face of our consolidated statement of income. However, in
the notes to these statements we do disclose our net income and earnings per share on a
pro-forma basis after amortizing the fair value of options, determined as of the grant
date, over the vesting period. Thus the information requested in the shareholder proposal
is provided, albeit not on the face of the financial statements.

FASB and other accounting standard
bodies are studying the options issue with a view to developing an internationally
accepted method by which option expense may be required to be deducted in determining net
income. It is expected that this will be effected in the near term. In response to the
shareholder proposal, the Board is considering adopting a policy on expensing options
prior to the establishment of the international standard. A significant consideration in
establishing such a policy prior to a uniform standard being established is the potential
for this to render our results non-comparable with those of most other companies in our
industry.

20

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# RESULTS OF
OPERATIONS

|                                 |  |                              |                            | Percentage Change           
|-------------------------------- |  | ---------------------------- | -------------------------- | ----------------------------
|(000s, except per share amounts) |  | Three months endedAugust 31, | Six months endedAugust 31, | Three months endedAugust 31,
|                                
|                                 |  | 2003                         | 2002                       | 2003                        
|                                
|Revenue                          |  | $158,181                     |                            | $129,104                    
|Cost of revenue                  |  | 29,496                       |                            | 22,816                      
|                                 |  |                             
|Gross margin                     |  | 128,685                      |                            | 106,288                     
|Operating expenses               |  | 105,200                      |                            | 87,518                      
|                                 |  |                             
|Operating income                 |  | $  23,485                    |                            | $  18,770                   
|Gross margin percentage          |  | 81.4                         | %                          | 82.3                        
|Operating margin percentage      |  | 14.8                         | %                          | 14.5                        
|Net income                       |  | $  18,158                    |                            | $  13,739                   
|                                 |  |                             
|Basic net income per share       |  | $0.20                        |                            | $0.16                       
|                                 |  |                             
|Diluted net income per share     |  | $0.20                        |                            | $0.15                       
|                                 |  |                             

Revenue for the quarter ended August
31, 2003 was $158.2 million, a 23% increase from revenue of $129.1 million for the same
quarter last year. Pretax income for the quarter ended August 31, 2003 was $24.9 million,
compared to pretax income of $20.2 million in the same quarter last year. Net income for
the current quarter was $18.2 million, compared to net income of $13.7 million for the
same quarter last year. Diluted net income per share was $0.20 for the current quarter,
compared to diluted net income per share of $0.15 for the same quarter last year. Basic
net income per share was $0.20 and $0.16 for the quarters ended August 31, 2003 and August
31, 2002, respectively.

Revenue for the six months ended
August 31, 2003 was $308.7 million, a 24% increase from revenue of $249.2 million for the
same period last year. Pretax income for the six months ended August 31, 2003 was $41.8
million, compared to pretax income of $34.8 million in the same period last year. Net
income for the current six-month period was $30.5 million, compared to net income of $23.7
million for the same period last year. Diluted net income per share was $0.33 for the
current six-month period, compared to diluted net income per share of $0.26 for the same
period last year. Basic net income per share was $0.34 and $0.27 for the six-month periods
ended August 31, 2003 and August 31, 2002, respectively.

We believe the improvement in
operating performance in the three and six months ended August 31, 2003 as compared to the
same period in the previous year reflects the strength of our business model which is
designed to fully engage the enterprise customer and the strength of our product offerings
and strong sales force execution in a tough economic environment.

21

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To enhance our CPM solution, during
the fourth quarter of fiscal 2003 we acquired Adaytum. Adaytum has been integrated into
our operations for the quarter and six months ended August 31, 2003 and therefore our
results include the revenue and expenses related to Adaytum for the full quarter and
six-month periods. Comparatively, the results for the three and six months ended August
31, 2002 reflect operations prior to this acquisition. To that extent, our operations for
the three and six months ended August 31, 2003 are not identical to the operations for the
comparative periods ended August 31, 2002. As the integration of Adaytum is essentially
complete we are not separately tracking the operations of Adaytum. Therefore it is not
practical to report separately on the effect of the acquisition on our revenues, cost of
revenues, or operating expenses.

Gross margin for the three months
ended August 31, 2003 was $128.7 million, an increase of 21% over gross margin of $106.3
million for the same quarter last year. Gross margin percentage for the quarter ended
August 31, 2003 was 81% as compared to 82% for the comparative quarter of the previous
fiscal year. Gross margin for the six months ended August 31, 2003 was $250.4 million, an
increase of 22% over gross margin of $205.7 million for the same period last year. Gross
margin percentage for the six months ended August 31, 2003 was 81% as compared to 83% for
the comparative period of the previous fiscal year.

Total operating expenses for the
quarter ended August 31, 2003 were $105.2 million, a 20% increase from operating expenses
of $87.5 million for the same quarter last year. The operating margin for the quarter
ended August 31, 2003 was 15%, consistent with the operating margin for the same quarter
in the previous fiscal year. Total operating expenses for the six months ended August 31,
2003 were $210.8 million, a 21% increase from operating expenses of $173.9 million for the
same period last year. The operating margin for the six months ended August 31, 2003 was
13% which is consistent with the same period in the previous fiscal year.

We operate internationally, with a
substantial portion of our business conducted in foreign currencies. Accordingly, our
results are affected by year-over-year exchange rate fluctuations of the United States
dollar relative to various European currencies, to the Canadian dollar, and to a lesser
extent, other foreign currencies. The effect of foreign exchange rate fluctuations
improved the overall revenue growth by approximately five and seven percentage points for
the three and six months ended August 31, 2003 respectively. The effect of foreign
exchange rate fluctuations increased the growth in the total of cost of revenue and
operating expenses by seven and eight percentage points for the three and six months ended
August 31, 2003, respectively. In response to a stronger Canadian dollar, we put in place
an initiative to curtail certain discretionary costs for the quarter ended August 31, 2003
in an effort to minimize the impact on cost of revenue and operating expenses. We intend
to continue to manage our costs closely, but we will increase our spending in other
strategic areas. Specifically, for the quarter ending November 30, 2003 we are planning to
increase our marketing spending in conjunction with the formal launch of Cognos ReportNet.

22

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

|                           |  | Percentage of Revenue        | Percentage Change         
|-------------------------- |  | ---------------------------- | --------------------------
|                          
|                           |  | Three months endedAugust 31, | Six months endedAugust 31,
|                           |  |                             
|                           |  | 2003                         | 2002                      
|                          
|Revenue                    |  | 100                          | .0%                       
|                           |  |                             
|Cost of revenue            |  | 18                           | .6                        
|                           |  |                             
|Gross margin               |  | 81                           | .4                        
|                           |  |                             
|Operating expenses         | 
|Selling, general, and      | 
|administrative             |  | 51                           | .6                        
|Research and development   |  | 13                           | .8                        
|Amortization of intangible | 
|assets                     |  | 1                            | .2                        
|                           |  |                             
|Total operating expenses   |  | 66                           | .6                        
|                           |  |                             
|Operating income           |  | 14                           | .8                        
|Interest expense           |  | (0                           | .1)                       
|Interest income            |  | 1                            | .0                        
|                           |  |                             
|Income before taxes        |  | 15                           | .7                        
|Income tax provision       |  | 4                            | .2                        
|                           |  |                             
|Net income                 |  | 11                           | .5%                       
|                           |  |                             

# REVENUE

|                              |  |                              | Percentage Change         
|----------------------------- |  | ---------------------------- | --------------------------
|                             
|                              |  | Three months endedAugust 31, | Six months endedAugust 31,
|                              |  |                             
|($000s)                       |  | 2003                         | 2002                      
|                             
|Business intelligence         |  | $150,143                     |                           
|Application development tools |  | 8,038                        |                           
|                              |  |                             
|Revenue                       |  | $158,181                     |                           
|                              |  |                             

Our total revenue was $158.2 million
for the quarter ended August 31, 2003, an increase of $29.1 million or 23%, compared to
the quarter ended August 31, 2002. Our total revenue was $308.7 million for the six months
ended August 31, 2003, an increase of $59.5 million or 24%, compared to the six months
ended August 31, 2002.

23

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Our total revenue was derived
primarily from our suite of business intelligence products, principally Web versions of
PowerPlay® and Impromptu®. Contributing to a lesser extent were Cognos Enterprise
Planning Series (formerly Adaytum Enterprise Planning), Cognos ReportNet,
DecisionStream, Cognos Visualizer, and Cognos Metrics Manager. Revenue growth rates
for the three and six months ended August 31, 2003 were positively impacted by the
favorable impact of exchange rates (principally European exchange rates) relative to the
US dollar.

During the six months ended August
31, 2003 we released Cognos Series 7 Version 2, which builds on the end-to-end business
intelligence value of Cognos Series 7. Cognos Series 7 is a fully integrated enterprise
business intelligence solution. In September 2003 we launched Cognos ReportNet, a
Web-based enterprise query and reporting solution. ReportNet offers a web-based report and
query authoring environment which allows users to create, modify, and distribute reports
across a global enterprise. ReportNet can be integrated into any environment due to its
web services based architecture, delivers enterprise scalability, runs reports in multiple
languages and allows for flexible report presentation. ReportNet was officially launched
in September, however it was available for sale during the three and six months ended
August 31, 2003.

We believe that enterprise-wide
deployment of business intelligence products is the trend in the industry and that it will
continue to increase as a percentage of our total revenue. An emerging trend in the market
for business intelligence is the growing demand for pre-packaged solutions that shorten
time to implementation and results. Our Analytic Applications address this trend as they
extend the value of investments in Enterprise Resource Planning (ERP) and other
operational systems.

Total revenue (license, support, and
services revenue) derived from our business intelligence products was $150.1 million in
the quarter ended August 31, 2003, an increase of $29.6 million or 25% and was $293.8
million for the six months ended August 31, 2003, an increase of $61.7 million or 27% when
compared to the corresponding periods in the prior fiscal year. Total revenue from these
business intelligence products was 95% and 93% of total revenue for the quarters ended
August 31, 2003 and August 31, 2002, respectively. On a year-to-date basis we
derived 95% of revenue from these products, compared to 93% in the corresponding period
last year.

Total revenue (license, support, and
services revenue) from our application development tools, PowerHouse® and Axiant®,
was $8.0 million for the quarter ended August 31, 2003, a decrease of $0.5 million or 6%
and was $14.9 million for the six months ended August 31, 2003, a decrease of $2.1 million
or 13% compared to the corresponding periods in the prior fiscal year. The trend of
decreasing application development tools revenue has been experienced since fiscal 2000
and we believe that, in both the short and long-term, revenues from these products will
continue to decline.

The overall change in total revenue
from our three revenue categories in the quarter ended August 31, 2003 from August
31, 2002 was as follows: a 13% increase in product license revenue, a 29% increase in
product support revenue, and an 30% increase in services revenue. The change for the same
categories for the six months was as follows: 14%, 31%, and 30%, respectively.

24

---

The following table sets out, for
each fiscal year 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.

|              |  |                              | Percentage Change         
|------------- |  | ---------------------------- | --------------------------
|             
|              |  | Three months endedAugust 31, | Six months endedAugust 31,
|              |  |                             
|($000s)       |  | 2003                         | 2002                      
|             
|North America |  | $  96,168                    |                           
|Europe        |  | 47,459                       |                           
|Asia/Pacific  |  | 14,554                       |                           
|              |  |                             
|Revenue       |  | $158,181                     |                           
|              |  |                             

In the quarter ended August 31, 2003
the percentage of revenue from our three geographic regions, North America (includes Latin
America), Europe (consisting of UK and Continental Europe), and Asia/Pacific (consisting
of Australia and countries in the Far East) was 61%, 30%, and 9%, respectively as compared
to 63%, 30%, and 7%, respectively for the comparative quarter ended August 31, 2002. On a
year-to-date basis for the same geographic regions the percentage of revenue was 60%, 31%,
and 9% and 64%, 29%, and 7%, for the periods ended August 31, 2003 and August 31, 2002,
respectively. During the quarter ended August 31, 2003 revenue from North America
increased 19%, revenue from Europe increased 21%, and revenue from Asia/Pacific increased
by 60%. The growth for the same categories for the six months was as follows: 17%, 30%,
and 69%, respectively.

Our growth rate in Asia/Pacific for
the three and six months ended August 31, 2003 reflects the growth in Japan and the
Australia/New Zealand region during the quarter. Our growth rate in Europe for the quarter
reflects growth in the UK as well as Germany. Growth rates in both Asia/Pacific and Europe
were partially impacted by favorable exchange rates relative to the US dollar.

# Product License Revenue

|                            |  |                              | Percentage Change         
|--------------------------- |  | ---------------------------- | --------------------------
|                           
|                            |  | Three months endedAugust 31, | Six months endedAugust 31,
|                            |  |                             
|($000s)                     |  | 2003                         | 2002                      
|                           
|Product license revenue     |  | $62,234                      |                           
|Percentage of total revenue |  | 39.3                         | %                         

Product license revenue was $62.2
million in the quarter ended August 31, 2003, an increase of $7.2 million or 13%, and was
$120.0 million for the six months ended August 31, 2003, an increase of $15.2 million or
14% compared to the corresponding periods in the prior fiscal year. The increase in
product license revenue during the three and six months ended August 31, 2003 as compared
to the same period in the prior year reflects the strength of our business model, our
product offerings, and strong sales execution in what has been a challenging market.
Customer purchasing patterns remain challenging in the current economic environment,
however we believe that the long-term prospects for the business intelligence market are
promising. Revenue growth rates during for the three and six months ended August 31, 2003
were positively affected by the favorable impact of exchange rates (principally European
exchange rates), relative to the US dollar. Product license revenue accounted for 39% of
total revenue in the three months ended August 31, 2003 compared to 43% for the
corresponding quarter in the prior fiscal year, and accounted for 39% of revenue in the
six months ended August 31, 2003 compared to 42% for the corresponding period in the prior
fiscal year.

25

---

Product license revenue from the
business intelligence products was $59.9 million for the quarter ended August 31, 2003, an
increase of $6.9 million or 13%, and was $116.5 million for the six months ended August
31, 2003, an increase of $15.6 million or 15% compared to the corresponding periods in the
prior fiscal year. Product license revenue from business intelligence products accounted
for 96% of total product license revenue for both the quarters ended August 31, 2003 and
2002. On a year-to-date basis, we derived 97% and 96% of total product license revenue
from these products for the current and prior period last year, respectively.

Product license revenue from
application development tools was $2.4 million for the quarter ended August 31, 2003, an
increase of $0.3 million or 16% and was $3.5 million for the six months ended August 31,
2003, a decrease of $0.4 million or 11% compared to the corresponding periods in the prior
fiscal year. We believe the increase in application development tool license revenue for
the quarter ended August 31, 2003 to be an isolated occurrence. We have experienced a
general decline in our application development tool revenue since fiscal 2000 and we
believe in both the short and long term, the trend of decreasing product license revenue
from these products will continue.

# Product Support Revenue

|                            |  |                              | Percentage Change         
|--------------------------- |  | ---------------------------- | --------------------------
|                           
|                            |  | Three months endedAugust 31, | Six months endedAugust 31,
|                            |  |                             
|($000s)                     |  | 2003                         | 2002                      
|                           
|Product support revenue     |  | $66,162                      |                           
|Percentage of total revenue |  | 41.8                         | %                         

Product support revenue was $66.2
million in the quarter ended August 31, 2003, an increase of $14.9 million or 29% and was
$130.3 million in the six months ended August 31, 2003, an increase of $30.9 million or
31% compared to the corresponding periods in the prior fiscal year. The increase in the
dollar amounts was the result of the positive rate of renewal of support contracts and the
expansion of our customer base.

26

---

Product support revenue accounted for
42% and 40% of our total revenue in the quarters ended August 31, 2003 and 2002,
respectively and was 42% of total revenue in the six months ended August 31, 2003 compared
to 40% in the corresponding period of the prior year. As a result of the continued
expansion of our customer base and the positive rate of renewal from our customers we are
experiencing a trend of product support revenue increasing as a percentage of our total
revenue.

Product support revenue from the
business intelligence products comprised 92% and 88% of the product support revenue for
the quarters ended August 31, 2003 and 2002, respectively and comprised 91% and 87% of
total product support revenue for the six months ended August 31, 2003 and August 31,
2003, respectively. Support revenue from the business intelligence products increased by
35% in the quarter ended August 31, 2003, and support revenue from the application
development tools decreased by 11%, compared to the corresponding quarter in the prior
fiscal year. For the six months ended August 31, 2003, total support revenue from the
business intelligence products increased by 37%, whereas total support revenue from the
application development tools decreased by 12% compared to the corresponding period in the
prior year.

# Services Revenue

|                            |  |                              | Percentage Change         
|--------------------------- |  | ---------------------------- | --------------------------
|                           
|                            |  | Three months endedAugust 31, | Six months endedAugust 31,
|                            |  |                             
|($000s)                     |  | 2003                         | 2002                      
|                           
|Services revenue            |  | $29,785                      |                           
|Percentage of total revenue |  | 18.8                         | %                         

Services revenue (training,
consulting, and other revenue) was $29.8 million in the quarter ended August 31, 2003, an
increase of $7.0 million or 30%, and was $58.4 million in the six months ended August 31,
2003, an increase of $13.5 million or 30% compared to the corresponding periods in the
prior fiscal year. Services revenue accounted for 19% of our total revenue for both the
three and six months ended August 31, 2003, compared to 18% for both of the corresponding
periods in the prior fiscal year.

In the quarter ended August 31, 2003,
services revenue associated with the business intelligence products contributed $29.7
million, an increase of $7.0 million or 31%, and contributed $58.1 million, an increase of
$13.7 million or 31% in the six months ended August 31, 2003 compared to the corresponding
periods in the prior fiscal year. The increase was primarily attributable to an increase
in consulting revenue and to a lesser extent education revenue. Customer purchasing
patterns remain challenging in the current economic environment, however we believe that
the long-term prospects for the business intelligence market are promising. Service
revenue associated with business intelligence products contributed nearly 100% of the
total services revenue for both the quarter and six months ended August 31, 2003 and
contributed 99% for the quarter and six months ended August 31, 2002. Total services
revenue associated with our application development tools for the quarter was immaterial
for the quarter ended August 31, 2003, a $0.1 million decrease from the corresponding
period in the prior fiscal year. Services revenue from application development tools for
the six months ended August 31, 2003 was $0.3 million a $0.2 million decrease from the
same period last year.

27

---

# COST OF
REVENUE

# Cost of Product License

|                              |  |                              | Percentage Change         
|----------------------------- |  | ---------------------------- | --------------------------
|                             
|                              |  | Three months endedAugust 31, | Six months endedAugust 31,
|                              |  |                             
|($000s)                       |  | 2003                         | 2002                      
|                             
|Cost of product license       |  | $1,106                       |                           
|Percentage of license revenue |  | 1.8                          | %                         

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

The cost of product license revenue
was $1.1 million, an increase of $0.4 million or 55% in the quarter ended August 31, 2003,
and was $2.2 million, an increase of $0.8 million or 53% in the six months ended August
31, 2003 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,
2003, as compared to 1% of product license revenue for both comparative periods in the
prior fiscal year. The increase in these costs for both the three and six months ended
August 31, 2003 was the result of increases in royalties and materials and distribution
costs.

# Cost of Product Support

|                              |  |                              | Percentage Change         
|----------------------------- |  | ---------------------------- | --------------------------
|                             
|                              |  | Three months endedAugust 31, | Six months endedAugust 31,
|                              |  |                             
|($000s)                       |  | 2003                         | 2002                      
|                             
|Cost of product support       |  | $6,887                       |                           
|Percentage of support revenue |  | 10.4                         | %                         

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

The cost of product support revenue
was $6.9 million, an increase of $1.9 million or 37% in the quarter ended August 31, 2003,
and was $13.7 million, an increase of $4.3 million or 46% in the six months ended August
31, 2003 compared to the corresponding periods in the prior fiscal year.

28

---

The cost of product support
represented 10% and 11% of total product support revenue for the three and six months
ended August 31, 2003 as compared to 10% for both of the corresponding periods in prior
fiscal year. The increase in the cost of product support is the result of increases in
telesupport and websupport costs as we brought in additional staffing as part of a plan to
enhance our customer service through the web and telephonic support systems through the
second half of fiscal 2003 as well as the first quarter of fiscal 2004. The average number
of employees within the support organization increased 20% and 22% in the three and six
months ended August 31, 2003. Contributing further to the increase was the integration of
the Adaytum staff into our support organization. Cost of product support was also
increased by the unfavorable impact of Canadian exchange rates relative to the US dollar.

# Cost of Services

|                               |  |                              | Percentage Change         
|------------------------------ |  | ---------------------------- | --------------------------
|                              
|                               |  | Three months endedAugust 31, | Six months endedAugust 31,
|                               |  |                             
|($000s)                        |  | 2003                         | 2002                      
|                              
|Cost of services               |  | $21,503                      |                           
|Percentage of services revenue |  | 72.2                         | %                         

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

The cost of services was $21.5
million, an increase of $4.4 million or 26% in the quarter ended August 31, 2003 and was
$42.4 million, an increase of $9.7 million or 30% in the six months ended August 31, 2003
compared to the corresponding period in the prior fiscal year. The cost of services
represented 72% and 73% of services revenue for the three and six months ended August 31,
2003, respectively as compared to 75% and 73% for the corresponding periods in prior
fiscal year. The increase in cost of services is the result of increases in compensation
related costs and increases in costs for services purchased externally. Exchange rate
fluctuations had minimal impact on cost of services during the quarter and six months
ended August 31, 2003 as these services are largely provided in the US.

29

---

# OPERATING
EXPENSES

# Selling, General, and
Administrative

|                                     |  |                              | Percentage Change         
|------------------------------------ |  | ---------------------------- | --------------------------
|                                    
|                                     |  | Three months endedAugust 31, | Six months endedAugust 31,
|                                     |  |                             
|($000s)                              |  | 2003                         | 2002                      
|                                    
|Selling, general, and administrative |  | $81,578                      |                           
|Percentage of total revenue          |  | 51.6                         | %                         

Selling, general, and administrative
(SG&A) expenses were $81.6 million, an increase of $13.8 million or 20% in the quarter
ended August 31, 2003, and were $162.0 million, an increase of $28.4 million or 21% in the
six months ended August 31, 2003 compared to the corresponding periods in the prior fiscal
year. These costs remained relatively consistent as a percentage of revenue, representing
52% for both the three and six months ended August 31, 2002 respectively compared to 52%
and 54% for the corresponding periods in the prior fiscal year.

The increase in these expenses in the
three and six months ended August 31, 2003 was predominantly the result of increases in
staff related costs resulting from increases in staffing levels due to both new hires and
the integration of Adaytum selling, general, and administration staff. Selling, general,
and administrative expenses were also unfavorably impacted by the effect of Canadian
dollar exchange rates relative to the US dollar. Contributing to the increase for both the
quarter and six months ended August 31, 2003, but to a lesser extent, were increases in
marketing and travel and living costs. The average number of employees within selling,
general, and administrative increased by 15% and 16% in the three and six months ended
August 31, 2003, respectively when compared to the corresponding periods in the prior
fiscal year.

30

---

# Research and Development

|                            |  |                              | Percentage Change         
|--------------------------- |  | ---------------------------- | --------------------------
|                           
|                            |  | Three months endedAugust 31, | Six months endedAugust 31,
|                            |  |                             
|($000s)                     |  | 2003                         | 2002                      
|                           
|Research and development    |  | $21,714                      |                           
|Percentage of total revenue |  | 13.7                         | %                         

Research and development (R&D)
costs were $21.7 million, an increase of $2.7 million or 14% in the quarter ended August
31, 2003, and were $45.0 million and increase of $6.3 million or 16% for the six months
ended August 31, 2003 compared to the corresponding periods in the prior fiscal year. The
increase for the quarter and six months ended August 31, 2003 was predominantly the result
of increases in staff related costs and the unfavorable impact of Canadian exchange rates
relative to the US dollar. These increases were partially offset by a decrease in services
purchased externally as certain projects were completed during the six-month period ended
August 31, 2003. R&D costs were 14% and 15% of revenue for the three and six months
ended August 31, 2003 respectively as compared to 15% and 16% of revenue for the
corresponding periods in the prior year. The average number of employees within R&D
increased 10% and 9% for the three and six months ended August 31, 2003, respectively when
compared to the corresponding periods of the prior year.

During the quarter ended August 31,
2003, we continued to invest in R&D activities for our next generation of business
intelligence solutions which are the foundation of our CPM vision. In September 2003 we
formally launched Cognos ReportNet, a Web-based enterprise query and reporting solution.
Cognos ReportNet delivers production reports such as invoices, statements, and statutory
reports as well as ad hoc query, managed reports, and the broad range of business reports
all from a single architecture. ReportNet offers a web-based report and query authoring
environment which allows users to create, modify, and distribute reports across a global
enterprise. ReportNet can be integrated into any environment due to its web services based
architecture, delivers enterprise scalability, runs reports in multiple languages and
allows for flexible report presentation. Although formally launched in September,
ReportNet was available for sale on a limited basis within the first and second quarters
of fiscal 2004. During the quarter ended August 31, 2003 we strengthened our enterprise
scorecarding solution with the release of Cognos Metrics Manager Version 2. Cognos Metrics
Manager enables organizations to manage performance by mapping strategy to execution
through metrics. Cognos Metrics Manager Version 2 includes flexible and scaleable
customer-driven functions and further integrates Cognos Analytical Applications, Cognos
Enterprise Planning Series, and Cognos Series 7 Version 2. We also continued to invest in
our Analytic Application packages with the release of Cognos Production Analysis. Cognos
Production Analysis expands our Supply Chain Analytics solution by providing analytics
tailored to meet information needs in discrete and repetitive manufacturing environments
including: work order material usage and cost analysis, timeto-delivery analysis,
quality and yield analysis, and organization effectiveness.

31

---

We currently do not have any software
development costs capitalized on our balance sheet. Software development costs are
expensed as incurred unless they meet generally accepted accounting criteria for deferral
and amortization. Software development costs incurred prior to the establishment of
technological feasibility do not meet these criteria, and are expensed as incurred.
Capitalized costs are amortized over a period not exceeding 36 months. No costs were
deferred in the three and six months ended August 31, 2003 and August 31, 2002. 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
Intangible Assets

|                                  |  |                              | Percentage Change         
|--------------------------------- |  | ---------------------------- | --------------------------
|                                 
|                                  |  | Three months endedAugust 31, | Six months endedAugust 31,
|                                  |  |                             
|($000s)                           |  | 2003                         | 2002                      
|                                 
|Amortization of intangible assets |  | $1,908                       |                           

Amortization of intangible assets was
$1.9 million, an increase of $1.2 million or 164% for the quarter ended August 31, 2003
and was $3.8 million, an increase of $2.2 million or 139% for the six months ended August
31, 2003 compared to the corresponding period in the prior year. The increase in these
expenses in the three and six months ended August 31, 2003 was due to the amortization of
acquired technology and contractual relationships as a result of the acquisition of
Adaytum during the fourth quarter of fiscal 2003.

# Interest Income and
Expense

|                    |  |                              | Percentage Change         
|------------------- |  | ---------------------------- | --------------------------
|                   
|                    |  | Three months endedAugust 31, | Six months endedAugust 31,
|                    |  |                             
|($000s)             |  | 2003                         | 2002                      
|                   
|Net interest income |  | $1,389                       |                           

Net interest income was $1.4 million,
an immaterial decrease or 3% in the quarter ended August 31, 2003 and was $2.3 million, a
decrease of $0.7 million or 24% in the six months ended August 31, 2003 compared to the
corresponding period in the prior fiscal year. The decrease during the six months ended
August 31, 2003 was primarily attributable to a decrease in the average portfolio size.
The average portfolio size decreased as compared the same period in the prior fiscal year
as a result of the acquisition of Adaytum for $157.1 million of cash consideration during
the fourth quarter of fiscal 2003. Contributing to this decrease in interest income, but
to a lesser extent, was a decrease in average effective interest rates as compared to the
same period in the prior fiscal year. Partially offsetting this decrease was the receipt
of interest on investment tax credits pertaining to prior years.

32

---

# Income Tax Provision

|                   |  |                              | Percentage Change         
|------------------ |  | ---------------------------- | --------------------------
|                  
|                   |  | Three months endedAugust 31, | Six months endedAugust 31,
|                   |  |                             
|($000s)            |  | 2003                         | 2002                      
|                  
|Tax expense        |  | $6,716                       |                           
|Effective tax rate |  | 27.0                         | %                         

Our tax rate is affected by the
relative profitability of our operations in various geographic regions. In the three and
six months ended August 31, 2003 we recorded an income tax provision of $6.7 million and
$11.3 million, respectively, representing an effective income tax rate of 27%.
Comparatively, in the three and six months ended August 31, 2002 we recorded an income tax
provision of $6.5 million and $11.1 million, respectively representing an effective income
tax rate of 32%. The decrease in effective tax rate reflects the expected geographical mix
of our earnings throughout the current fiscal year.

# LIQUIDITY AND
CAPITAL
RESOURCES

|($000s)                                            |  | As atAugust 31, 2003 | As atFebruary 28, 2003 | Percentage Change
|-------------------------------------------------- |  | -------------------- | ---------------------- | -----------------
|                                                  
|Cash, cash equivalents, and short-term investments |  | $284,442             |                        | $ 242,258        
|Working capital                                    |  | 186,121              |                        | 128,864          
|Long-term liabilities                              |  | --                   |                        | (1,647           
|                                                  

|($000s)                         |  | Six months endedAugust 31, 2003 | Percentage ChangeSix months endedMay 31, 2003
|------------------------------- |  | ------------------------------- | ---------------------------------------------
|                               
|                                |  | 2003                            | 2002                                         
|                               
|Net cash provided by (used in): |  |                                 |                                              
|Operating activities            |  | $ 32,252                        |                                              
|Investing activities            |  | (28,643                         | )                                            
|Financing activities            |  | 15,848                          |                                              
|                               

|                             |  | As atAugust 31, 2003 | As atAugust 31, 2002
|---------------------------- |  | -------------------- | --------------------
|                            
|Days sales outstanding (DSO) |  | 62                   |                     

33

---

# Cash, Cash Equivalents,
and Short-term Investments

As of August 31, 2003, we held $284.4
million in cash, cash equivalents, and short-term investments, an increase of $42.2
million from February 28, 2003. 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.

# Working Capital

Working capital represents our
current assets less our current liabilities. As of August 31, 2003, working capital was
$186.1 million, an increase of $57.3 million from February 28, 2003. The increase can be
attributed to higher levels of cash and cash equivalents, and short-term investments and
lower levels of accounts payable, accruals, and salaries, commissions, and related items,
and deferred revenue. Partially offsetting this increase were decreases in accounts
receivable.

Days sales outstanding (DSO) was 62
days at August 31, 2003 as compared to 59 days as at August 31, 2002. We calculate our
days sales outstanding ratio based on ending accounts receivable balances and quarterly
revenue.

# Long-term Liabilities

As at August 31, 2003, we had no
long-term liabilities, a decrease of $1.6 million from February 28, 2003. The decrease was
the result of movement from long-term classification to short-term classification of a
payment due during the first quarter of fiscal 2004 relating to a patent litigation
settlement agreement finalized in May 2002. All remaining payments under the settlement
are now current.

# 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, 2003
was $32.3 million, a decrease of $1.2 million compared to the comparative period last
year. Although net income increased during the six months ended August 31, 2003 compared
to the same period last year, this increase was offset by higher working capital primarily
driven by greater changes in deferred revenue balances and larger payments of salaries,
commissions, and related items, as compared to the same period last year.

34

---

# Cash Provided by (Used
In) Investing Activities

Cash used in investing activities was
$28.6 million for six months ended August 31, 2003, an increase in investment of $101.6
million compared to the comparative period in the prior fiscal year. During the six months
ended August 31, 2003 we increased our net investment in short-term investments from the
comparative quarter in the prior fiscal year. In the six months ended August 31, 2003,
purchases of short-term investments, net of maturities, were $16.2 million. In comparison
during the six months ended August 31, 2002, our proceeds on maturity of short-term
investments were in excess of investments in short-term investments by $80.7 million.

# Cash Provided by (Used
in) Financing Activities

Cash provided by financing activities
was $15.8 million for the six months ended August 31, 2003, compared to a use of cash in
financing activities of $10.5 million during the comparative period of the prior fiscal
year. We issued 1,226,000 common shares, valued at $18.1 million, during the six months
ended August 31, 2003, compared to the issue of 429,000 shares valued at $5.7 million
during the corresponding period in the prior fiscal year. The issuance of shares in both
periods was pursuant to our stock purchase plan and the exercise of stock options by
employees, officers, and directors. Financing activities for the six-month period ended
August 31, 2003 did not include the repurchase of shares in the open market.
Comparatively we repurchased 568,000 shares at a value of $13.1 million in the
corresponding period in the prior fiscal year.

In October 2002, we adopted a program
that enables us to purchase up to 4,398,820 common shares (not more than 5% of those
issued and outstanding) between October 9, 2002 and October 8, 2003. Purchases were made
on the Nasdaq Stock Market or the Toronto Stock Exchange at prevailing open market prices
and paid out of general corporate funds. This program did not commit us to make any share
repurchases. All repurchased shares were cancelled. The share repurchases in the six-month
period ended August 31, 2002 included shares purchased as part of an open market share
repurchase program, as well as shares purchased under our secondary offering of common
shares.

In October 2003, we adopted a program
that enables us to purchase up to 4,468,639 common shares (not more than 5% of those
issued and outstanding) between October 9, 2003 and October 8, 2004. Purchases will
be made on the Nasdaq Stock Market or the Toronto Stock Exchange at prevailing open market
prices and paid out of general corporate funds. This program does not commit us to make
any share repurchases. All repurchased shares will be cancelled.

# Contracts and Commitments

We have arranged an unsecured credit
facility. The credit facility permits us to borrow funds or issue letters of credit or
guarantee up to Cdn $12.5 million (U.S.$9.0 million), subject to certain covenants. As of
August 31, 2003 and 2002, 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.

35

---

Our policy with respect to foreign
currency exposure is to manage our financial exposure to certain foreign exchange
fluctuations with the objective of neutralizing some of the impact of foreign currency
exchange movements. To achieve this objective, we enter into foreign exchange forward
contracts to hedge portions of the net investment in our various subsidiaries. As a
result, the exchange gains or losses recorded on translation of the subsidiaries financial
statements are partially offset by gains and losses attributable to the applicable foreign
exchange forward contract. Realized and unrealized gains and losses from effective hedges
are not included in income but are shown in the cumulative translation adjustment account
included in other comprehensive income. Typically the forward contracts are between the
United States dollar and the euro, the British pound, the Swiss franc, the Japanese yen,
and the Australian dollar. We enter into these foreign 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. As of August 31, 2003, we had
foreign exchange forward contracts, with maturity dates on or before November 26, 2003, to
exchange various foreign currencies in the amount of $21.9 million.

As consideration for the patent
litigation settlement agreement with Business Objects we agreed to pay the sum of $24.0
million. During the six months ended August 31, 2003, $3.5 million was paid, and $1.8
million will be paid every quarter for the next three quarters. The remaining principal
amount is recorded in accrued charges.

In connection with the acquisition of
Adaytum, we undertook a restructuring plan in conjunction with the business combination.
The restructuring primarily relates to involuntary employee separations of approximately
90 employees of Adaytum, accruals for abandoning leased premises of Adaytum and related
write-downs of leasehold improvements as well as asset write-downs of Adaytum. During the
six months ended August 31, 2003 the total cash payments made in relation to the accrual
were $3.5 million, and cash payments remaining at August 31, 2003 were $4.1 million. The
remaining accrual is included in the balance sheet as accrued charges and salaries,
commissions, and related items and is expected to be paid during fiscal 2004.

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

We believe that our current cash,
cash equivalents, and short-term investments balance and funds generated from operations,
if any, will be adequate to finance operations and meet any capital requirements through
fiscal 2004.

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

# CERTAIN
FACTORS
THAT
MAY
AFFECT
FUTURE
RESULTS

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

36

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# Risks related to Our
Business

Our revenue may not continue to
grow at historical rates, could stop growing or decline.

We rely predominantly on revenue from
our business intelligence products. Although we have experienced revenue growth with
respect to our business intelligence products over the past few fiscal years, we cannot
provide assurance that revenue from these products will continue to grow. Revenue
associated with these products may, in the future, stop growing or decline. In addition,
our growth rate may be adversely affected by global economic conditions generally, and
economic conditions in Canada, the U.S. or Europe, in particular. Our growth rate in
revenue may also be affected by external economic factors such as currency fluctuations.

Our ability to adjust our
expenses in the near term is limited, which could cause our profits to decrease.

During periods of unfavorable
economic conditions in recent fiscal years, we reduced overall discretionary spending
levels but continued to incur expenditures selectively in areas that we viewed as
necessary to strengthen our position in the marketplace. This resulted in an increase in
our operating expenses. The economic environment remains challenging and external economic
factors such as currency fluctuations may affect our expenses. We expect to continue to
incur expenditures selectively in areas that we view as necessary for new revenue growth
and expand global market coverage. We base our operating expense budgets on projections of
future revenues that are more difficult to make in periods of economic uncertainty. As a
result, our operating expense budgets may be based on inaccurate assumptions. If we do not
meet our future revenue projections, operating expenses would increase as a percentage of
our revenues and our profits would decrease.

37

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Currency fluctuations may
adversely affect us.

A substantial portion of our revenues
are earned in currencies other than U.S. dollars, such as the euro, and similarly, a
substantial portion of our operating expenses are incurred in currencies other than U.S.
dollars, such as the Canadian dollar and the euro. Revenues and expenses generated in
foreign currencies are translated at exchange rates during the month in which the
transaction occurs. The resulting gains or losses from this translation are included in
net income. We cannot predict the effect of foreign exchange fluctuations in the future.
Therefore, fluctuations in the exchange rate between the U.S. dollar and other currencies,
such as the Canadian dollar and the euro, may have a material adverse effect on our
business, financial condition, and operating results.

As a result of our international
operations a substantial portion of our financial instruments is held in currencies other
than the United States 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. We enter into foreign exchange forward contracts to hedge
portions of the net investment in various subsidiaries, typically between the U.S. dollar
and the euro, the British pound, the Swiss franc, the Japanese yen, and the Australian
dollar.

Our quarterly and annual
operating results are volatile and difficult to predict, and if we fail to meet
the expectations of securities analysts or investors, our share price could decline
significantly.

Historically, our quarterly operating
results have varied from quarter to quarter, and we anticipate this pattern to 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. In addition, in each quarter we typically close a larger percentage
of sales transactions near the end of that quarter. Because our quarterly and annual
operating results may be significantly affected by large, enterprise-wide sales, our
inability to close one or more such sales before the end of the applicable period may
adversely affect our operating results. It is possible that in one or more future
quarters, our operating results may be below the expectations of public market analysts
and investors. In that event, the price of our common shares may fall. Our quarterly and
annual operating results may be adversely affected by a wide variety of factors,
including:

| |  |  | our
ability to achieve and maintain  revenue  growth or to anticipate a decline in revenue
from any of our products;
| | - |  | --------------------------------------------------------------------------------------------------------------------

| |  |  | the
impact of global economic conditions on our sales cycle;
| | - |  | ------------------------------------------------------------

| |  |  | our
ability to obtain and close sales, particularly large enterprise transactions;
| | - |  | ----------------------------------------------------------------------------------

| |  |  | changes
in product mix and our ability to anticipate changes in shipment patterns;
| | - |  | ----------------------------------------------------------------------------------

| |  |  | our
ability to identify  and develop new  technologies  and to  incorporate  those
 technologies  into new products;
| | - |  | --------------------------------------------------------------------------------------------------------------------

| |  |  | our
ability to select appropriate business models and strategies;
| | - |  | -----------------------------------------------------------------

| |  |  | our
ability to position ourselves to achieve growth;
| | - |  | ----------------------------------------------------

| |  |  | our
ability to identify,  hire, train,  motivate,  and retain highly qualified  personnel,
 and to achieve targeted productivity levels;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

38

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| |  |  | our
ability to identify, develop, introduce, and deliver in a timely manner new products
              and enhanced versions of our existing products which anticipate market
demand and address               customer needs;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | market
 acceptance  of business  intelligence  software and of new  products and enhanced
 versions of our               existing products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our
ability to establish and maintain a competitive advantage;
| | - |  | --------------------------------------------------------------

| |  |  | changes
in our pricing  policies or those of our  competitors and other  competitive  pressures
on selling prices;
| | - |  | ------------------------------------------------------------------------------------------------------------------

| |  |  | size,
 timing,  and  execution  of  customer  orders  and  shipments,   including  delays,
 deferrals,  or               cancellations of customer orders;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | number,
 timing, and significance of product enhancements and new product and technology
 announcements by               us or by our competitors;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our
reliance on third-party distribution channels as part of our sales and marketing strategy;
| | - |  | ----------------------------------------------------------------------------------------------

| |  |  | the
timing and provisions of pricing protections and exchange from our distributors;
| | - |  | ------------------------------------------------------------------------------------

| |  |  | changes
in foreign currency exchange rates; and
| | - |  | -----------------------------------------------

| |  |  | our
ability to enforce our intellectual property rights.
| | - |  | --------------------------------------------------------

These factors could materially
adversely affect our share price and our business, results of operations, and financial
condition.

We depend on our direct sales
force to sell our products, and if we fail to retain or hire and train new
sales personnel, our future growth will be impaired.

We sell our products primarily
through our direct sales force, and we expect to continue to do so in the future. Our
ability to achieve revenue growth in the future will depend on our ability to recruit,
train, and retain qualified direct sales personnel. We have in the past and may in the
future experience difficulty in recruiting and retaining qualified sales personnel. Our
inability to maintain and improve the productivity of our direct sales force could impair
our growth and cause our share price to fall.

We rely, in part, on others to
market and distribute our products, and their failure to do so successfully could
significantly harm our ability to maintain and expand our customer base, which would
adversely affect our growth strategy.

Our sales and marketing strategy
includes multi-tiered channels of third-party distributors, resellers, and original
equipment manufacturers (OEMs). We have developed a number of these relationships and
intend to continue to develop new ones. Our inability to attract effective third-party
distributors or their inability to penetrate their respective market segments, or the loss
of any of our third-party distributors as a result of competitive products offered by
other companies, or products developed internally by them or otherwise, could harm our
ability to maintain and expand our customer base. In addition, if a third-party
distributor fails to install our product successfully, we could lose existing and
potential customers. If these events were to occur, our business could grow more slowly
than forecasted, or not at all, or we could incur additional, unanticipated expenses.

39

---

We may lose sales, or sales may
be delayed, due to the long sales and implementation cycles for our products, which would
reduce our revenues.

Our customers typically invest
substantial time, money, and other resources researching their needs and available
competitive alternatives before deciding to license our software products. Typically, the
larger the potential sale, the more time, money, and other resources will be invested. As
a result, we may wait many months after our first contact with a customer before a sale
can actually be completed. The time required for implementation of our products varies
among our customers and may last several months, depending on our customers needs
and the products deployed. In particular, it may be difficult to install our products if
the customer has complicated operational requirements, such as integrating databases,
hardware, and software from different vendors.

During these long sales and
implementation cycles, events may occur that affect the size or timing of the order or
even cause it to be cancelled. For example:

| |  |  | purchasing
 decisions  may  be  postponed,   or  large  purchases  reduced,  during  periods  of
 economic uncertainty;
| | - |  | -----------------------------------------------------------------------------------------------------------------------

| |  |  | we
or our competitors may announce or introduce new products; or
| | - |  | ----------------------------------------------------------------

| |  |  | the
customer's own budget and purchasing priorities may change.
| | - |  | ---------------------------------------------------------------

If these events were to occur, sales
of our products may be cancelled or delayed, which would reduce our revenues.

Our sales forecasts may not
consistently correlate to revenues in a particular quarter.

We forecast sales and trends in our
business using 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 and serve as guidance for our business
budgeting and planning. These pipeline estimates are not necessarily reliable predictors
of revenues in a particular quarter as a result of, among other things, the events
identified in the preceding risk factors, as well as the subjective nature of the
information itself. The occurrence of any of these events could result in a reduction of
the conversion rate of the pipeline into contracts resulting in lower than projected
revenue in a particular quarter.

If we do not protect our
intellectual property, our products may lose any competitive advantage, and even if weare
successful, protecting our intellectual property could be time consuming and expensive.

Our success depends in part on our
ability to protect our rights in our intellectual property. 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, it may be possible for third parties to obtain and use our intellectual
property without our authorization. Policing unauthorized use of intellectual property is
difficult, and some foreign laws do not protect proprietary rights to the same extent as
the laws of Canada or the United States.

40

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To protect our intellectual property,
we may become involved in litigation, which could result in substantial expenses, divert
the attention of our management, and materially disrupt the conduct of our business.

Intellectual property claims
brought against us could be time consuming and costly to defend, and if we
are unsuccessful, our ability to sell products incorporating the disputed intellectual
property could be limited orwe may have to pay license fees, royalties, or damages.

We may become increasingly subject to
claims by third parties that our technology infringes their property rights due to the
growth of software products in our target markets and the overlap in functionality of
these products. Regardless of their merit, any such claims could:

| |  |  | be
time consuming;
| | - |  | ------------------

| |  |  | be
expensive to defend;
| | - |  | -----------------------

| |  |  | divert
management's attention and focus away from the business;
| | - |  | ---------------------------------------------------------------

| |  |  | cause
product shipment delays; and
| | - |  | ----------------------------------

| |  |  | require
us to enter into costly royalty or licensing agreements or to stop using such technology.
| | - |  | -------------------------------------------------------------------------------------------------

The loss of our rights to use
software currently licensed to us by third parties could significantly increase
our operating expenses by forcing us to seek alternative technology and adversely affect
our ability to compete.

We license certain technologies used
in our products from third parties, generally on a non-exclusive basis. The termination of
any of these licenses, or the failure of the licensors to adequately maintain or update
their products, could delay our ability to ship our products while we seek to implement
alternative technology offered by other sources. In addition, alternative technology may
not be available on commercially reasonable terms. In the future, it may be necessary or
desirable to obtain other third-party technology licenses relating to one or more of our
products, or relating to current or future technologies, to enhance our product offerings.
We cannot provide assurance that we will be able to obtain licensing rights to the needed
technology on commercially reasonable terms, if at all.

If a successful product liability
claim were made against us, our business could be seriously harmed.

Our license agreements with our
customers typically contain provisions designed to limit our exposure to potential product
liability claims. Despite this, it is possible that such limitation of liability
provisions may not be effective as a result of existing or future laws or unfavorable
judicial decisions. We have not experienced any product liability claims to date. However,
the sale and support of our products may entail the risk of such claims, which are likely
to be substantial in light of the use of our products in business-critical applications. A
successful product liability claim could result in significant monetary liability and
could seriously disrupt our business.

41

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We face significant operational
and financial risks associated with our international operations.

We derive a significant portion of
our total revenues from international sales. International sales are subject to
significant risks, including:

| |  |  | unexpected
 changes in legal and regulatory  requirements  and policies in foreign  markets
 affecting our          international sales;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | changes
in tariffs and other trade barriers;
| | - |  | --------------------------------------------

| |  |  | fluctuations
in currency exchange rates;
| | - |  | ----------------------------------------

| |  |  | political
and economic instability;
| | - |  | -----------------------------------

| |  |  | longer
payment cycles and other difficulties in accounts receivable collection;
| | - |  | -------------------------------------------------------------------------------

| |  |  | difficulties
in managing foreign distributors and representatives;
| | - |  | ------------------------------------------------------------------

| |  |  | difficulties
in staffing and managing foreign operations;
| | - |  | ---------------------------------------------------------

| |  |  | difficulties
in protecting our intellectual property internationally; and
| | - |  | -------------------------------------------------------------------------

| |  |  | potentially
adverse consequences arising from changes in tax laws.
| | - |  | ------------------------------------------------------------------

Each of these factors could
materially impact our international operations and adversely affect our business as a
whole.

Pursuing, completing, and
integrating recent and potential acquisitions could divert managements attention
and financial resources and may negatively affect our operating results.

In the past we have made acquisitions
of products and businesses and in fiscal 2003 we acquired privately held Adaytum, Inc. In
the future, we may engage in additional acquisitions of other products or businesses that
we believe are complementary to ours. We cannot provide assurance that we will be able to
identify additional suitable acquisition candidates available for sale at reasonable
prices, consummate any acquisition, or successfully integrate any acquired product or
business into our operations. Further, acquisitions may involve a number of other risks,
including:

| |  |  | diversion
of management's attention;
| | - |  | ------------------------------------

| |  |  | disruption
to our ongoing business;
| | - |  | -----------------------------------

| |  |  | failure
to retain key acquired personnel;
| | - |  | -----------------------------------------

| |  |  | difficulties
in assimilating acquired operations, technologies, products, or personnel;
| | - |  | ---------------------------------------------------------------------------------------

| |  |  | unanticipated
expenses, events, or circumstances;
| | - |  | -------------------------------------------------

| |  |  | assumption
of disclosed and undisclosed liabilities; and
| | - |  | --------------------------------------------------------

| |  |  | the
risk that we will not be able to value the acquired in-process research and
                 development, or an entire acquired business, appropriately.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

If we do not successfully address
these risks or any other problems encountered in connection with an acquisition, the
acquisition could have a material adverse effect on our business, results of operations,
and financial condition. Problems with an acquired business could have a material adverse
effect on our performance or our business as a whole. In addition, if we proceed with an
acquisition, our available cash may be used to complete the transaction, diminishing our
liquidity and capital resources, or shares may be issued which could cause a dilution to
existing shareholders.

42

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Failure to manage our growth
successfully may adversely impact our operating results.

The expansion of our business and
customer base has placed, and will continue to place, increased demands on our management,
operating systems, internal controls, and financial resources. If not managed effectively,
these increased demands may adversely affect the products and services we provide to our
existing clients. In addition, our personnel, systems, procedures, and controls may be
inadequate to support our future operations. Consequently, in order to manage our growth
effectively, we may be required to increase expenditures to expand, train, and manage our
employee base, improve our management, financial and information systems, and controls, or
make other capital expenditures. Our results of operations and financial condition could
be harmed if we encounter difficulties in effectively managing our growth.

Our executive management and
other key personnel are essential to our business, and if we are not able to recruit and
retain qualified personnel, our ability to develop, market, and support our products and
services could be harmed.

We depend on the services of our key
technical and management personnel. The loss of the services of any of these persons could
have a material adverse effect on our business, results of operations, and financial
condition. Our success is highly dependent on our continuing ability to identify, hire,
train, motivate, and retain highly qualified management, technical, sales, and marketing
personnel. Competition for such personnel can be intense, and we cannot provide assurance
that we will be able to attract, assimilate, or retain highly qualified technical and
managerial personnel in the future. Our inability to attract and retain the necessary
management, technical, sales, and marketing personnel may adversely affect our future
growth and profitability.

We may have exposure to
additional tax liabilities.

As an entity which operates globally,
we calculate our income tax liabilities in each of the jurisdictions in which we conduct
business. As is common in companies with a global presence, we have used prudent tax
planning strategies. Tax planning strategies by their nature involve complicated
transactions. Those transactions are subject to review or audit by taxation authorities
and the ultimate tax outcome bears a measure of uncertainty. We must therefore make
estimates and judgments and it may take a considerable period for the ultimate tax outcome
to be known. Although we believe our estimates are reasonable, 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.

43

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# Risks Related to Our
Industry

Economic uncertainty and
downturns in the software market may lead to decreases in our revenues and margins.

The market for our products depends
on economic conditions affecting the broader software market. Downturns in the economy may
cause businesses and governments to delay or cancel software projects, reduce their
overall information technology budgets, or reduce or cancel orders for our products. In
this environment, customers may experience financial difficulty, fail to purchase or defer
the budget for the purchase of our products, or cease operations. This, in turn, may lead
to longer sales cycles, delays, or failures in payment and collection, and price
pressures, causing us to realize lower revenues and margins. In particular, acts of
terrorism, military action, or war have created an uncertain economic environment and we
cannot predict the impact of such events on our customers or business. We believe that, in
light of such events, some businesses and governments may delay, curtail, or eliminate
capital spending on information technology generally, or in certain sectors of information
technology in particular. If capital spending in our markets declines, it may be necessary
for us to gain significant market share from our competitors in order to achieve our
financial goals and maintain profitability, and there is no assurance we would be able to
do so.

If our products contain material
defects, our ability to attract and retain customers may be harmed.

Software products are complex and may
contain errors or defects, particularly when first introduced, when new versions or
enhancements are released, or when configured to individual customer computing systems. We
currently have known errors and defects in our products. Despite testing conducted by us,
additional defects and errors found in current versions, new versions, or enhancements of
our products after commencement of commercial shipment could result in the loss of
revenues or a delay in market acceptance. If, as a result of such a defect or error, our
products cannot be effectively integrated with other hardware, software and database and
networking systems, our ability to attract and retain customers could suffer. The
occurrence of any of these events could cause us to lose customers or require us to pay
damages to existing customers and, therefore, could seriously harm our business, operating
results, and financial condition.

We face intense competition, and
if we fail to compete successfully, our business could be seriously harmed and our
revenues could grow more slowly than expected, stop growing, or decline.

We face substantial competition
throughout the world, primarily from software companies located in the United States,
Europe, and Canada. Some of our competitors have been in the software business longer than
we have and have substantially greater financial and other resources with which to pursue
research and development, manufacturing, marketing, and distribution of their products. We
expect our existing competitors and future competitors to continue to improve the
performance of their current products and to introduce new products or new technologies.
In addition, the business intelligence market may undergo a transformation as a result of
the entry into this market by some of the large software companies through acquisition of
business intelligence software vendors, and the consolidation of other vendors. New
product 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.

44

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If we do not respond effectively
and on a timely basis to rapid technological change, our products and services may become
obsolete and we could lose customers.

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
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 bring them to market in a
timely way. 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.

# Risks Related to
External Conditions

Our share price will 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 business intelligence tools or related markets; or
| | - |  | ----------------------------------------------------------------------------------

| |  |  | other
events or factors.
| | - |  | ------------------------

In addition, the financial markets
have experienced significant price and volume fluctuations that have particularly affected
the market prices of equity securities of many technology companies and that sometimes
have been unrelated to the operating performance of these companies. Broad market
fluctuations, as well as economic conditions generally and in the software industry
specifically, may adversely affect the market price of our common shares. In the past,
following periods of volatility in the market price of a particular companys
securities, securities class action litigation has often been brought against that
company. Similar litigation may occur in the future with respect to us, which could result
in substantial costs, divert managements attention and other company resources, and
have a material adverse effect upon our business, results of operations, and financial
condition.

45

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New Accounting Pronouncements
could require us to change the way in which we account for employee stock options, which
would result in a reduction of our net income and earnings per share.

The FASB and other financial
accounting standard-setting bodies internationally are currently addressing issues related
to stock-based payments, and alternative methods of valuing those payments. The goal of
these activities is to develop one set of international accounting pronouncements for
share-based payments. If those accounting pronouncements require, or if we elect to use, a
method which requires us to expense the fair value of stock-options we would report
increased expenses in our income statement, and a reduction of our net income and earnings
per share. The impact of applying a fair value method is disclosed in Note 3 of the
Condensed Notes to the Consolidated Financial Statements.

46

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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, 2003, a 100
basis-point adverse change in interest rates would not have had a material effect on our
consolidated financial position, earnings, or cash flows.

# Foreign Currency Risk

We operate internationally;
accordingly, a substantial portion of our financial instruments are held in currencies
other than the United States dollar. Our policy with respect to foreign currency exposure
is to manage financial exposure to certain foreign exchange fluctuations with the
objective of neutralizing some of the impact of foreign currency exchange movements. To
achieve this objective, we enter into foreign exchange forward contracts to hedge portions
of the net investment in various subsidiaries. The forward contracts are typically between
the United States dollar and the British pound, the euro, and the Australian dollar.
Sensitivity analysis is used to measure our foreign currency exchange rate risk. As of
August 31, 2003, a 10% adverse change in foreign exchange rates versus the U.S. dollar
would not have had a material effect on our reported cash, cash equivalents, and
short-term investments.

As we operate internationally, a
substantial portion of our business is also conducted in foreign currencies other than the
U.S. dollar. Accordingly, our results are affected, and may be affected in the future, by
exchange rate fluctuations of the United States 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. The resulting gains and losses from this
translation are included in net income. We cannot predict the effect of foreign exchange
losses in the future; however, if significant foreign exchange losses are experienced,
they could have a material adverse effect on our business, results of operations, and
financial condition.

47

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

|a) |  | Evaluation
of disclosure controls and procedures.
|-- |  | -------------------------------------------------

Under the supervision and with the
participation of our management, including the Chief Executive Officer and Chief Financial
Officer, we have evaluated the disclosure controls and procedures as of the end of the
period covered by this quarterly report. Based on this evaluation the Chief Executive
Officer and Chief Financial Officer conclude that the disclosure controls and procedures
(as defined in Rule 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934)
effectively ensure that information required to be disclosed in our filings and
submissions under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in the Securities and Exchange Commissions rules and
forms.

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

There has been no significant change
in our internal control over financial reporting during the quarter ended August 31, 2003,
that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.

48

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PART II  OTHER
INFORMATION

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

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

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

|Item 6. |  | Exhibits
and Reports on Form 8-K
|------- |  | --------------------------------

|a) |  | Exhibits |  |                                                                                                                                                                                          | 
|-- |  | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|   |  | 31.1     |  | Certification Pursuant to Rule 13a - 14(a) or 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 Pursuant to Rule 13a - 14(a) or 15d - 14(a) of the
Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                   | 
|   |  | 32.1     |  | Certification Pursuant to Rule 13a - 14(a) or 15d - 14(a) of
the Securities Exchange Act and 18 U.S.C Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 | 
|   |  | 32.2     |  | Certification Pursuant to Rule 13a - 14(a) or 15d - 14(a) of
the Securities Exchange Act and 18 U.S.C Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 | 
|   |  | 99.1     |  | Selected Consolidated Financial Statements and Notes in U.S.
Dollars and in accordance with Canadian Generally Accepted Accounting Principles                                            | 
|   |  | 99.2     |  | Management's Discussion and Analysis of Financial Condition
and Results of Operations - Canadian Supplement                                                                              | 

|b) |  | Reports
on Form 8-K
|-- |  | -------------------

The Corporation filed a Form 8-K on
June 19, 2003 pursuant to Items 7 and 12, Financial Statements and Exhibitsand
Disclosure of Results of Operations and Financial Condition,respectively.This Form 8-K related to the release of the Corporations results for the first
quarter of fiscal 2004 ended May 31, 2003.

49

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SIGNATURE

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

|                 | COGNOS INCORPORATED
|---------------- | -------------------
|                 | (Registrant)       
|                 |                    
|                 |                    
|October 10, 2003 |                    
|                 |                    
|Date             |                    
|                 |                    
|                 |                    
|                 |                    
|                 |                    

50

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EXHIBIT INDEX

|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                              |  | PAGE  | 
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----- | 
|           
|31.1        |  | Certification Pursuant to
Rule 13a - 14(a) or 15d - 14(a) of the
Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                   |  | 52    | 
|           
|31.2        |  | Certification Pursuant to Rule 13a - 14(a)
or 15d - 14(a) of the Securities
Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                   |  | 53    | 
|           
|32.1        |  | Certification Pursuant to Rule 13a - 14(a) or 15d - 14(a) of the Securities
Exchange Act and 18 U.S.C Section 1350, As Adopted Pursuant to Section 906 of The
Sarbanes-Oxley Act of 2002 |  | 54    | 
|           
|32.2        |  | Certification Pursuant to Rule 13a - 14(a) or 15d - 14(a) of the Securities
Exchange Act and 18 U.S.C Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002 |  | 55    | 
|           
|99.1        |  | Selected Consolidated Financial Statements and Notes in U.S. Dollars and in
accordance with Canadian Generally Accepted Accounting Principles                                            |  | 56-66 | 
|           
|99.2        |  | Management's Discussion and Analysis of Financial Condition and Results of
Operations - Canadian Supplement                                                                              |  | 67-68 | 

51