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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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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, 2007

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 Incorporation Or Organization) |  | (IRS Employer Identification No.)
|                                                               | 
|3755 Riverside Drive,                                          |  |                                  
|P.O. Box 9707, Station T,                                      |  |                                  
|Ottawa, Ontario, Canada                                        |  | K1G 4K9                          
|(Address Of Principal Executive Offices)                       |  | (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 a
large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer ̈Non-accelerated filer ̈

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

The number of shares outstanding of the registrants only class of Common Stock as of September 27, 2007, was
83,313,838.



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##### Table of Contents

COGNOS INCORPORATED

INDEX



|                               |  |                                                                                                              |  |     
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|                               |  |                                                                                                              |  | PAGE
|PART I  FINANCIAL INFORMATION
|                               |  |                                                                                                             
|Item 1.                        |  | Consolidated Financial Statements (unaudited)                                                                |  |     
|                               |  |                                                                                                             
|                               |  | Consolidated Statements of Income for the three and six months ended August 31, 2007 and August 31, 2006     |  | 3   
|                               |  |                                                                                                             
|                               |  | Consolidated Balance Sheets as of August 31, 2007 and February 28, 2007                                      |  | 4   
|                               |  |                                                                                                             
|                               |  | Consolidated Statements of Cash Flows for the three and six months ended August 31, 2007 and August 31, 2006 |  | 5   
|                               |  |                                                                                                             
|                               |  | Condensed Notes to the Consolidated Financial Statements                                                     |  | 6   
|                               |  |                                                                                                             
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 23  
|                               |  |                                                                                                             
|Item 3.                        |  | Quantitative and Qualitative Disclosure about Market Risk                                                    |  | 64  
|                               |  |                                                                                                             
|Item 4.                        |  | Controls and Procedures                                                                                      |  | 66  
|                              
|PART II  OTHER INFORMATION   
|                               |  |                                                                                                             
|Item 1.                        |  | Legal Proceedings                                                                                            |  | 67  
|                               |  |                                                                                                             
|Item 1A.                       |  | Risk Factors                                                                                                 |  | 67  
|                               |  |                                                                                                             
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                  |  | 75  
|                               |  |                                                                                                             
|Item 4.                        |  | Submissions of Matters to a Vote of Security Holders                                                         |  | 76  
|                               |  |                                                                                                             
|Item 6.                        |  | Exhibits                                                                                                     |  | 77  
|                               | 
|Signature                      |  | 78                                                                                                          



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PART I  FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

COGNOS INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

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

(Unaudited)



|                                                      |  |                               |  |                             |  |      |         |      |   |        
|----------------------------------------------------- |  | ----------------------------- |  | --------------------------- |  | ---- | ------- | ---- | - | -------
|                                                      |  | Three months ended August 31, |  | Six months ended August 31,
|                                                      |  | 2007                          |  | 2006                        |  | 2007 |         | 2006
|Revenue                                               |  |                               |  |                             |  |      |         |      |   |        
|Product license                                       |  | $  87,020                     |  | $  78,005                   |  | $    | 162,712 |      | $ | 151,740
|Product support                                       |  | 115,177                       |  | 103,262                     |  |      | 228,615 |      |   | 203,443
|Services                                              |  | 50,170                        |  | 48,623                      |  |      | 97,694  |      |   | 91,747 
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Total revenue                                         |  | 252,367                       |  | 229,890                     |  |      | 489,021 |      |   | 446,930
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Cost of revenue                                       |  |                               |  |                             |  |      |         |      |   |        
|Cost of product license                               |  | 1,530                         |  | 1,445                       |  |      | 2,963   |      |   | 3,202  
|Cost of product support                               |  | 11,448                        |  | 11,384                      |  |      | 23,245  |      |   | 22,611 
|Cost of services                                      |  | 39,863                        |  | 39,805                      |  |      | 80,444  |      |   | 77,321 
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Total cost of revenue                                 |  | 52,841                        |  | 52,634                      |  |      | 106,652 |      |   | 103,134
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Gross margin                                          |  | 199,526                       |  | 177,256                     |  |      | 382,369 |      |   | 343,796
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Operating expenses                                    |  |                               |  |                             |  |      |         |      |   |        
|Selling, general, and administrative                  |  | 135,310                       |  | 117,981                     |  |      | 260,737 |      |   | 235,573
|Research and development                              |  | 35,283                        |  | 33,869                      |  |      | 70,213  |      |   | 67,148 
|Amortization of acquisition-related intangible assets |  | 1,805                         |  | 1,702                       |  |      | 3,607   |      |   | 3,403  
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Total operating expenses                              |  | 172,398                       |  | 153,552                     |  |      | 334,557 |      |   | 306,124
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Operating income                                      |  | 27,128                        |  | 23,704                      |  |      | 47,812  |      |   | 37,672 
|Interest and other income, net                        |  | 6,210                         |  | 6,216                       |  |      | 14,475  |      |   | 11,227 
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Income before taxes                                   |  | 33,338                        |  | 29,920                      |  |      | 62,287  |      |   | 48,899 
|Income tax provision                                  |  | 6,793                         |  | 6,160                       |  |      | 13,356  |      |   | 10,601 
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Net income                                            |  | $  26,545                     |  | $  23,760                   |  | $    | 48,931  |      | $ | 38,298 
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Net income per share                                  |  |                               |  |                             |  |      |         |      |   |        
|Basic                                                 |  | $0.31                         |  | $0.26                       |  |      | $0.56   |      |   | $0.43  
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Diluted                                               |  | $0.31                         |  | $0.26                       |  |      | $0.55   |      |   | $0.42  
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Weighted average number of shares (000s)              |  |                               |  |                             |  |      |         |      |   |        
|Basic                                                 |  | 85,747                        |  | 89,718                      |  |      | 87,527  |      |   | 89,805 
|                                                      |  |                               |  |                             |  |      |         |      |   |        
|Diluted                                               |  | 86,202                        |  | 90,221                      |  |      | 88,180  |      |   | 90,523 
|                                                      |  |                               |  |                             |  |      |         |      |   |        

(See accompanying notes)



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COGNOS INCORPORATED

CONSOLIDATED BALANCE SHEETS

(US$000s, U.S. GAAP)

(Unaudited)



|                                                                                                           |  |                 |   |  |                   |  
|---------------------------------------------------------------------------------------------------------- |  | --------------- | - |  | ----------------- | -
|                                                                                                           |  | August 31, 2007 |   |  | February 28, 2007 |  
|Assets                                                                                                     |  |                 |   |  |                   |  
|Current assets                                                                                             |  |                 |   |  |                   |  
|Cash and cash equivalents                                                                                  |  | $379,078        |   |  | $   376,762       |  
|Short-term investments                                                                                     |  | 60,339          |   |  | 315,131           |  
|Accounts receivable                                                                                        |  | 158,920         |   |  | 221,393           |  
|Income taxes receivable                                                                                    |  | 6,708           |   |  | 2,274             |  
|Prepaid expenses and other current assets                                                                  |  | 32,562          |   |  | 29,724            |  
|Deferred tax assets                                                                                        |  | 14,256          |   |  | 13,768            |  
|                                                                                                           |  |                 |   |  |                   |  
|                                                                                                           |  | 651,863         |   |  | 959,052           |  
|Fixed assets, net                                                                                          |  | 79,615          |   |  | 72,256            |  
|Intangible assets, net                                                                                     |  | 14,362          |   |  | 17,767            |  
|Other assets                                                                                               |  | 8,640           |   |  | 5,642             |  
|Deferred tax assets                                                                                        |  | 10,292          |   |  | 5,950             |  
|Goodwill                                                                                                   |  | 226,455         |   |  | 232,094           |  
|                                                                                                           |  |                 |   |  |                   |  
|                                                                                                           |  | $991,227        |   |  | $1,292,761        |  
|                                                                                                           |  |                 |   |  |                   |  
|Liabilities                                                                                                |  |                 |   |  |                   |  
|Current liabilities                                                                                        |  |                 |   |  |                   |  
|Accounts payable                                                                                           |  | $  31,166       |   |  | $     36,970      |  
|Accrued charges                                                                                            |  | 38,711          |   |  | 36,628            |  
|Salaries, commissions, and related items                                                                   |  | 66,931          |   |  | 96,970            |  
|Income taxes payable                                                                                       |  | 9,578           |   |  | 8,743             |  
|Deferred income taxes                                                                                      |  | 4,065           |   |  | 6,363             |  
|Deferred revenue                                                                                           |  | 238,473         |   |  | 284,896           |  
|                                                                                                           |  |                 |   |  |                   |  
|                                                                                                           |  | 388,924         |   |  | 470,570           |  
|Non-current income tax payable                                                                             |  | 52,272          |   |  |                  |  
|Deferred income taxes                                                                                      |  | 3,185           |   |  | 30,751            |  
|                                                                                                           |  |                 |   |  |                   |  
|                                                                                                           |  | 444,381         |   |  | 501,321           |  
|                                                                                                           |  |                 |   |  |                   |  
|Stockholders Equity                                                                                       |  |                 |   |  |                   |  
|Capital stock                                                                                              |  |                 |   |  |                   |  
|Common shares and additional paid-in capital(August 31, 2007  83,213,184; February 28, 2007 
89,725,774) |  | 536,711         |   |  | 535,589           |  
|Treasury shares (August 31, 2007  1,202,901; February 28, 2007  617,369)                                 |  | (47,193         | ) |  | (22,064           | )
|Retained earnings                                                                                          |  | 50,496          |   |  | 273,575           |  
|Accumulated other comprehensive income                                                                     |  | 6,832           |   |  | 4,340             |  
|                                                                                                           |  |                 |   |  |                   |  
|                                                                                                           |  | 546,846         |   |  | 791,440           |  
|                                                                                                           |  |                 |   |  |                   |  
|                                                                                                           |  | $991,227        |   |  | $1,292,761        |  
|                                                                                                           |  |                 |   |  |                   |  

(See accompanying notes)



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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, |  
|                                                                  |  | 2007                          |   |  | 2006                        |   |  | 2007      |   |  | 2006      |  
|Cash flows from operating activities                              |  |                               |   |  |                             |   |  |           |   |  |           |  
|Net income                                                        |  | $  26,545                     |   |  | $  23,760                   |   |  | $  48,931 |   |  | $  38,298 |  
|Non-cash items                                                    |  |                               |   |  |                             |   |  |           |   |  |           |  
|Depreciation and amortization                                     |  | 7,524                         |   |  | 7,360                       |   |  | 14,853    |   |  | 14,600    |  
|Stock-based compensation                                          |  | 7,493                         |   |  | 4,586                       |   |  | 15,127    |   |  | 9,743     |  
|Deferred income taxes                                             |  | (2,958                        | ) |  | (413                        | ) |  | (2,564    | ) |  | 4,768     |  
|Non-current income taxes                                          |  | 2,187                         |   |  |                            |   |  | 4,323     |   |  |          |  
|Loss on disposal of fixed assets                                  |  | 3                             |   |  | 377                         |   |  | 56        |   |  | 516       |  
|Change in non-cash working capital                                |  |                               |   |  |                             |   |  |           |   |  |           |  
|Decrease (increase) in accounts receivable                        |  | 8,469                         |   |  | (4,865                      | ) |  | 65,909    |   |  | 76,275    |  
|Increase in income tax receivable                                 |  | (61                           | ) |  | (1,485                      | ) |  | (4,423    | ) |  | (5,792    | )
|Decrease (increase) in prepaid expenses and other current assets  |  | (2,178                        | ) |  | 522                         |   |  | (1,266    | ) |  | 7,413     |  
|Decrease in accounts payable                                      |  | (5,371                        | ) |  | (2,969                      | ) |  | (7,448    | ) |  | (9,996    | )
|Increase (decrease) in accrued charges                            |  | 2,783                         |   |  | (352                        | ) |  | 1,238     |   |  | 1,258     |  
|Increase (decrease) in salaries, commissions, and related items   |  | (144                          | ) |  | 6,230                       |   |  | (32,031   | ) |  | (8,595    | )
|Increase in income taxes payable                                  |  | 702                           |   |  | 4,206                       |   |  | 1,190     |   |  | 851       |  
|Decrease in deferred revenue                                      |  | (22,667                       | ) |  | (20,836                     | ) |  | (51,687   | ) |  | (40,568   | )
|                                                                  |  |                               |   |  |                             |   |  |           |   |  |           |  
|Net cash provided by operating activities                         |  | 22,327                        |   |  | 16,121                      |   |  | 52,208    |   |  | 88,771    |  
|                                                                  |  |                               |   |  |                             |   |  |           |   |  |           |  
|Cash flows from investing activities                              |  |                               |   |  |                             |   |  |           |   |  |           |  
|Maturity of short-term investments                                |  | 164,432                       |   |  | 264,354                     |   |  | 460,273   |   |  | 376,969   |  
|Purchase of short-term investments                                |  | (60,344                       | ) |  | (191,486                    | ) |  | (203,863  | ) |  | (424,122  | )
|Additions to fixed assets                                         |  | (6,504                        | ) |  | (4,544                      | ) |  | (12,493   | ) |  | (10,915   | )
|Additions to intangible assets                                    |  | (496                          | ) |  | (370                        | ) |  | (785      | ) |  | (696      | )
|Increase in other assets                                          |  | (3,466                        | ) |  | (488                        | ) |  | (3,328    | ) |  | (219      | )
|                                                                  |  |                               |   |  |                             |   |  |           |   |  |           |  
|Net cash provided by (used in) investing activities               |  | 93,622                        |   |  | 67,466                      |   |  | 239,804   |   |  | (58,983   | )
|                                                                  |  |                               |   |  |                             |   |  |           |   |  |           |  
|Cash flows from financing activities                              |  |                               |   |  |                             |   |  |           |   |  |           |  
|Issue of common shares                                            |  | 2,741                         |   |  | 576                         |   |  | 9,897     |   |  | 13,511    |  
|Purchase of treasury shares                                       |  | (583                          | ) |  | (2,545                      | ) |  | (26,408   | ) |  | (2,545    | )
|Repurchase of shares                                              |  | (231,027                      | ) |  |                            |   |  | (279,046  | ) |  | (24,998   | )
|                                                                  |  |                               |   |  |                             |   |  |           |   |  |           |  
|Net cash used in financing activities                             |  | (228,869                      | ) |  | (1,969                      | ) |  | (295,557  | ) |  | (14,032   | )
|                                                                  |  |                               |   |  |                             |   |  |           |   |  |           |  
|Effect of exchange rate changes on cash                           |  | 1,284                         |   |  | (1,297                      | ) |  | 5,861     |   |  | 3,109     |  
|                                                                  |  |                               |   |  |                             |   |  |           |   |  |           |  
|Net increase (decrease) in cash and cash equivalents              |  | (111,636                      | ) |  | 80,321                      |   |  | 2,316     |   |  | 18,865    |  
|Cash and cash equivalents, beginning of period                    |  | 490,714                       |   |  | 337,178                     |   |  | 376,762   |   |  | 398,634   |  
|                                                                  |  |                               |   |  |                             |   |  |           |   |  |           |  
|Cash and cash equivalents, end of period                          |  | 379,078                       |   |  | 417,499                     |   |  | 379,078   |   |  | 417,499   |  
|Short-term investments, end of period                             |  | 60,339                        |   |  | 200,585                     |   |  | 60,339    |   |  | 200,585   |  
|                                                                  |  |                               |   |  |                             |   |  |           |   |  |           |  
|Cash, cash equivalents, and short-term investments, end of period |  | $439,417                      |   |  | $618,084                    |   |  | $439,417  |   |  | $618,084  |  
|                                                                  |  |                               |   |  |                             |   |  |           |   |  |           |  

(See accompanying notes)



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S.
dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



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

The accompanying unaudited consolidated financial statements have been prepared by the Corporation in United States (U.S.) dollars and in accordance with generally accepted accounting principles (GAAP)
in the U.S. with respect to interim financial statements, applied on a basis consistent in all material respects with those applied in the Corporations Annual Report on Form 10-K for the year ended February 28, 2007, except for the
adoption of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48) which in accordance with the
transitional provisions was adopted on March 1, 2007. These consolidated financial statements do not include all of the information and footnotes required for compliance with U.S. GAAP for annual financial statements. These unaudited condensed
notes to the consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Corporations Annual Report on Form 10-K for the fiscal year ended February 28, 2007
as filed with the SEC on April 27, 2007.

The preparation of these unaudited consolidated financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. In particular, management makes judgments related to, among other
things, revenue recognition, stock-based compensation, the allowance for doubtful accounts, income taxes, business acquisitions and the related goodwill, intangibles and restructuring accrual, and the impairment of goodwill and long-lived assets. In
the opinion of management, these unaudited consolidated financial statements reflect all adjustments (which include normal, recurring adjustments) necessary to present fairly the results for the periods presented. Actual results could differ from
these estimates and the operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.



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

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

The
Corporation recognizes revenue only when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable. For contracts with multiple
obligations, the Corporation allocates revenue to the undelivered elements of a contract based on vendor specific objective evidence (VSOE) of the fair value of those elements and allocates revenue to the delivered elements,
principally license revenue, using the residual method as described in SOP 97-2.

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



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



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

Many of the Corporations sales include both software and services. The services are not essential to the functionality of any other element of the transaction and are 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. Accordingly services revenue from education, consulting, and other services is recognized at the time such services are rendered, and the software element is accounted for
separately from the service element.

As required by SOP 97-2, the Corporation establishes VSOE of fair value for each
element of a contract with multiple elements (i.e., delivered and undelivered products, support obligations, education, consulting, and other services). The Corporation determines VSOE for service elements based on the normal pricing and discounting
practices for those elements when they are sold separately. For PCS, VSOE of fair value is based on the PCS rates contractually agreed to with customers, if the rate is consistent with our customary pricing practices. Absent a stated PCS rate, a
consistent rate, which represents the price when PCS is sold separately based on PCS renewals, is used.

The Corporation
has historically used two forms of contract terms regarding PCS: contracts which include a stated PCS rate (either a stated renewal rate or a stated rate for the first year PCS bundled with the software license); and contracts which do not state a
PCS rate. For contracts which include a stated renewal rate, the Corporation uses the contractually stated renewal rate to allocate arrangement consideration to the undelivered PCS at the inception of the arrangement and recognize such consideration
ratably over the PCS term provided that the stated rate is substantive and consistent with our customary pricing practices. Historically, there has been a high correlation between the amounts allocated to PCS in the initial software licensing
arrangement for such arrangements and the amounts at which PCS is renewed.

For contracts that have a stated first year PCS
rate, the Corporation uses such stated prices to allocate arrangement consideration to the undelivered PCS at the inception of the arrangement and recognize such consideration ratably over the PCS term, provided that it is substantive and consistent
with our customary pricing practices, as this is typically the rate at which PCS will be renewed. Historically, there has been a high correlation between the amounts allocated to PCS in the initial software licensing arrangement for such
arrangements and the amounts at which PCS is renewed.

For contracts which do not state a PCS rate, the Corporation
allocates a consistent percentage of the license fee to PCS in the first year of such arrangements based on a substantive rate at which our customer experience indicates customers will typically agree to renew PCS. Historically, there has been a
high correlation between the mean of amounts allocated to PCS in the initial software licensing arrangement for such arrangements and the mean of amounts at which PCS is renewed.



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



The Corporation stratifies its customers into three classes in determining VSOE of
fair value for PCS. The classifications are based on the amount of software license business (i.e., software license revenues), life-to-date, that has previously been obtained from the respective customers. For each class of customer, a range of
prices exists which represents VSOE of fair value for PCS for that class of customer.

When PCS in individual arrangements
is stated below the lower limits of our acceptable ranges by customer class, the Corporation adjusts the percentage allocated for support upwards to the low end of the applicable range by customer class. This adjustment allocates additional revenue
from license revenue to deferred PCS revenue which is amortized over the life of the PCS contract, which is typically one year. If the stated PCS is above the reasonable range, no adjustment is made and the deferred PCS revenue is measured at the
contracted percentage.

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

The Corporation records all revenues net of all sales and related taxes,
in accordance with EITF No. 06-3 How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement(EITF No. 06-3).



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

The Corporation adopted FAS 123R on March 1, 2006 to account for its stock option, stock purchase, deferred share, and restricted share unit plans. This standard addresses the accounting for share-based payment transactions in which a
corporation receives employee services in exchange for either equity instruments of the corporation or liabilities that are based on the fair value of the corporations equity instruments or that may be settled by the issuance of such equity
instruments. The Corporation has applied the modified retrospective method for adoption.

The Corporation uses the
straight-line attribution method to recognize stock-based compensation expense over the requisite service period of its awards with service conditions only and the graded attribution method for its performance-based awards. Stock-based compensation
expense is recorded, consistent with other compensation expenses, in cost of support, cost of services, selling, general and administrative expenses or research and development expenses, depending on the employees job function.



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



Stock-based compensation expense recognized for the three and six months ended
August 31, 2007 and 2006 is as follows:



|                                    |  |                               |   |  |                             |   |  |           |   |  |           |  
|----------------------------------- |  | ----------------------------- | - |  | --------------------------- | - |  | --------- | - |  | --------- | -
|                                    |  | Three months ended August 31, |   |  | Six months ended August 31, |  
|                                    |  | 2007                          |   |  | 2006                        |   |  | 2007      |   |  | 2006      |  
|                                    |  | ($000s)                       |  
|Compensation cost recognized        |  |                               |   |  |                             |   |  |           |   |  |           |  
|Cost of Product Support             |  | $   146                       |   |  | $     65                    |   |  | $     256 |   |  | $     161 |  
|Cost of Services                    |  | 238                           |   |  | 159                         |   |  | 427       |   |  | 346       |  
|Selling, General and Administrative |  | 6,713                         |   |  | 5,100                       |   |  | 13,227    |   |  | 9,404     |  
|Research and Development            |  | 800                           |   |  | 433                         |   |  | 1,493     |   |  | 924       |  
|                                    |  |                               |   |  |                             |   |  |           |   |  |           |  
|Total                               |  | 7,897                         |   |  | 5,757                       |   |  | 15,403    |   |  | 10,835    |  
|Tax benefit recognized              |  | (1,039                        | ) |  | (528                        | ) |  | (2,640    | ) |  | (1,459    | )
|                                    |  |                               |   |  |                             |   |  |           |   |  |           |  
|Net Stock-based Compensation Cost   |  | $6,858                        |   |  | $5,229                      |   |  | $12,763   |   |  | $  9,376  |  
|                                    |  |                               |   |  |                             |   |  |           |   |  |           |  

|                                                                                                                                                                                                                                                                                                                                                                                                               |  |  |  |  |  |  |  | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Stock Options  The fair value of the options granted after March 1, 2005 was estimated at the
date of grant using a binomial lattice option-pricing model. Prior to March 1, 2005, the Corporation used the Black-Scholes option-pricing model to estimate the fair value of options at the grant date. The following weighted-average assumptions
were used for options granted during the following periods:

|                                 |  |                               |   |  |                             |   |  |      |   |  |      |  
|-------------------------------- |  | ----------------------------- | - |  | --------------------------- | - |  | ---- | - |  | ---- | -
|                                 |  | Three months ended August 31, |   |  | Six months ended August 31, |  
|                                 |  | 2007                          |   |  | 2006                        |   |  | 2007 |   |  | 2006 |  
|Risk-free interest rates         |  | 4.9                           | % |  | 4.3                         | % |  | 4.4  | % |  | 4.4  | %
|Expected volatility              |  | 35                            | % |  | 43                          | % |  | 35   | % |  | 41   | %
|Dividend yield                   |  | 0                             | % |  | 0                           | % |  | 0    | % |  | 0    | %
|Expected life of options (years) |  | 4.1                           |   |  | 4.0                         |   |  | 4.1  |   |  | 3.9  |  



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



Expected volatilities are based on historical volatility of the Corporations
stock, implied volatilities from traded options on the Corporations stock, and other relevant factors. The Corporation uses historical data to estimate option exercise and employee termination within the valuation model. Separate groups of
employees that have similar exercise behavior and turnover rates are considered separately for valuation purposes. The expected life of the options granted is derived from the output of the option valuation model and represents the period of time
that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option are determined by the U.S. Treasury yields for U.S. dollar options and the Government of Canada benchmark bond yields for
Canadian dollar options in effect at the time of the grant.

During the first quarter of the Corporations fiscal year
2008, the Corporation changed the date which it uses to determine the exercise price of stock awards. Prior to April 16, 2007 the exercise price of stock awards was equal to the closing market price of the Corporations common stock on the
TSX on the trading day immediately preceding the date of grant. Effective April 16, 2007, the exercise price of stock awards is equal to the closing market price of the Corporations common stock on the TSX on the trading day on which the
awards are granted.

Options outstanding that have vested and are expected to vest as of August 31, 2007 are as
follows:



|                             |  |                         |   |  |                                         |  |                                       |  |                                                        
|---------------------------- |  | ----------------------- | - |  | --------------------------------------- |  | ------------------------------------- |  | -------------------------------------------------------
|                             |  | Number of Awards (000s) |   |  | Weighted- average exercise price (in $) |  | Aggregate intrinsic value (1) ($000s) |  | Weighted- average remaining contractual term (in years)
|Outstanding, March 1, 2007   |  | 8,381                   |   |  | $33.55                                  |  | $47,215                               |  | 2.5                                                    
|Granted                      |  | 545                     |   |  | 42.24                                   |  |                                       |  |                                                        
|Cancelled                    |  | (220                    | ) |  | 37.78                                   |  |                                       |  |                                                        
|Exercised                    |  | (335                    | ) |  | 25.70                                   |  |                                       |  |                                                        
|                             |  |                         |   |  |                                         |  |                                       |  |                                                        
|Outstanding, August 31, 2007 |  | 8,371                   |   |  | 37.52                                   |  | 35,812                                |  | 2.3                                                    
|                             |  |                         |   |  |                                         |  |                                       |  |                                                        
|Exercisable, August 31, 2007 |  | 6,068                   |   |  | 37.01                                   |  | 30,824                                |  | 1.8                                                    
|Unvested, August 31, 2007    |  | 2,303                   |   |  | 38.89                                   |  | 4,988                                 |  | 3.6                                                    

---

|(1) | The intrinsic value of an option represents the amount by which the market value of the stock exceeds the exercise price of the option of in-the-money options
only. The aggregate intrinsic value is based on the closing price of $38.11 and $40.03 for the Corporations stock on the NASDAQ on February 28, 2007 and August 31, 2007, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



Additional information with respect to stock option activity is as follows:



|                            |  |  |  |  |  |  |  |                            |   |  |                                               
|--------------------------- |  |  |  |  |  |  |  | -------------------------- | - |  | ----------------------------------------------
|                            |  |  |  |  |  |  |  | Number of Awards (in 000s) |   |  | Weighted- average grant date fair value (in $)
|Unvested at March 1, 2007   |  |  |  |  |  |  |  | 3,078                      |   |  | $11.12                                        
|Granted                     |  |  |  |  |  |  |  | 545                        |   |  | 13.97                                         
|Vested                      |  |  |  |  |  |  |  | (1,175                     | ) |  | 11.71                                         
|Forfeited                   |  |  |  |  |  |  |  | (145                       | ) |  | 11.57                                         
|                            |  |  |  |  |  |  |  |                            |   |  |                                               
|Unvested at August 31, 2007 |  |  |  |  |  |  |  | 2,303                      |   |  | 11.23                                         
|                            |  |  |  |  |  |  |  |                            |   |  |                                               

The weighted-average grant date fair value of options granted during the six month
period ended August 31, 2007 was $13.97 for a total fair value of $7,614,000. Options with a fair value of $13,748,000 vested during the six month period ended August 31, 2007. The total intrinsic value of options exercised during the six
month period ended August 31, 2007 was $5,250,000. The actual tax benefit realized for the tax deductions from option exercises in certain jurisdictions and the deduction of stock-based compensation in others for the six month period ended
August 31, 2007 was $837,000.

As of August 31, 2007, there was $25,702,000 of total unrecognized compensation
cost related to nonvested stock options; that cost is expected to be recognized over a weighted-average period of 1.4 years.

Restricted Share Unit Plan

The Corporation also maintains a Restricted Share Unit Plan in which employees,
officers, and directors of the Corporation and its subsidiaries are eligible to participate. Subject to performance and/or service provisions set out in each participants award agreement, each restricted share unit (RSU)
will be exchangeable for one common share of the Corporation. Performance targets are based on company-wide performance goals such as operating margin and revenue growth. RSUs contingently vest over a period of 1 to 4 years.

The fair value of each RSU is determined on the date of grant based on the value of the Corporations stock on that day. For RSUs
granted based on corporate performance, the Corporation estimates its achievement against the performance goals which are based on the Corporations business plan approved by the Board of Directors. The estimated achievement is updated to
reflect the Corporations outlook for the fiscal year as at the end of each fiscal quarter. Compensation cost is only recognized to the extent that performance goals are achieved.



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##### Table of Contents

COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



The common shares for which RSUs may be exchanged are purchased on the open market by
a trustee appointed and funded by the Corporation. As no common shares will be issued by the Corporation pursuant to the plan, the plan is non-dilutive to existing shareholders.

Activity in the RSU plan for the six month period ended August 31, 2007 was as follows:



|                             |  |                        |   |  |                                        |  |                                                         |  |                          
|---------------------------- |  | ---------------------- | - |  | -------------------------------------- |  | ------------------------------------------------------- |  | -------------------------
|                             |  | Restricted Share Units |   |  | Weighted- Average Grant Day Fair Value |  | Weighted- Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value
|                             |  | (000s)                 |   |  |                                        |  |                                                         |  | ($000)                   
|Outstanding, March 1, 2007   |  | 754                    |   |  | $35.46                                 |  | 3.0                                                     |  | $28,745                  
|Granted                      |  | 493                    |   |  | 42.07                                  |  |                                                         |  |                          
|Vested                       |  | (31                    | ) |  | 30.54                                  |  |                                                         |  |                          
|Forfeited                    |  | (37                    | ) |  | 41.59                                  |  |                                                         |  |                          
|                             |  |                        |   |  |                                        |  |                                                         |  |                          
|Outstanding, August 31, 2007 |  | 1,179                  |   |  | $38.17                                 |  | 3.2                                                     |  | $47,211                  
|                             |  |                        |   |  |                                        |  |                                                         |  |                          

The weighted-average grant date fair value of RSUs granted during the six month
period ended August 31, 2007 was $42.07. The fair value of the Corporations stock at August 31, 2007 was $40.03. The total intrinsic value of RSUs that vested during the six month period ended August 31, 2007 was $1,296,000.

As of August 31, 2007, there was $34,032,000 of total unrecognized compensation cost related to unvested RSUs; that
cost is expected to be recognized over a weighted-average period of 2.7 years.

The Corporation expects to purchase up to
260,000 shares in the upcoming year to meet RSU commitments if certain performance goals are achieved.

Employee Stock
Purchase Plan

The Corporation sponsors the Cognos Employee Stock Purchase Plan (ESPP). A participant
in the ESPP authorizes the Corporation to deduct an amount per pay period that cannot exceed five (5) percent of annual target salary divided by the number of pay periods per year. Deductions are accumulated during each of the
Corporations fiscal quarters (Purchase Period) and, on the first trading day following the end of any Purchase Period, these deductions are applied toward the purchase of common shares. The purchase price per share is at a
10% discount from the simple average of the high and low prices of Cognos stock on the Toronto Stock Exchange, as defined in the plan. As the ESPP is considered a compensatory plan under FAS 123R, the Corporation recognized $37,000 and $85,000 of
ESPP compensation expense in the three and six month periods ended August 31, 2007, respectively and $100,000 and $274,000 for the three and six months periods ended August 31, 2006, respectively.



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



Deferred Share Unit Plan for Non-employee Directors

The Corporation has established a deferred share unit plan for its non-employee directors (DSU Plan). A DSU is a unit,
equivalent in value to a share of the Corporation, credited by means of a bookkeeping entry in the books of the Corporation to an account in the name of the non-employee director. DSUs represent the variable (at risk) component of the
directors compensation. At the end of the directors tenure, the director must redeem the DSUs and, at the option of the Corporation, is either (i) paid the market value of the shares represented by the DSUs, or (ii) receives
the whole number equivalent of the number of DSUs in shares of the Corporation purchased on the open market. A director is required to hold 5,000 DSUs or shares of the Corporation which must be attained within three (3) years of the director
commencing service on the Board. At August 31, 2007, the Corporation had a liability of $6,092,000 in relation to the DSU Plan based on the value of the Corporations stock at that date.



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



|                          |  |                       |   |                         |                          |  |         |   |  |                          |  |                   |  
|------------------------- |  | --------------------- | - | ----------------------- | ------------------------ |  | ------- | - |  | ------------------------ |  | ----------------- | -
|                          |  | As at August 31, 2007 |   | As at February 28, 2007 |                          |  |        
|                          |  | Cost                  |   |                         | Accumulated Amortization |  | Cost    |   |  | Accumulated Amortization |  | Amortization Rate |  
|                          |  | ($000s)               |   | ($000s)                 |                          |  |        
|Acquired technology       |  | $43,107               |   |                         | $36,702                  |  | $43,107 |   |  | $33,758                  |  | 20                | %
|Contractual relationships |  | 10,154                |   |                         | 5,265                    |  | 10,154  |   |  | 4,609                    |  | 12.5              | %
|Trademarks and patents    |  | 8,003                 |   |                         | 4,935                    |  | 7,217   |   |  | 4,344                    |  | 20                | %
|                          |  |                       |   |                         |                          |  |         |   |  |                          |  |                   |  
|                          |  | 61,264                |   |                         | $46,902                  |  | 60,478  |   |  | $42,711                  |  |                   |  
|                          |  |                       |   |                         |                          |  |         |   |  |                          |  |                   |  
|Accumulated amortization  |  | (46,902               | ) |                         |                          |  | (42,711 | ) |  |                          |  |                   |  
|                          |  |                       |   |                         |                          |  |         |   |  |                          |  |                   |  
|Net book value            |  | $14,362               |   |                         |                          |  | $17,767 |   |  |                          |  |                   |  
|                          |  |                       |   |                         |                          |  |         |   |  |                          |  |                   |  

During the three months ended August 31, 2007 and August 31, 2006, there
were additions to trademarks and patents in the amount of $496,000 and $371,000, respectively, and $786,000 and $696,000 in the six months ended August 31, 2007 and August 31, 2006, respectively.

The amortization of trademarks and patents is included in selling, general, and administrative expenses and the amortization of acquired
technology and contractual relationships is included in income as amortization of acquisition-related intangibles. The following table sets forth the allocations:



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



|                                                |  |                               |  |                             |  |        |  |       
|----------------------------------------------- |  | ----------------------------- |  | --------------------------- |  | ------ |  | ------
|                                                |  | Three months ended August 31, |  | Six months ended August 31,
|                                                |  | 2007                          |  | 2006                        |  | 2007   |  | 2006  
|                                                |  | ($000s)                       |  | ($000s)                    
|Amortization of acquisition-related intangibles |  | $1,805                        |  | $1,702                      |  | $3,607 |  | $3,403
|Selling, general, and administrative expenses   |  | 308                           |  | 248                         |  | 590    |  | 490   
|                                                |  |                               |  |                             |  |        |  |       
|Total                                           |  | $2,113                        |  | $1,950                      |  | $4,197 |  | $3,893
|                                                |  |                               |  |                             |  |        |  |       

The estimated amortization expense related to intangible assets in existence as at
August 31, 2007, over the next five years, is as follows ($000s):



|                |  |  |  |   |      
|--------------- |  |  |  | - | -----
|2008 (Q3 to Q4) |  |  |  | $ | 3,574
|2009            |  |  |  |   | 4,194
|2010            |  |  |  |   | 3,403
|2011            |  |  |  |   | 2,503
|2012            |  |  |  |   | 646  
|2013            |  |  |  |   | 42   



|5. | Goodwill
|-- | --------

During
the three months ended August 31, 2007 and August 31, 2006, there were no changes to goodwill. During the six months ended August 31, 2007, there were reductions to goodwill of $5,639,000 as a result of recognizing $5,814,000 of tax
benefits related to the acquisition of Adaytum, Inc., offset by $175,000 of tax liabilities assumed relating to the acquisition of Celequest Corporation (Celequest). During the six months ended August 31, 2006, there were no
changes to goodwill.



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



|                  |  |                               |  |                             |  |          |   |  |         
|----------------- |  | ----------------------------- |  | --------------------------- |  | -------- | - |  | --------
|                  |  | Three months ended August 31, |  | Six months ended August 31,
|                  |  | 2007                          |  | 2006                        |  | 2007     |   |  | 2006    
|                  |  | ($000s)                       |  | ($000s)                    
|Beginning balance |  | $226,455                      |  | $225,709                    |  | $232,094 |   |  | $225,709
|Adjustments       |  |                              |  |                            |  | (5,639   | ) |  |        
|                  |  |                               |  |                             |  |          |   |  |         
|Closing balance   |  | $226,455                      |  | $225,709                    |  | $226,455 |   |  | $225,709
|                  |  |                               |  |                             |  |          |   |  |         



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

Legal Proceedings

During the fiscal quarter ended August 31, 2007, two
separate, unrelated lawsuits were filed against a number of enterprise software companies, including Cognos, for patent infringement. The first case, Diagnostic Systems Corporation v. Oracle, et. al., Case No. SACV07-960 AG (MLGx) was filed on
August 15, 2007, in the United States District Court for the Central District of California. The second case, Juxtacomm Technologies, Inc v. Ascential Software Corporation, et. al., Case No. 2:07-CV-00359-TJW, was filed on August 17,
2007, in the United States District Court for the Eastern District of Texas, Marshall Division. Cognos is investigating the allegations in both lawsuits and intends to defend the cases vigorously. The outcome of these legal proceedings is not
determinable at this time and no provision has been made in the consolidated financial statements.

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

Customer Indemnification

The Corporation has entered into licensing agreements with
customers that include limited intellectual property indemnification clauses. These clauses are typical in the software industry and require the Corporation to compensate the customer for certain liabilities and damages incurred as a result of third
party intellectual property claims arising from these transactions. The Corporation also issues letters of credit for a range of global contingent and firm obligations including insurance, custom obligations, real estate leases, and support
obligations. The Corporation has not made any significant payments as a result of these indemnification clauses or letters of credit and, in accordance with FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others, has not accrued any amounts in relation to these indemnification clauses.



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



|7. | Income Taxes
|-- | ------------

The
Corporation provides for income taxes in its quarterly unaudited financial statements based on its best estimate at the end of the quarter of the effective tax rate expected to be applicable for the full fiscal year in respect of ordinary items. In
addition, the income tax provision in a particular quarter is adjusted for all other items, including significant, unusual, or extraordinary items.

The Corporation estimates its effective tax rate for fiscal 2008 to be 22%, exclusive of any significant, unusual, or extraordinary items that will be separately reported or reported net of their related tax effect.
This estimated effective tax rate was reduced for the three and six-month periods ended August 31, 2007 to 20% and 21%, respectively, due to adjustments related to prior year tax provisions as a result of filing tax returns in certain
jurisdictions. The Corporation estimated its effective tax rate for fiscal 2007 to be 24%, exclusive of all other items. This estimated effective tax rate was reduced for the three and six-month periods ended August 31, 2006 to 21% and 22%,
respectively, due to adjustments related to a modification of an intercompany commercial arrangement and an election in respect of the functional currency of a subsidiary.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken on a tax return, among other items. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Additionally,
in May 2007, the FASB published FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB Interpretation No. 48 (FSP FIN 48-1). FSP FIN 48-1 is an amendment to FIN 48. It clarifies how an enterprise should determine
whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP FIN 48-1 is effective upon the initial adoption of FIN 48.

The Corporation adopted the provisions of FIN 48 on March 1, 2007. As a result of the adoption of FIN 48, the Corporations
cumulative effect adjustment resulted in an increase in income tax liabilities of $18,245,000 with a corresponding decrease in the March 1, 2007 balance of retained earnings of $18,245,000. As of March 1, 2007 the Corporation had
approximately $38,819,000 of unrecognized tax benefits. If recognized, approximately $28,988,000 would impact the effective tax rate.

Upon adoption of FIN 48, the Corporation elected an accounting policy to classify accrued interest related to liabilities for income taxes in income tax expense. Previously, interest related to liabilities for income
taxes was classified as interest expense in arriving at pre-tax income. Penalties related to liabilities for income taxes continue to be classified as income tax expense. At March 1, 2007, the Corporation has accrued approximately $7,483,000
and $3,292,000 for the potential payment of interest and penalties, respectively.



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##### Table of Contents

COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



Applying the recognition and measurement criteria of FIN 48, the total amount of
unrecognized tax benefits and related interest increased by approximately $1,374,000 during the three-month period ending August 31, 2007. This increase consisted of $516,000 for unrecognized tax benefits related to transfer pricing positions
and $858,000 for interest related to unrecognized tax benefits from prior periods. For the six-month period ending August 31, 2007, the total amount of unrecognized tax benefits and related interest increased by approximately $1,122,000 and
$2,023,000, respectively. As of August 31, 2007, the Corporation had approximately $38,436,000 of unrecognized tax benefits. If recognized, approximately $32,455,000 of this amount would impact the effective tax rate.

It is reasonably possible that the amount of unrecognized tax benefits, inclusive of related interest, will change in the next twelve
months. The increase in amount of unrecognized tax benefits relating to transfer pricing positions for the year is expected to be in the range of $2,000,000 to $3,000,000. The amount of interest related to unrecognized tax benefits to be accrued in
the current year in income tax expense is expected to be in the range of $3,000,000 to $5,000,000. These amounts are included in the Corporations estimated effective tax rate for the full year. In addition, depending on the outcome of open
examinations, or as a result of the expiration of statutes of limitations, it is reasonably possible that the amount of unrecognized tax benefits recorded in the Corporations financial statements will also decrease in the next twelve months.
At this time, it is not possible to estimate the amount of such decrease. Any decrease would be recognized as additional tax benefits in the Corporations income statement.

The Corporation or its subsidiaries file income tax returns in Canada, the United States, and various other foreign jurisdictions. These
tax returns are subject to examination by local taxing authorities provided the tax years remain open to audit under the relevant statute of limitations. The Corporation is currently under examination in Canada, for the years 2003, 2004 and 2006,
and in the United Kingdom for the year 2004. The following summarizes the open tax years by major jurisdiction:



|               |  |             
|-------------- |  | ------------
|Canada         |  | 2000 to 2007
|United States  |  | 2004 to 2007
|Barbados       |  | 1998 to 2007
|United Kingdom |  | 2004 to 2007
|Netherlands    |  | 2006 to 2007
|Australia      |  | 2003 to 2007



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

The Corporation issued 87,000 common shares for proceeds of $2,741,000, and 19,000 common shares for proceeds of $576,000 during the three-month periods ended August 31, 2007, and August 31, 2006, respectively. The Corporation
issued 368,000 common shares for proceeds of $9,897,000 and 556,000 common shares for $13,511,000 during the six months ended August 31, 2007 and August 31, 2006, respectively. The issuance of shares in fiscal 2008 and 2007 was
pursuant to the Corporations stock purchase plan and the exercise of stock options by employees, officers and directors.



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



The Corporation repurchases shares in the open market under a share repurchase
program and under a restricted share unit plan. During the three and six months ended August 31, 2007, the Corporation repurchased 5,715,000 shares at a value of $231,027,000 and 6,881,000 shares at a value of $279,046,000, respectively, under
the Corporations share repurchase program. During the six months ended August 31, 2006, the Corporation repurchased 652,000 shares at a value of $24,998,000 under the Corporations share repurchase program, and there were none
repurchased in the three months ended August 31, 2006.

During the three and six months ended August 31, 2007, a
trustee purchased 15,000 shares valued at $583,000 and 617,000 shares valued at $26,408,000, respectively, at the Corporations expense, to honor commitments under the Corporations restricted share unit plan. During both the three and six
months ended August 31, 2006, a trustee purchased 80,000 shares valued at $2,545,000 at the Corporations expense to honor commitments under the Corporations restricted share unit plan.

Net Income per Share

The reconciliation of the numerator and denominator for the calculation of basic and diluted net income per share is as follows:



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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)



(000s except per share amounts)



|                                                       |  |                              |  |                             |  |         |  |        
|------------------------------------------------------ |  | ---------------------------- |  | --------------------------- |  | ------- |  | -------
|                                                       |  | Three months endedAugust 31, |  | Six months ended August 31,
|                                                       |  | 2007                         |  | 2006                        |  | 2007    |  | 2006   
|Basic Net Income per Share                             |  |                              |  |                             |  |         |  |        
|Net income                                             |  | $26,545                      |  | $23,760                     |  | $48,931 |  | $38,298
|                                                       |  |                              |  |                             |  |         |  |        
|Weighted average number of shares outstanding          |  | 85,747                       |  | 89,718                      |  | 87,527  |  | 89,805 
|                                                       |  |                              |  |                             |  |         |  |        
|Basic net income per share                             |  | $0.31                        |  | $0.26                       |  | $0.56   |  | $0.43  
|                                                       |  |                              |  |                             |  |         |  |        
|Diluted Net Income per Share                           |  |                              |  |                             |  |         |  |        
|Net income                                             |  | $26,545                      |  | $23,760                     |  | $48,931 |  | $38,298
|                                                       |  |                              |  |                             |  |         |  |        
|Weighted average number of shares outstanding          |  | 85,747                       |  | 89,718                      |  | 87,527  |  | 89,805 
|Dilutive effect of stock options                       |  | 455                          |  | 503                         |  | 653     |  | 718    
|                                                       |  |                              |  |                             |  |         |  |        
|Adjusted weighted average number of shares outstanding |  | 86,202                       |  | 90,221                      |  | 88,180  |  | 90,523 
|                                                       |  |                              |  |                             |  |         |  |        
|Diluted net income per share                           |  | $0.31                        |  | $0.26                       |  | $0.55   |  | $0.42  
|                                                       |  |                              |  |                             |  |         |  |        



|9. | Comprehensive Income
|-- | --------------------

Comprehensive Income includes net income and other comprehensive income (OCI). OCI refers to changes in net assets from certain 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. OCI includes the foreign currency translation adjustments for subsidiaries that do not use the U.S. dollar as their functional
currency net of gains or losses on derivatives designated as a hedge of the net investment in foreign operations, and the effective portion of cash flow hedges where the hedged item has not yet been recognized in income, and changes in the funded
status of the defined benefits postretirement plan that has not yet been recognized in income. Tax effects of foreign currency translation adjustments pertaining to those subsidiaries are generally included in OCI.



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



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



|                                                                        |  |                               |  |         |                             |  |         |   |  |        
|----------------------------------------------------------------------- |  | ----------------------------- |  | ------- | --------------------------- |  | ------- | - |  | -------
|                                                                        |  | Three months ended August 31, |  |         | Six months ended August 31,
|                                                                        |  | 2007                          |  | 2006    |                             |  | 2006    |   |  | 2006   
|Net income                                                              |  | $26,545                       |  | $23,760 |                             |  | $48,931 |   |  | $38,298
|Other comprehensive income (loss):                                      |  |                               |  |         |                             |  |         |   |  |        
|Foreign currency translation adjustments                                |  | 1,635                         |  | (1,246  | )                           |  | 2,656   |   |  | 135    
|Change in net unrealized loss on derivative instruments                 |  | 141                           |  | 496     |                             |  | 269     |   |  | 324    
|Change in the funded status of the defined benefits postretirement plan |  |                              |  |        |                             |  | (433    | ) |  |       
|                                                                        |  |                               |  |         |                             |  |         |   |  |        
|Comprehensive income                                                    |  | $28,321                       |  | $23,010 |                             |  | $51,423 |   |  | $38,757
|                                                                        |  |                               |  |         |                             |  |         |   |  |        



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

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



|11. | Restructuring Activities
|--- | ------------------------

Margin Improvement Plan

In September 2006, in order to streamline the organization and improve its
operating margin on a long term basis, the Corporation announced a restructuring plan. The plan included a reduction of 204 personnel or 6% of the Corporations global workforce, focused primarily on the elimination of redundant management and
non-revenue-generating positions.

As part of this plan, and in accordance with FASB Statement No. 146, Accounting
for Costs Associated with Exit or Disposal Activities,the Corporation incurred approximately $26,713,000 in total pre-tax charges. Substantially all of the pre-tax charges are one-time employee termination benefits and were included in the
income statement during fiscal 2007 in cost of support, cost of services, selling, general and administrative expenses or research and development expenses, depending on the employees job function. The cash related accrual is included on the
balance sheet as salaries, commissions and related items and the effects of remeasurement of stock-based compensation are included in common shares and additional paid-in-capital. The implementation of the plan has not yet been completed as some
severance packages in France have not yet finalized. As a result, the Corporation could incur additional liabilities. The Corporation expects all payments to be made by the end of its fiscal year 2009.



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



The following table sets forth the activity and the remaining liability for the
Corporations restructuring plan for the six-month period ended August 31, 2007: ($000s)



|                                                         |  |                      |  
|-------------------------------------------------------- |  | -------------------- | -
|                                                         |  | Employee separations |  
|Balance as at February 28, 2007                          |  | $7,582               |  
|Cash payments during the first six months of fiscal 2008 |  | (4,175               | )
|Adjustment                                               |  | (312                 | )
|Foreign exchange adjustment                              |  | 639                  |  
|                                                         |  |                      |  
|Balance as at August 31, 2007                            |  | $3,734               |  
|                                                         |  |                      |  



|12. | New Accounting Pronouncements
|--- | -----------------------------

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (SFAS 157), which defines fair value, establishes guidelines for measuring fair value and expands
disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007. Earlier adoption is permitted. The Corporation is currently evaluating the impact of SFAS 157 on its consolidated results of operations and financial condition. The Corporation does not expect the adoption of
SFAS 157 to have a material impact on its consolidated results of operations and financial condition.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of SFAS No. 115(SFAS 159). This statement permits entities to choose
to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with the FASBs long-term measurement objectives for accounting
for financial instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted, at the same time as SFAS 157. The Corporation is currently evaluating the impact of SFAS 159 on its
consolidated results of operations and financial condition. The Corporation does not expect the adoption of SFAS 159 to have a material impact on its consolidated results of operations and financial condition.

In June 2007, the FASB ratified EITF 07-3, Accounting for NonRefundable Advance Payments for Goods or Services Received for Use in
Future Research and Development Activities(EITF 07-3). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and
capitalized and recognized as an expense as the goods are delivered or the related services are performed. EITF 07-3 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007 and will be adopted in the first
quarter of fiscal 2009. The Corporation is currently evaluating the impact of the pending adoption of EITF 07-3 on its consolidated financial statements.



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COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(All amounts in U.S. dollars, unless otherwise stated)

(In accordance with U.S. GAAP)



|13. | Subsequent Events
|--- | -----------------

Tender offer for Applix, Inc.

On September 4, 2007, the Corporation entered into an Agreement and Plan
of Merger to acquire Applix, Inc., (Applix) a publicly held company (Nasdaq: APLX) based in Westborough, MA which is a leading provider of business analytics software solutions. Under the terms of the agreement, Applix
shareholders will receive $17.87 per common share, or approximately $339,000,000, $306,000,000 net of Applix cash on hand. The Board of Directors of Applix recommended that the shareholders of Applix accept the offer. The acquisition will be
conducted by means of a tender offer for all of the outstanding shares of Applix, followed by a merger of Applix with the Corporations merger subsidiary that will result in Applix becoming an indirect, wholly-owned subsidiary of Cognos. The
Corporation is acquiring Applix primarily to add Applixs software to its product suite.

The commencement and closing
of the tender offer, as well as the completion of the merger, is subject to customary closing conditions and the receipt of anti-trust or merger control approvals. On September 14, 2007, the Corporation was granted early termination of the
mandatory waiting period under the Hart-Scott-Rodino Antitrust Improvements Act. In addition, the Corporations acceptance of tendered shares is subject to the Corporations ownership, following such acceptance, of at least a majority of
all then outstanding shares of Applix on a fully-diluted basis. On September 18, 2007, the Corporation commenced the tender offer for all of the outstanding shares of Applix.

Revolving Credit Facility

On September 28, 2007 the Corporation entered into a five year committed unsecured revolving credit facility (the Credit Facility) with major Canadian and U.S. based banks. The Credit Facility
provides for borrowing up to $200 million which can be drawn in U.S. dollars or Canadian dollars.

The Credit Facility is
available for general corporate purposes. At October 5, 2007, no amount has been drawn on the Credit Facility.



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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)

FORWARD-LOOKING STATEMENTS/SAFE HARBOR

Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the unaudited Consolidated Financial Statements and Notes included in
Item 1 of this Quarterly Report and can also be read in conjunction with the audited Consolidated Financial Statements and Notes, and MD&A contained in our Annual Report on Form 10-K for the fiscal year ended February 28, 2007
(fiscal 2007). Certain statements made in this MD&A that are not based on historical information are forward-looking statements which are made pursuant to the safe harbor provisions of Section 21E of the Securities
Exchange Act of 1934 and Section 138.4(9) of the Ontario Securities Act. Terms and phrases such as, opportunity, expected, plans, aimed at, intends and similar terms and phrases
are intended to identify these forward-looking statements. Such forward-looking statements relate to and include, among other things, our expectations regarding future share purchases; our expectations regarding our future revenues, net income and
earnings; our expectations regarding our pending acquisition of Applix, including its impact on our future revenues and net income and our expectations regarding integration; the contribution of Cognos 8 Business Intelligence (Cognos
8) and Cognos Planning to our revenue, earnings and business; our anticipated tax rates and tax benefits and liabilities; market trends, including the strength of the business intelligence (BI) market; new and
existing product innovations, developments and releases; our sales force structure and model and our relationships with systems integrators and subcontractors; severance payments under our margin improvement plan; the decline in license revenue from
stand alone products replaced by Cognos 8; the growth of performance management (PM) in the software industry; the trend towards and impact of standardization and larger transactions and our ability to execute on them;
consolidation in our industry; foreign currency trends and their effects, including on our business and operating margin; our policy regarding payment of dividends; the adequacy of our capital to meet our requirements; the impact on our financial
statements of investments in asset-backed commercial paper; the strength of our intellectual property protection; the impact of new accounting pronouncements; drivers of growth in the BI market; our investments in personnel and technology; and our
expense management.

These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that
may cause actual results to differ materially from those in the forward-looking statements. Factors that may cause such differences include, but are not limited to, Cognos ability to consummate the pending acquisition of Applix; the conditions
to the completion of the transaction, including a sufficient number of Applix shares being tendered, may not be satisfied, or the regulatory approvals required for the transaction may not be obtained on the terms expected or on the anticipated
schedule; and the combined companies ability to meet expectations regarding the timing, completion and accounting and tax treatments of the merger; the possibility that the combined companies may be unable to achieve expected synergies and
operating efficiencies in the merger within the expected time-frames or at all and to successfully integrate Applixs operations into those of Cognos; such integration may be more difficult, time-consuming or costly than expected; revenues
following the transaction may be lower than expected; operating costs, customer loss and business



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disruption (including, without limitation, difficulties in maintaining relationshipswith employees, customers, clients or suppliers) may be greater than
expected following the transaction; the retention of certain key employees of Applix may be difficult; Cognos and Applix are subject to intense competition and increased competition is expected in the future; Cognos transition to new products
and releases, including Cognos 8 and customer acceptance and implementation of Cognos 8; a continuing increase in the number of larger customer transactions and the related lengthening of sales cycles and challenges in executing on these sales
opportunities; the incursion of enterprise resource planning and other major software companies into the BI market; continued BI and software market consolidation and other competitive changes in the BI and software market; the planning and
cooperation required to install and operate our products in complex business environments; our ability to maintain or accurately forecast revenue or to anticipate and accurately forecast a decline in revenue from any of our products or services; our
ability to identify, hire, train, motivate, retain, and incent highly qualified management/other key personnel (including sales personnel) and our ability to manage changes and transitions in management/other key personnel; fluctuations in our
quarterly and annual operating results; currency fluctuations; our ability to develop, introduce and implement new products as well as enhancements or improvements for existing products that respond, in a timely fashion, to customer/product
requirements and rapid technological change; risks associated with our international operations, such as the impact of the laws, regulations, rules and pronouncements of jurisdictions outside of Canada and their interpretation by courts, tribunals,
regulatory and similar bodies of such jurisdictions; our ability to identify, pursue, and complete acquisitions with desired business results; the effect of new accounting pronouncements or guidance, including the impact of FAS 123R; the impact of
pending litigation; unauthorized use or misappropriation of our intellectual property; the effect of potential liability claims if our products or services fail to perform as intended; fluctuations in our tax exposure; as well as the risk factors
discussed previously and in other periodic reports filed with the Securities and Exchange Commission (SEC) and the Canadian Securities Administrators (CSA). Readers should not place undue reliance
on any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation to publicly update or revise any such statement to reflect any change in our expectations or in events, conditions, or circumstances on
which any such statements may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements.

We prepare and file our consolidated financial statements and the MD&A in United States (U.S.) dollars and in accordance with U.S. Generally Accepted Accounting Principles
(GAAP), unless otherwise stated. As the Corporation is also a reporting issuer in each of the provinces of Canada and is incorporated under the Canada Business Corporations Act (CBCA), it historically has
been required to prepare Canadian GAAP financial statements for its shareholders. Amendments to provincial securities laws and the CBCA allow the Corporation to report solely under U.S. GAAP to its shareholders.

Discussion of Non-GAAP Financial Measures

In
addition to our GAAP results, Cognos discloses adjusted operating margin percentage, net income and net income per share, referred to respectively as non-GAAP operating margin percentage, non-GAAP net income, and
non-GAAP net income per diluted share. These items, which are collectively referred to as Non-GAAP Measures, exclude the impact of stock-based compensation, the amortization of acquisition-related intangible
assets and the restructuring charges related to our margin improvement plan implemented in the third quarter of fiscal 2007, (collectively Excluded Items) as these charges are considered non-recurring. From time to time, subject
to the review and approval of the audit committee of the Board of Directors, management may make other adjustments for revenues, expenses, gains and losses that it does not consider reflective of core operating performance in a particular period and
may modify the Non-GAAP Measures by adjusting these revenues, expenses, gains and losses. Management makes these adjustments so that core operating performance reflects managements business activities as well as changes within the software
industry.



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Management defines its core operating performance to be the revenues recorded in a particular period and
the expenses incurred within that period which management has the capability of directly affecting in order to drive operating income. The Excluded Items are excluded from our core operating performance because the decisions which gave rise to these
expenses were not made to drive revenue in a particular period, but rather were made for our long-term benefit over multiple periods. While strategic decisions, such as the decisions to issue stock-based compensation, to acquire a company or to
restructure the organization, are made to further our long-term strategic objectives and do impact our income statement under GAAP, these items affect multiple periods and management is not able to change or affect these items within any particular
period. Therefore, management excludes these impacts in its planning, monitoring, evaluation and reporting of our underlying revenue-generating operations for a particular period.

Prior to the adoption of FAS 123R on March 1, 2006, the beginning of our fiscal year 2007, managements practice was to exclude stock-based compensation internally to evaluate
performance. With the adoption of FAS 123R, management concluded that the Non-GAAP Measures could provide relevant disclosure to investors as contemplated by Staff Accounting Bulletin 107. As of the beginning of our fiscal year 2007, management also
began excluding amortization of acquisition-related intangible assets when assessing appropriate adjustments for non-GAAP presentations. While both of these items are recurring and affect GAAP net income, management does not use them to assess the
business operational performance for any particular period because: each item affects multiple periods and is unrelated to business performance in a particular period; management is not able to change either item in any particular period; and
neither item contributes to the operational performance of the business for any particular period.

In the case of stock-based
compensation, as disclosed in our Annual Report on Form 10-K, Item 11, (which incorporates by reference the Corporations Proxy Statement, specifically the Compensation Discussion and Analysis) for the fiscal year ended February 28,
2007 (2007 Form 10-K), our compensation strategy is to use stock-based compensation as a key tool to align management to make strategic decisions and to manage Cognos with a view to increasing shareholder value through an
increase in Cognos share price over the medium and long-term. Whether the grant of stock options or restricted share units are part of a Key Employee grant, are merit based or are granted based on meeting specific performance criteria in
a measurement period, these grants vest over time and are aimed at long-term employee retention, rather than at motivating or rewarding operational performance for any particular period. Thus, stock-based compensation expense varies for reasons that
are generally unrelated to operational performance in any particular period. We use annual cash bonus payouts for executives and other employees to motivate and reward annual operational performance in the areas of revenue and operating margin
achievement. Since the beginning of fiscal year 2007, we have measured operating margin achievement on a non-GAAP basis, excluding stock-based compensation and amortization of acquisition-related intangible asset expenses.

Management views amortization of acquisition-related intangible assets, such as the amortization of an acquired companys research and development
efforts, customer lists and customer relationships, as items arising during the time that preceded the acquisition. It is a cost that is determined at the time of the acquisition. While it is continually viewed for impairment, amortization of the
cost is a static expense, one that is typically not affected by operations during any particular period, and does not contribute to operational performance in any particular period.



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The margin improvement plan reflected a fundamental realignment of our business, including significant
personnel reductions within higher levels of management. The restructuring charges are excluded in our Non-GAAP Measures because they are significantly different in magnitude and character from routine personnel adjustments that management makes
when monitoring and conducting the Corporations core operations during any particular period. The restructuring decision and related expenses are not related to operating performance for any particular period, and are not subject to change by
management in any particular period. Instead, the restructuring was intended to align our business model and expense structure to our position in the market we were experiencing, and expect to continue to experience, over the long term.

Management also uses these Non-GAAP Measures to operate the business because the excluded expenses are not under the control of, and, accordingly, not
used in evaluating the performance of, operations personnel within their respective areas of responsibility. In the case of stock-based compensation expense, the award of stock options is governed by the Human Resources and Compensation Committee of
the Board of Directors. With respect to acquisition-related intangible assets and charges associated with the margin improvement plan, these charges arise from acquisitions and a restructuring that are the result of strategic decisions which are not
the responsibility of most levels of operational management. The restructuring charges, like our stock-based compensation charges and amortization of acquisition-related intangible assets, are excluded in managements internal evaluations of
our operating results and are not considered for management compensation purposes.

Ultimately, the Excluded Items are incurred to further
our long-term strategic objectives, rather than to achieve operational performance objectives for any particular period. As such, supplementing GAAP disclosure with non-GAAP disclosure using the Non-GAAP Measures provides management with an
additional view of operational performance by adjusting revenues, expenses, gains and losses that are not directly related to performance in any particular period. Further, management considers this supplemental information to be beneficial to
shareholders because it shows our operating performance without the impact of charges that are largely unrelated to the performance of our underlying revenue-generating operations during the period in which the charges are recorded. Including such
disclosure in our filings also provides investors with greater transparency on period-to-period performance and the manner in which management views, conducts and evaluates the business.

Because the Non-GAAP Measures are not calculated in accordance with GAAP, they are used by management as a supplement to, and not an alternative to, or superior to, financial measures calculated
in accordance with GAAP. There are a number of limitations on the Non-GAAP Measures, including the following:



| |  |  | The Non-GAAP Measures do not have standardized meanings and may not be comparable to similar non-GAAP measures used or reported by other software companies.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Non-GAAP Measures do not reflect all costs associated with our operations determined in accordance with GAAP. For example:
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Non-GAAP operating margin performance and non-GAAP net income do not include stock-based compensation expense related to equity awards granted to our workforce.
Cognos stock incentive plans are important components of our employee incentive compensation arrangements and are reflected as expenses in our GAAP results under FAS 123R. While we include the dilutive impact of such equity awards in weighted
average shares outstanding, the expense associated with stock-based awards is excluded from our Non-GAAP Measures.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | While amortization of acquisition-related intangible assets does not directly impact our current cash position, such expense represents the declining value of
the technology or other intangible assets that we have acquired. These assets are amortized over their respective expected economic lives or impaired, if appropriate. The expense associated with this decline in value is excluded from our non-GAAP
disclosures and therefore our Non-GAAP Measures do not include the costs of acquired intangible assets that supplement our research and development.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Restructuring charges primarily represent severance charges associated with our margin improvement plan, which was implemented in the third quarter of fiscal
2007. These charges are a significant expense from a GAAP perspective and the costs associated with the restructuring would be operational in nature absent the margin improvement plan. Most of the charges are cash expenditures which are excluded
from our Non-GAAP Measures.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Excluded expenses for stock-based compensation and amortization of acquisition-related intangible assets will recur and will impact our GAAP results. While
restructuring costs are non-recurring activities, their occasional occurrence will impact GAAP results. As such, the Non-GAAP Measures should not be construed as an inference that the excluded items are unusual, infrequent or non-recurring.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because of these limitations, management recognizes that the Non-GAAP Measures should not be considered in isolation or
as an alternative to our results as reported under GAAP. Management compensates for theses limitations by relying on the Non-GAAP Measures only as a supplement to our GAAP results.

ABOUT COGNOS

Cognos, the world leader in business intelligence and performance management solutions,
provides world-class enterprise planning and BI software and services to help companies plan, understand, and manage financial and operational performance.

Cognos brings together technology, analytical applications, best practices, and a broad network of partners to give customers a complete performance system. The Cognos performance system is an open and adaptive
solution that leverages an organizations ERP, packaged applications, and database investments. It gives customers the ability to answer the questions  How are we doing? Why are we on or off track? What should we do about it?  and
enables them to understand and monitor current performance while planning future business strategies.

Cognos serves more than 23,000
customers in more than 135 countries, and its top 100 enterprise customers consistently outperform market indexes. Cognos performance management solutions and services are also available from more than 3,000 worldwide partners and resellers.



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Our strategy is to take a leadership role in performance management (PM), anchored by
the two pillars of that marketBusiness Intelligence (BI) and Financial Performance Management (FPM). Our revenue is derived primarily from the licensing of our software and the provision of related
services for BI and FPM solutions. These related services include product support, education, and consulting. We generally license software and provide services subject to terms and conditions consistent with industry standards. For an annual fee,
customers may contract with us for product support services, which include product and documentation enhancements, as well as tele-support and web-support.

OVERVIEW OF THE QUARTER

We delivered solid financial results for the second quarter of fiscal 2008. Highlighting these
results were growth in total revenue of 10% and earnings per share of 19% compared to the second quarter of the prior year. The growth in revenue was led by significant increases in our license and product support revenues, which were both up 12%,
when compared to the corresponding period last year. Our earnings per share and net income for the quarter were negatively affected by a strong Canadian dollar which increased against the U.S. dollar; this decrease was more than offset by increases
in revenue on a local currency basis, as well as the positive effects of changes in other currencies, such as the euro. We increased our focus on expense management given the negative impact of the exchange rate fluctuations. Our earnings per share
was also affected by a reduction in the number of outstanding shares, a result of the purchase and cancellation of common shares under our Share Repurchase Programs.

Operating Performance

Revenue for the three-month period ended August 31, 2007 was $252.4
million, an increase of 10% from $229.9 million for the corresponding period last year. License revenue increased 12% to $87.0 million, compared with $78.0 million in the second quarter last fiscal year. License revenue was up due to a combination
of factors including increased sales capacity as we ended the quarter with 411 sales representatives, overall larger average order sizes and the effects of foreign exchange. Product support revenue increased 12% to $115.2 million as we continue to
expand our customer base and experience solid renewal rates. Services revenue also contributed to the growth in revenue during the quarter, increasing 3% to $50.2 million from $48.6 million for the same quarter last year.

We signed 9 contracts in excess of one million dollars during the quarter, compared with 10 contracts in the corresponding period last year. The number
of contracts greater than $200,000 increased 8% while contracts greater than $50,000 decreased 4% compared to the corresponding period last year. Average license order size for orders greater than $50,000 was $205,000 for the three months ended
August 31, 2007, compared to $181,000 in the corresponding period last year. We believe that order size is an indication of the scale of investment our customers are making in our products. These larger investments create a foundation for
future growth as it enables us to generate additional software licensing revenue and ongoing maintenance renewals.

Net income for the
three-month period ended August 31, 2007 was $26.5 million or $0.31 per diluted share compared to net income of $23.8 million or $0.26 per diluted share for the same period last year, representing an increase in net income of 12% and an
increase in earnings per share of 19%. The increase in net income for the quarter was primarily due to an increase in revenue, particularly in our higher margin license and product support revenues, as well as the benefit of the strength in most
foreign currencies against the U.S. dollar. The increase in revenue was partially offset by the unfavorable effect of foreign currency on expenses, predominantly the stronger Canadian dollar, and an increase in our selling, general and
administrative costs. The percentage increase in earnings per share is significantly greater than the percentage increase in net income as a result of our repurchase and cancellation of over 8.9 million shares, under the 2006 Share Repurchase
Program, during the previous 4 quarters.



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Non-GAAP net income for the three months ended August 31, 2007 was $34.7 million and non-GAAP net
income per diluted share was $0.40 compared to non-GAAP net income of $30.0 million and non-GAAP net income per diluted share of $0.33 for the corresponding period last year. The Non-GAAP Measures presented herein, including non-GAAP net income,
exclude the impact of stock-based compensation, the amortization of acquisition-related intangible assets, and restructuring charges. Management uses the Non-GAAP Measures to measure core operating performance in individual periods.
Managements use of the Non-GAAP Measures is further discussed in the section entitled Discussion of Non-GAAP Financial Measures and a reconciliation between the Non-GAAP Measures and the most closely related GAAP measure is
included in the section entitled Non-GAAP Financial Measures.

Our balance sheet remains strong, ending the quarter with
$439.4 million in cash, cash equivalents, and short-term investments. This represents a decrease of $214.6 million from May 31, 2007, primarily attributable to the repurchase of $231.0 million of our own shares as part of the Share Repurchase
Program.

Recent Announcements

On
September 5, 2007, we announced that we had entered into a definitive agreement to acquire all of the outstanding shares of Applix, Inc. (Applix). With this acquisition, we expect to further extend our position as a leading
independent provider of business intelligence and financial performance management solutions. The planned acquisition is a cash tender offer of $17.87 per share, which equates to approximately $339.0 million or $306.0 million net of Applix cash on
hand. The transaction is subject to the receipt of regulatory approvals and other customary closing conditions. We expect the acquisition to be completed in the fourth quarter of calendar 2007.

During the quarter, we announced an amendment to the stock repurchase program which commenced on October 10, 2006. The amended program increases the
maximum amount authorized to be expended from U.S. $200.0 million to U.S. $400.0 million and the maximum number of shares that may be purchased by the Corporation from 8,000,000 to 8,934,000 common shares (which represents approximately
10% of the Corporations public float as of September 20, 2006). We initiated the stock repurchase program as we are of the view that from time to time the market price of our common shares does not adequately reflect the underlying value
of our Corporations business.

Also during the quarter we were honored to win two awards. The International Stevie® Award for
Best Product Development Team recognized the Cognos product development team for its R&D initiatives in the past year, particularly for the innovative development of the Cognos 8 Go! consumer modes. The Cognos 8 Go! product is an extension to
the Cognos 8 Business Intelligence platform. The consumer modes, including Cognos 8 Go! Mobile, Cognos 8 Go! Search, and Cognos 8 Go! Office, help improve decision-making and increase business intelligence user adoption rates within an organization
by permitting users to view and consume reports, analyses, and other BI content using familiar applications or devices, such as the BlackBerry® wireless platform from Research in Motion Limited, search engines, MS Office applications, or Web
browsers. The other award was the Best Midmarket Strategy award announced at the Midsize Enterprise Summit Europe Event. We believe this is a validation of our vision to help customers of all sizes drive business performance. With our
new Cognos Now! solution, we can provide mid-market customers with immediate visibility and insight into how their business is performing at a lower total cost of ownership.



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On September 10, 2007, we announced the expansion of our strategic relationship with Informatica
Corporation, a leading provider of data integration and data quality software, by signing a worldwide reseller agreement for Informaticas data quality software. The two companies have also agreed to expand their go-to-market cooperation in the
field of data integration to provide customers with complete best-of-breed solutions.

On September 27, 2007, we announced the
adoption of a share repurchase program which will commence on October 10, 2007 and end on October 9, 2008 (the 2007 Share Repurchase Program). The program allows Cognos to repurchase up to 6,000,000 common shares (which
is approximately 7% of the common shares outstanding on that date) provided that no more than $200.0 million is expended in total under the program.

On September 28, 2007, we entered into a five year committed unsecured revolving credit facility (the Credit Facility) with major Canadian and U.S. based banks. The Credit Facility provides for
borrowing up to $200.0 million which can be drawn in U.S. dollars or Canadian dollars.

Outlook for the balance of the fiscal year

We continue to expect revenue, net income, and earnings per share to increase for the full fiscal year when compared to fiscal 2007. We believe that the
BI and FPM markets remain strong and that we will benefit from the Cognos 8 product cycle in the upcoming year. We believe that the acquisition of Applix, if closed in fiscal 2008, will result in increased revenues and a slight dilution to net
income per share.

With the strength of our solution portfolio, we believe that we are well positioned to benefit from license revenue from
new customers as well as to provide existing customers with the opportunity to add to their current BI and FPM capabilities. We believe that Cognos 8 will continue to make a significant contribution to fiscal 2008 license revenue and the recent
announcements of Cognos 8 Controller and Cognos 8 Planning position us well to take advantage of a healthy market for financial performance management solutions. We will continue to focus on bringing innovative new products to market and we continue
to develop new releases of our products.

We also expect the Applix acquisition to close in the second half of fiscal 2008; this will drive
an increase in revenues and expenses above the current trend for Cognos on a stand alone basis. If the Applix acquisition is completed in the current year, our cash, cash equivalents, and short term investments will be reduced by approximately
$306.0 million.

The BI and performance management markets continue to be very competitive and we expect our competitors to continue to
improve the performance of their current products and to introduce new products (or integrated products) or new technologies to compete with our strong product portfolio. In addition, the software market continues to consolidate by acquisition and
larger software vendors, including ERP software vendors, may continue to expand their product offering into our markets, creating stronger competitors.



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In the first two quarters of fiscal 2008, the Canadian dollar continued to strengthen against the U.S.
dollar. If this trend continues through fiscal 2008, it will continue to put pressure on our business and operating margin percentage because a significant amount of our expenses are incurred in Canadian dollars. Accordingly, we will continue to
manage our spending in an effort to mitigate the impact of foreign exchange changes on our operating performance.

RESULTS
OF OPERATIONS

Recently Adopted Accounting Principle

On March 1, 2007, the Corporation adopted FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
Accounting for Income Taxes (FIN 48). As a result of the adoption of FIN 48, in accordance with the provisions of FIN 48, the Corporations cumulative effect adjustment resulted in an increase in income tax liabilities
of $18.2 million with a corresponding decrease in the March 1, 2007 balance of retained earnings of $18.2 million. Upon adoption of FIN 48, the Corporation has elected an accounting policy to classify accrued interest related to liabilities for
income taxes in income tax expense. Previously, interest related to liabilities for income taxes was classified as interest expense in arriving at pre-tax income. Penalties related to liabilities for income taxes continue to be classified as income
tax expense.



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GAAP Operating Performance



|                                 |  |                              |   |                               |                            |                            |  |                   |   |  |           |   |  |              |  |             
|-------------------------------- |  | ---------------------------- | - | ----------------------------- | -------------------------- | -------------------------- |  | ----------------- | - |  | --------- | - |  | ------------ |  | ------------
|(000s, except per share amounts) |  | Three months endedAugust 31, |   |                               | Six months endedAugust
31, |                            |  | Percentage Change
|                                 |  |                              |   | Three months ended August 31, |                            | Six Months endedAugust 31,
|                                 |  | 2007                         |   |                               | 2006                       |                            |  | 2007              |   |  | 2006      |   |  | 2006 to 2007 |  | 2006 to 2007
|Revenue                          |  | $252,367                     |   |                               | $229,890                   |                            |  | $489,021          |   |  | $446,930  |   |  | 9.8%         |  | 9.4%        
|Cost of revenue                  |  | 52,841                       |   |                               | 52,634                     |                            |  | 106,652           |   |  | 103,134   |   |  | 0.4          |  | 3.4         
|                                 |  |                              |   |                               |                            |                            |  |                   |   |  |           |   |  |              |  |             
|Gross margin                     |  | 199,526                      |   |                               | 177,256                    |                            |  | 382,369           |   |  | 343,796   |   |  | 12.6         |  | 11.2        
|Operating expenses               |  | 172,398                      |   |                               | 153,552                    |                            |  | 334,557           |   |  | 306,124   |   |  | 12.3         |  | 9.3         
|                                 |  |                              |   |                               |                            |                            |  |                   |   |  |           |   |  |              |  |             
|Operating income                 |  | $  27,128                    |   |                               | $  23,704                  |                            |  | $  47,812         |   |  | $  37,672 |   |  | 14.4         |  | 26.9        
|Gross margin percentage          |  | 79.1                         | % |                               | 77.1                       | %                          |  | 78.2              | % |  | 76.9      | % |  |              |  |             
|Operating margin percentage      |  | 10.7                         | % |                               | 10.3                       | %                          |  | 9.8               | % |  | 8.4       | % |  |              |  |             
|                                 |  |                              |   |                               |                            |                           
|Net income                       |  | $  26,545                    |   |                               | $  23,760                  |                            |  | $  48,931         |   |  | $  38,298 |   |  | 11.7         |  | 27.8        
|                                 |  |                              |   |                               |                            |                            |  |                   |   |  |           |   |  |              |  |             
|Basic net income per share       |  | $0.31                        |   |                               | $0.26                      |                            |  | $0.56             |   |  | $0.43     |   |  |              |  |             
|                                 |  |                              |   |                               |                            |                            |  |                   |   |  |           |   |  |              |  |             
|Diluted net income per share     |  | $0.31                        |   |                               | $0.26                      |                            |  | $0.55             |   |  | $0.42     |   |  |              |  |             
|                                 |  |                              |   |                               |                            |                            |  |                   |   |  |           |   |  |              |  |             

Revenue for the quarter ended August 31, 2007 was $252.4 million, a 10% increase from revenue
of $229.9 million for the same quarter last year. Net income for the current quarter was $26.5 million, compared to net income of $23.8 million for the same quarter last year, an increase of 12%. Basic and diluted net income per share was $0.31 for
the current quarter, compared to basic and diluted net income per share of $0.26 for the same quarter last year.

Revenue for the six
months ended August 31, 2007 was $489.0 million, a 9% increase from revenue of $446.9 million for the same period last year. Net income for the current six-month period was $48.9 million, compared to net income of $38.3 million for the same
period last year, an increase of 28%. Diluted net income per share was $0.55 for the current six-month period, compared to diluted net income per share of $0.42 for the same period last year. Basic net income per share was $0.56 and $0.43 for the
six-month periods ended August 31, 2007 and August 31, 2006, respectively.

Gross margin for the three months ended
August 31, 2007 was $199.5 million, an increase of 13% over gross margin of $177.3 million for the same quarter last year. Gross margin percentage was 79.1% for the quarter ended August 31, 2007, compared to 77.1% for the corresponding
quarter last fiscal year. Gross margin for the six months ended August 31, 2007 was $382.4 million, an increase



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of 11% over gross margin of $343.8 million for the same period last year. Gross margin percentage for the
six months ended August 31, 2007 was 78.2% compared to 76.9% for the corresponding period last year. The increase in gross margin percentage is attributable to growth in total revenue of 9.4% compared to a 3.4% increase in total cost of revenue
for the six-month period ended August 31, 2007 as a result of a shift in revenue mix towards higher margin license and product support revenue.

Total operating expenses for the quarter ended August 31, 2007 were $172.4 million, a 12% increase from operating expenses of $153.6 million for the same quarter last year. The operating margin for the quarter
ended August 31, 2007 was 10.7% compared to 10.3% for the corresponding quarter of the previous fiscal year. Total operating expenses for the six months ended August 31, 2007 were $334.6 million, a 9% increase from operating expenses of
$306.1 million for the same period last year. Operating margin for the six months ended August 31, 2007 was 9.8% compared to 8.4% for the same period last year. The increase in operating margin for the three and six-month periods ended
August 31, 2007 is primarily attributable to strong growth in all of our revenue streams. The growth in operating margin was partially off-set by increased SG&A costs, principally additional personnel related costs and fluctuations in
foreign currency.

The increase in net income for the three and six months ended August 31, 2007, compared to the same periods in the
prior fiscal year, is primarily due to increased operating income discussed above, however, also contributing to the increase in net income was higher interest and other income for the six month period.

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



|                                       |  |                                              |  |                                            |  |           |  |                                |  |                 |  |          
|-------------------------------------- |  | -------------------------------------------- |  | ------------------------------------------ |  | --------- |  | ------------------------------ |  | --------------- |  | ---------
|                                       |  | Three Months Ended August 31, 2007 over 2006 |  | Six Months Ended August 31, 2007 over 2006
|                                       |  | GrowthExcludingForeignExchange               |  | ForeignExchange                            |  | NetChange |  | GrowthExcludingForeignExchange |  | ForeignExchange |  | NetChange
|Revenue                                |  | 6.6%                                         |  | 3.2 %                                      |  | 9.8%      |  | 6.2%                           |  | 3.2 %           |  | 9.4%     
|Cost of Revenue and Operating Expenses |  | 5.3%                                         |  | 3.9 %                                      |  | 9.2%      |  | 4.3%                           |  | 3.5 %           |  | 7.8%     
|Operating Income                       |  | 17.9%                                        |  | (3.5)%                                     |  | 14.4%     |  | 27.3%                          |  | (0.4)%          |  | 26.9%    



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Non-GAAP Financial Measures

The Non-GAAP Measures presented herein, including non-GAAP net income, exclude the impact of stock-based compensation, the amortization of acquisition-related intangible assets, and restructuring charges. Management
uses the Non-GAAP Measures to measure core operating performance in individual periods. Managements use of the Non-GAAP Measures is further discussed in the section entitled Discussion of Non-GAAP Financial Measures and a
reconciliation between the Non-GAAP Measures and the most closely related GAAP measures is included in this section.



|                                      |  |                              |   |                               |                            |                             |  |                   |   |  |         |   |  |              |  |             
|------------------------------------- |  | ---------------------------- | - | ----------------------------- | -------------------------- | --------------------------- |  | ----------------- | - |  | ------- | - |  | ------------ |  | ------------
|(000s, except per share amounts)      |  | Three months endedAugust 31, |   |                               | Six months endedAugust 31, |                             |  | Percentage Change
|                                      |  |                              |   | Three months ended August 31, |                            | Six Months ended August
31,
|                                      |  | 2007                         |   |                               | 2006                       |                             |  | 2007              |   |  | 2006    |   |  | 2006 to 2007 |  | 2006 to 2007
|Non-GAAP Operating Income             |  | $36,781                      |   |                               | $31,163                    |                             |  | $66,510           |   |  | $51,910 |   |  | 18.0%        |  | 28.1%       
|Non-GAAP Operating Margin             |  | 14.6                         | % |                               | 13.6                       | %                           |  | 13.6              | % |  | 11.6    | % |  |              |  |             
|Non-GAAP Net Income                   |  | $34,666                      |   |                               | $30,045                    |                             |  | $63,886           |   |  | $49,806 |   |  | 15.4         |  | 28.3        
|Non-GAAP Net Income per Diluted Share |  | $0.40                        |   |                               | $0.33                      |                             |  | $0.72             |   |  | $0.55   |   |  |              |  |             

Non-GAAP operating margin for the quarter ended August 31, 2007 was 14.6% compared to 13.6%
for the corresponding quarter of the previous fiscal year. Non-GAAP operating margin for the six months ended August 31, 2007 was 13.6% compared to 11.6% for the same period last year.

Non-GAAP net income for the current quarter was $34.7 million, compared to $30.0 million for the same quarter last year. Non-GAAP net income per diluted share was $0.40 for the current quarter,
compared to non-GAAP net income per diluted share of $0.33 for the same quarter last year. Non-GAAP net income for the current six-month period was $63.9 million, compared to $49.8 million for the same period last year. Non-GAAP net income per
diluted share was $0.72 for the current six-month period, compared to non-GAAP net income per diluted share of $0.55 for the same period last year.

The factors driving the increase in non-GAAP operating margin and non-GAAP net income for the three and six months ended August 31, 2007, compared to the same period in the prior fiscal year, were the same factors affecting the related
GAAP metrics described in the GAAP Operating Performance above. Non-GAAP operating margin and Non-GAAP net income also grew incrementally as both stock-based compensation and amortization of acquisition related intangible assets grew compared to the
same periods in the prior year.



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The following tables reflect Cognos Non-GAAP results reconciled to GAAP results:



|                                                                           |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|-------------------------------------------------------------------------- |  | ---------------------------- | - |  | -------------------------- | - |  | ---- | ------ | - | ---- | - | ------ | -
|                                                                           |  | Three months endedAugust 31, |   |  | Six months endedAugust 31, |  
|                                                                           |  | 2007                         |   |  | 2006                       |   |  | 2007 |        |   | 2006 |  
|Operating Income                                                           |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|GAAP Operating Income                                                      |  | $27,128                      |   |  | $23,704                    |   |  | $    | 47,812 |   |      | $ | 37,672 |  
|Plus:                                                                      |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Amortization of acquisition-related intangible assets                      |  | 1,805                        |   |  | 1,702                      |   |  |      | 3,607  |   |      |   | 3,403  |  
|Stock-based compensation expense                                           |  | 7,897                        |   |  | 5,757                      |   |  |      | 15,403 |   |      |   | 10,835 |  
|Restructuring charge                                                       |  | (49                          | ) |  |                           |   |  |      | (312   | ) |      |   |       |  
|                                                                           |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Non-GAAP Operating Income                                                  |  | $36,781                      |   |  | $31,163                    |   |  | $    | 66,510 |   |      | $ | 51,910 |  
|                                                                           |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Operating Margin Percentage                                                |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|GAAP Operating Margin Percentage                                           |  | 10.7                         | % |  | 10.3                       | % |  |      | 9.8    | % |      |   | 8.4    | %
|Plus:                                                                      |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Amortization of acquisition-related intangible assets                      |  | 0.8                          |   |  | 0.8                        |   |  |      | 0.7    |   |      |   | 0.8    |  
|Stock-based compensation expense                                           |  | 3.1                          |   |  | 2.5                        |   |  |      | 3.2    |   |      |   | 2.4    |  
|Restructuring charge                                                       |  |                             |   |  |                           |   |  |      | (0.1   | ) |      |   |       |  
|                                                                           |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Non-GAAP Operating Margin Percentage                                       |  | 14.6                         | % |  | 13.6                       | % |  |      | 13.6   | % |      |   | 11.6   | %
|                                                                           |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Net Income                                                                 |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|GAAP Net Income                                                            |  | $26,545                      |   |  | $23,760                    |   |  | $    | 48,931 |   |      | $ | 38,298 |  
|Plus:                                                                      |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Amortization of acquisition-related intangible assets                      |  | 1,805                        |   |  | 1,702                      |   |  |      | 3,607  |   |      |   | 3,403  |  
|Stock-based compensation expense                                           |  | 7,897                        |   |  | 5,757                      |   |  |      | 15,403 |   |      |   | 10,835 |  
|Restructuring charge                                                       |  | (49                          | ) |  |                           |   |  |      | (312   | ) |      |   |       |  
|Less:                                                                      |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Income tax effect of amortization of acquisition-related intangible assets |  | (610                         | ) |  | (646                       | ) |  |      | (1,220 | ) |      |   | (1,271 | )
|Income tax effect of stock-based compensation expense                      |  | (1,039                       | ) |  | (528                       | ) |  |      | (2,640 | ) |      |   | (1,459 | )
|Income tax effect of restructuring charge                                  |  | 117                          |   |  |                           |   |  |      | 117    |   |      |   |       |  
|                                                                           |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Non-GAAP Net Income                                                        |  | $34,666                      |   |  | $30,045                    |   |  | $    | 63,886 |   |      | $ | 49,806 |  
|                                                                           |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Net Income per diluted share                                               |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|GAAP Net Income per diluted share                                          |  | $0.31                        |   |  | $0.26                      |   |  |      | $0.55  |   |      |   | $0.42  |  
|Plus:                                                                      |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Amortization of acquisition-related intangible assets                      |  | 0.02                         |   |  | 0.02                       |   |  |      | 0.04   |   |      |   | 0.04   |  
|Stock-based compensation expense                                           |  | 0.09                         |   |  | 0.06                       |   |  |      | 0.17   |   |      |   | 0.12   |  
|Less:                                                                      |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Income tax effect of amortization of acquisition-related intangible assets |  | (0.01                        | ) |  | (0.01                      | ) |  |      | (0.01  | ) |      |   | (0.01  | )
|Income tax effect of stock-based compensation expense                      |  | (0.01                        | ) |  |                           |   |  |      | (0.03  | ) |      |   | (0.02  | )
|                                                                           |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Non-GAAP Net Income per diluted share                                      |  | $0.40                        |   |  | $0.33                      |   |  |      | $0.72  |   |      |   | $0.55  |  
|                                                                           |  |                              |   |  |                            |   |  |      |        |   |      |   |        |  
|Shares used in computing diluted net income per share                      |  | 86,202                       |   |  | 90,221                     |   |  |      | 88,180 |   |      |   | 90,523 |  



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Percentage of Revenue Table

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 compared to the indicated prior period.



|                                                      |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|----------------------------------------------------- |  | ---------------------------- | ------- | ----------------------------- | -------------------------- | --------------------------- | ------- | ----------------------------- |  | --------------------------- | ------- | - |  | ------------ | ------- | ------------ |  | ----- |  | ----
|                                                      |  | Percentage of Revenue        |         |                               | Percentage Change         
|                                                      |  | Three months endedAugust 31, |         |                               | Six months endedAugust 31, |                             |         | Three months ended August 31, |  | Six months ended August
31,
|                                                      |  | 2007                         |         |                               | 2006                       |                             |         | 2007                          |  |                             | 2006    |   |  | 2006 to 2007 |         | 2006 to 2007
|Revenue                                               |  |                              | 100.0   | %                             |                            |                             | 100.0   | %                             |  |                             | 100.0   | % |  |              | 100.0   | %            |  | 9.8 % |  | 9.4%
|                                                      |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|Cost of revenue                                       |  |                              | 20.9    |                               |                            |                             | 22.9    |                               |  |                             | 21.8    |   |  |              | 23.1    |              |  | 0.4   |  | 3.4 
|                                                      |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|Gross margin                                          |  |                              | 79.1    |                               |                            |                             | 77.1    |                               |  |                             | 78.2    |   |  |              | 76.9    |              |  | 12.6  |  | 11.2
|                                                      |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|Operating expenses                                    |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|Selling, general, and administrative                  |  |                              | 53.6    |                               |                            |                             | 51.3    |                               |  |                             | 53.3    |   |  |              | 52.7    |              |  | 14.7  |  | 10.7
|Research and development                              |  |                              | 14.0    |                               |                            |                             | 14.7    |                               |  |                             | 14.4    |   |  |              | 15.0    |              |  | 4.1   |  | 4.6 
|Amortization of acquisition-related intangible assets |  |                              | 0.8     |                               |                            |                             | 0.8     |                               |  |                             | 0.7     |   |  |              | 0.8     |              |  | 6.1   |  | 6.0 
|                                                      |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|Total operating expenses                              |  |                              | 68.4    |                               |                            |                             | 66.8    |                               |  |                             | 68.4    |   |  |              | 68.5    |              |  | 12.3  |  | 9.3 
|                                                      |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|Operating income                                      |  |                              | 10.7    |                               |                            |                             | 10.3    |                               |  |                             | 9.8     |   |  |              | 8.4     |              |  | 14.4  |  | 26.9
|Interest and other income, net                        |  |                              | 2.5     |                               |                            |                             | 2.7     |                               |  |                             | 2.9     |   |  |              | 2.5     |              |  | (0.1) |  | 28.9
|                                                      |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|Income before taxes                                   |  |                              | 13.2    |                               |                            |                             | 13.0    |                               |  |                             | 12.7    |   |  |              | 10.9    |              |  | 11.4  |  | 27.4
|Income tax provision                                  |  |                              | 2.7     |                               |                            |                             | 2.7     |                               |  |                             | 2.7     |   |  |              | 2.3     |              |  | 10.3  |  | 26.0
|                                                      |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|Net income                                            |  |                              | 10.5    | %                             |                            |                             | 10.3    | %                             |  |                             | 10.0    | % |  |              | 8.6     | %            |  | 11.7  |  | 27.8
|                                                      |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|REVENUE                                               |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|($000s)                                               |  | Three months endedAugust 31, |         |                               | Six months endedAugust
31, |                             |         | Percentage Change            
|                                                      |  |                              |         | Three months ended August 31, |                            | Six months ended August
31,
|                                                      |  | 2007                         |         |                               | 2006                       |                             |         | 2007                          |  |                             | 2006    |   |  | 2006 to 2007 |         | 2006 to 2007
|Product License                                       |  | $                            | 87,020  |                               |                            | $                           | 78,005  |                               |  | $                           | 162,712 |   |  | $            | 151,740 |              |  | 11.6% |  | 7.2%
|Product Support                                       |  |                              | 115,177 |                               |                            |                             | 103,262 |                               |  |                             | 228,615 |   |  |              | 203,443 |              |  | 11.5  |  | 12.4
|Services                                              |  |                              | 50,170  |                               |                            |                             | 48,623  |                               |  |                             | 97,694  |   |  |              | 91,747  |              |  | 3.2   |  | 6.5 
|                                                      |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     
|Total Revenue                                         |  | $                            | 252,367 |                               |                            | $                           | 229,890 |                               |  | $                           | 489,021 |   |  | $            | 446,930 |              |  | 9.8   |  | 9.4 
|                                                      |  |                              |         |                               |                            |                             |         |                               |  |                             |         |   |  |              |         |              |  |       |  |     



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Our total revenue was $252.4 million for the quarter ended August 31, 2007, an increase of $22.5
million or 10%, compared to the quarter ended August 31, 2006. Our total revenue was $489.0 million for the six months ended August 31, 2007, an increase of $42.1 million or 9%, compared to the six months ended August 31, 2006. The
increase in license revenue was primarily related to Cognos 8 BI. Nearly two years ago, we combined the functionality of the products included in our Series 7 suite of BI products on a services oriented architecture to create Cognos 8 BI. Cognos 8
is a completely web-based product, whereas our Series 7 Suite was on a Windows-based architecture. The growth in Cognos 8 is partially offset by a reduction in license revenue relating to our legacy products: PowerPlay, Cognos ReportNet, Impromptu,
Cognos DecisionStream, Cognos Metrics Manager, Cognos Visualizer, NoticeCast, and Cognos Query. These products, however, continue to generate significant product support revenue. As more of these Series 7 customers license or migrate to Cognos 8, we
expect a decline in total revenue from these products that will be more than offset by increased total revenue from Cognos 8. We also experienced strong license revenue growth in our FPM products, including Cognos Planning and Cognos Controller, as
we released these products on the Cognos 8 architecture during the first and second quarter of this year. Finally, Cognos Performance Applications continued to represent a small but growing portion of our revenues for the second quarter of fiscal
year 2008.

The overall change in total revenue from our three revenue categories in the quarter ended August 31, 2007 from
August 31, 2006 was as follows: a 12% increase in product license revenue, a 12% increase in product support revenue, and a 3% increase in services revenue. The increase for the same categories for the six months was as follows: 7%, 12%, and
6%, respectively.

Industry Trends and Geographic Information

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

First, we
believe BI has become a leading priority within IT budgets as businesses try to leverage their investments in enterprise applications and expand the penetration of BI within their organizations. In particular, businesses are looking to standardize
on one BI platform to reduce the number of platforms and vendors they support and to better align their operations with their strategy. We believe that the breadth and depth of functionality of our BI offering make it the solution of choice.

Second, there is increased investment in FPM solutions within the Office of Finance of most enterprises driven by our customers
continued focus on compliance and transparency. Organizations are looking to replace spreadsheet-based applications and legacy systems with single instance planning, consolidation, and financial reporting solutions that reduce the effort and cost of
compliance. Further, these organizations are looking to extend these solutions beyond compliance to achieve best practices, specifically in the area of rolling plans, planning standardization, and reduced time to close. This focus allows the Office
of Finance to extend beyond managing pure financial goals and towards overall performance goals and PM. We believe that our planning and consolidation products help improve the accuracy, transparency, and timeliness of financial information. For
this reason, we believe, we are seeing increased demand for these products.

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



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We believe that our customers purchase and deploy our PM software in stages. Our licensing model is
primarily a user-based licensing model where we charge our customers a per-user fee for each perpetual license. Further, our software can be used for many different applications within our customers environments and across their departments.
Committing to license all users for all applications as an enterprise purchase is a large commitment for our typical customers. As a result customers typically purchase only the products and the number of licenses of those required products to meet
their immediate needs. As they continue to deploy our software to more users or identify other needs our products can meet, they purchase additional licenses for products previously licensed or our other products in another stage. This leads to
larger orders in later stage purchase as customers expand their deployment, whether they are choosing to standardize or adopt PM.

We
believe these trends are leading to the increase in the number of large customer engagements that we are experiencing, an increase in enterprise-wide deployment of BI products, and a strengthening of our relationships with some of the worlds
largest organizations, and with our strategic partners. We believe that successful execution on large contracts is, and will continue to be, an essential contributor to strong license revenue performance in fiscal 2008. We expect the trend towards
larger contracts to continue as a result of the growing demand for standardization and the deepening strategic importance of performance management within our customers businesses. While we are becoming involved in more and more of these
larger contracts, small and medium-sized contracts continue to be important contributors to our success.

We believe that order size is an
indication of enterprisescale investment in our products by our customers which creates a foundation for future growth. We use all of the following key revenue indicators to monitor order performance:

Key Revenue Indicators



|                                                                         |  |                               |  |                             |  |       |  |      
|------------------------------------------------------------------------ |  | ----------------------------- |  | --------------------------- |  | ----- |  | -----
|                                                                         |  | Three months ended August 31, |  | Six months ended August 31,
|                                                                         |  | 2007                          |  | 2006                        |  | 2007  |  | 2006 
|Orders (License, Support, Services)                                      |  |                               |  |                             |  |       |  |      
|Transactions greater than $1 million                                     |  | 9                             |  | 10                          |  | 16    |  | 23   
|Transactions greater than $200,000                                       |  | 129                           |  | 120                         |  | 256   |  | 238  
|Transactions greater than $50,000                                        |  | 787                           |  | 819                         |  | 1,548 |  | 1,547
|Average selling price (License orders only) ($000s) Greater than $50,000 |  | 205                           |  | 181                         |  | 202   |  | 184  

During the quarter we had 9 transactions greater than $1 million compared with 10 in the same
quarter last year. Other key order metrics include transactions greater than $200,000, transactions greater than $50,000, and average selling price for license, support, and services transactions over $50,000. The total number of revenue
transactions greater than $200,000 and $50,000 increased by 8% and decreased by 4%, respectively, compared to the comparative quarter last year, and the average selling price for license orders greater than $50,000 increased by $24,000 during the
comparable period.



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As the number of large sales opportunities increases, specifically with regard to our customers
standardization agenda, our sales cycles have become longer as these larger transactions typically require greater scrutiny, a more extensive proof of concept, and a longer decision cycle by our customers because these transactions are more complex
and represent a larger proportion of our customers investment budgets.

Our operations are divided into three main geographic
regions: (1) the Americas (consisting of Canada, Mexico, the United States, and Central and South America), (2) EMEA (consisting of the U.K., Continental Europe, the Middle East, and Africa), and (3) Asia/Pacific (consisting of
Australia and countries in the Far East). The following table sets out, for each fiscal period indicated, the revenue attributable to each of our three main geographic regions and the percentage change in the dollar amount in each region compared to
the prior fiscal period.

Revenue by Geography



|             |  |                              |  |                               |  |                             |  |          |  |              |  |             
|------------ |  | ---------------------------- |  | ----------------------------- |  | --------------------------- |  | -------- |  | ------------ |  | ------------
|($000s)      |  | Three months endedAugust 31, |  | Six months endedAugust 31,    |  | Percentage Change          
|             |  |                              |  | Three months ended August 31, |  | Six months ended August
31,
|             |  | 2007                         |  | 2006                          |  | 2007                        |  | 2006     |  | 2006 to 2007 |  | 2006 to 2007
|The Americas |  | $150,164                     |  | $137,155                      |  | $285,372                    |  | $267,068 |  | 9.5 %        |  | 6.9%        
|EMEA         |  | 82,332                       |  | 72,311                        |  | 165,165                     |  | 144,536  |  | 13.9         |  | 14.3        
|Asia/Pacific |  | 19,871                       |  | 20,424                        |  | 38,484                      |  | 35,326   |  | (2.7)        |  | 8.9         
|             |  |                              |  |                               |  |                             |  |          |  |              |  |             
|Total        |  | $252,367                     |  | $229,890                      |  | $489,021                    |  | $446,930 |  | 9.8          |  | 9.4         
|             |  |                              |  |                               |  |                             |  |          |  |              |  |             

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

Revenue by Geography as a Percentage of Total Revenue



|             |  |                              |  |                            |  |        |  |       
|------------ |  | ---------------------------- |  | -------------------------- |  | ------ |  | ------
|             |  | Three months endedAugust 31, |  | Six months endedAugust 31,
|             |  | 2007                         |  | 2006                       |  | 2007   |  | 2006  
|The Americas |  | 59.5%                        |  | 59.7%                      |  | 58.3%  |  | 59.8% 
|EMEA         |  | 32.6                         |  | 31.4                       |  | 33.8   |  | 32.3  
|Asia/Pacific |  | 7.9                          |  | 8.9                        |  | 7.9    |  | 7.9   
|             |  |                              |  |                            |  |        |  |       
|Total        |  | 100.0%                       |  | 100.0%                     |  | 100.0% |  | 100.0%
|             |  |                              |  |                            |  |        |  |       

The growth rates of our revenue in EMEA, Asia/Pacific and, to a lesser extent, in the Americas are
affected by foreign exchange rate fluctuations. The following table breaks down the year-over-year percentage change in revenue for the three and six months ended August 31, 2007 by geographic area between change attributable to growth and
change due to fluctuations in the value of the U.S. dollar.



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##### Table of Contents

Year-over-year Percentage Change in Revenue by Geography



|             |  |                                             |  |                                           |  |           |  |                                |  |                 |  |          
|------------ |  | ------------------------------------------- |  | ----------------------------------------- |  | --------- |  | ------------------------------ |  | --------------- |  | ---------
|             |  | Three Months Ended August 31,2007 over 2006 |  | Six Months Ended August 31,2007 over 2006
|             |  | GrowthExcludingForeignExchange              |  | ForeignExchange                           |  | NetGrowth |  | GrowthExcludingForeignExchange |  | ForeignExchange |  | NetGrowth
|The Americas |  | 8.6 %                                       |  | 0.9%                                      |  | 9.5 %     |  | 6.2%                           |  | 0.7%            |  | 6.9%     
|EMEA         |  | 6.9 %                                       |  | 7.0%                                      |  | 13.9 %    |  | 7.1%                           |  | 7.2%            |  | 14.3%    
|Asia/Pacific |  | (8.0)%                                      |  | 5.3%                                      |  | (2.7)%    |  | 3.0%                           |  | 5.9%            |  | 8.9%     
|Total        |  | 6.6 %                                       |  | 3.2%                                      |  | 9.8 %     |  | 6.2%                           |  | 3.2%            |  | 9.4%     

The growth rate of our revenues for the three months ended August 31, 2007 showed strength in
both the Americas and EMEA. We were disappointed with our performance in the Asia Pacific region, as sales were down in Japan and Australia, partially offset by growth in Korea, India and South East Asia.

The growth rate of our revenue in the Americas during the six months ended August 31, 2007 was mostly attributable to increases in volume and size
of transactions, as there was only a slight impact from fluctuations in foreign currencies. The revenue results in EMEA and Asia Pacific were positively impacted by foreign currency fluctuations. Changes in the valuation of the U.S. dollar relative
to other currencies will continue to impact our revenue in the future.

Product License Revenue



|                            |  |                              |   |  |                            |   |  |                              |         |                             |      |   |         |                   |  |              |  |     
|--------------------------- |  | ---------------------------- | - |  | -------------------------- | - |  | ---------------------------- | ------- | --------------------------- | ---- | - | ------- | ----------------- |  | ------------ |  | ----
|($000s)                     |  |                              |   |  |                            |   |  |                              |         |                             |      |   |         | Percentage Change
|                            |  | Three months endedAugust 31, |   |  | Six months endedAugust 31, |   |  | Three monthsended August 31, |         | Six months ended August 31,
|                            |  | 2007                         |   |  | 2006                       |   |  | 2007                         |         |                             | 2006 |   |         | 2006 to 2007      |  | 2006 to 2007
|Product license revenue     |  | $87,020                      |   |  | $78,005                    |   |  | $                            | 162,712 |                             |      | $ | 151,740 |                   |  | 11.6%        |  | 7.2%
|Percentage of total revenue |  | 34.5                         | % |  | 33.9                       | % |  |                              | 33.3    | %                           |      |   | 34.0    | %                 |  |              |  |     

Product license revenue was $87.0 million in the quarter ended August 31, 2007, an increase
of $9.0 million or 12% from the quarter ended August 31, 2006; and was $162.7 million for the six months ended August 31, 2007, an increase of $11.0 million or 7% compared to the corresponding period in the prior fiscal year. The increase
in product license revenue for both quarters was driven by strong sales of Cognos 8 solutions in both the BI and FPM products. Revenue increases from Cognos 8 products were partially offset by declines in sales of our Series 7 BI legacy products
which we continue to individually license. Product license revenue accounted for 34% of total revenue in the three months ended August 31, 2007, the same as for the corresponding quarter in the prior fiscal year, and 33% and 34% for the six
months ended August 31, 2007 and August 31, 2006, respectively.

The breadth of our solution is also allowing us to develop
long-term strategic relationships with our customers which, in turn, enables us to generate additional software licensing and ongoing maintenance renewals. These relationships are a significant asset as approximately 68% of our license revenue came
from existing customers in the three-month period ended August 31, 2007.



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##### Table of Contents

We license our software through our direct sales force and third-party channels, including resellers,
value-added resellers, and OEMs. Direct sales accounted for approximately 74% and 72% of our license revenue for the second quarter of fiscal 2008 and 2007, respectively.

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

Product Support Revenue



|                            |  |                              |         |   |                            |   |         |                               |  |                             |         |   |  |                   |         |              |  |       |  |      
|--------------------------- |  | ---------------------------- | ------- | - | -------------------------- | - | ------- | ----------------------------- |  | --------------------------- | ------- | - |  | ----------------- | ------- | ------------ |  | ----- |  | -----
|($000s)                     |  |                              |         |   |                            |   |         |                               |  |                             |         |   |  | Percentage Change
|                            |  | Three months endedAugust 31, |         |   | Six months endedAugust 31, |   |         | Three months ended August 31, |  | Six months ended August 31,
|                            |  | 2007                         |         |   | 2006                       |   |         | 2007                          |  |                             | 2006    |   |  | 2006 to 2007      |         | 2006 to 2007
|Product support revenue     |  | $                            | 115,177 |   |                            | $ | 103,262 |                               |  | $                           | 228,615 |   |  | $                 | 203,443 |              |  | 11.5% |  | 12.4%
|Percentage of total revenue |  |                              | 45.6    | % |                            |   | 44.9    | %                             |  |                             | 46.7    | % |  |                   | 45.5    | %            |  |       |  |      

Product support revenue was $115.2 million in the quarter ended August 31, 2007, an increase
of $11.9 million or 12% from the quarter ended August 31, 2006; and was $228.6 million in the six months ended August 31, 2007, an increase of $25.2 million or 12% compared to the corresponding period in the prior fiscal year. The increase
in support revenue was the result of the strong rates of renewal of our support contracts and the expansion of our customer base. Exchange rate fluctuations had approximately a 4% positive impact on product support revenue during the quarter.

Product support revenue accounted for 46% and 45% of our total revenue in the quarters ended August 31, 2007 and August 31,
2006, respectively, and was 47% and 46% of total revenue in the six months ended August 31, 2007 and August 31, 2006, respectively.



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Services Revenue



|                            |  |                              |   |  |                             |   |  |                              |   |                             |         |   |  |                   |  |             
|--------------------------- |  | ---------------------------- | - |  | --------------------------- | - |  | ---------------------------- | - | --------------------------- | ------- | - |  | ----------------- |  | ------------
|($000s)                     |  |                              |   |  |                             |   |  |                              |   |                             |         |   |  | Percentage Change
|                            |  | Three months endedAugust 31, |   |  | Six months ended August 31, |   |  | Three monthsended August 31, |   | Six months ended August 31,
|                            |  | 2007                         |   |  | 2006                        |   |  | 2007                         |   |                             | 2006    |   |  | 2006 to 2007      |  | 2006 to 2007
|Services revenue            |  | $50,170                      |   |  | $48,623                     |   |  | $97,694                      |   |                             | $91,747 |   |  | 3.2%              |  | 6.5%        
|Percentage of total revenue |  | 19.9                         | % |  | 21.2                        | % |  | 20.0                         | % |                             | 20.5    | % |  |                   |  |             

Services revenue (training, consulting, and other revenue) was $50.2 million in the quarter ended
August 31, 2007, an increase of $1.5 million or 3% from the quarter ended August 31, 2006; and was $97.7 million in the six months ended August 31, 2007, an increase of $5.9 million or 6% compared to the corresponding period in the
prior fiscal year. Services revenue accounted for 20% and 21% of our total revenue for the three months ended August 31, 2007 and August 31, 2006, respectively, and accounted for 20% for both the six months ended August 31, 2007 and
August 31, 2006.

The increase in services revenue was attributable to increases in both consulting and education revenue. As our
business moves more towards these larger enterprise-wide deployments and critical financial applications, our customers require an increased level of technical expertise, training and support to meet their specific needs. Though not essential to the
functionality of our software, we believe training and support facilitates the successful installation and deployment of our solutions, accelerates the benefits gained from using our software and increases overall customer satisfaction. As a result,
our customers have increasingly requested services such as project management, analysis and design, technical advisory, and instruction to optimize the deployment of our solutions. Exchange rate fluctuations had approximately a 3% positive impact on
services revenue for the quarter.

COST OF REVENUE

Cost of Product License



|                              |  |                              |   |  |                             |   |  |                               |   |                             |        |   |  |                   |  |             
|----------------------------- |  | ---------------------------- | - |  | --------------------------- | - |  | ----------------------------- | - | --------------------------- | ------ | - |  | ----------------- |  | ------------
|($000s)                       |  |                              |   |  |                             |   |  |                               |   |                             |        |   |  | Percentage Change
|                              |  | Three months endedAugust 31, |   |  | Six months ended August 31, |   |  | Three months ended August 31, |   | Six months ended August 31,
|                              |  | 2007                         |   |  | 2006                        |   |  | 2007                          |   |                             | 2006   |   |  | 2006 to 2007      |  | 2006 to 2007
|Cost of product license       |  | $1,530                       |   |  | $1,445                      |   |  | $2,963                        |   |                             | $3,202 |   |  | 5.9%              |  | (7.5)%      
|Percentage of license revenue |  | 1.8                          | % |  | 1.9                         | % |  | 1.8                           | % |                             | 2.1    | % |  |                   |  |             

The cost of product license revenue was $1.5 million, a negligible difference in the quarter ended
August 31, 2007, and was $3.0 million, a decrease of $0.2 million or 7% in the six months ended August 31, 2007, 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, 2007, the same as for both comparative periods in the prior fiscal year.



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##### Table of Contents

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



|                            |  |                                       |  |           
|--------------------------- |  | ------------------------------------- |  | ----------
|($000s)                     |  | Year-over-year Change from
August 31,
|                            |  | 2006 to 2007                         
|                            |  | Three months                          |  | Six months
|Royalty cost                |  | $66                                   |  | $(344)    
|Other                       |  | 19                                    |  | 105       
|                            |  |                                       |  |           
|Total year-over-year change |  | $85                                   |  | $(239)    
|                            |  |                                       |  |           

Royalties are paid to suppliers whose technology is embedded in our product offering. The decrease
in royalty costs for the six month period ended August 31, 2007 was primarily the result of a non-recurring expense in the first quarter of fiscal 2007, as well as changes to royalty rates in certain agreements.

Cost of Product Support



|                              |  |                               |   |  |                             |   |  |                               |   |                             |         |   |  |                   |  |             
|----------------------------- |  | ----------------------------- | - |  | --------------------------- | - |  | ----------------------------- | - | --------------------------- | ------- | - |  | ----------------- |  | ------------
|($000s)                       |  |                               |   |  |                             |   |  |                               |   |                             |         |   |  | Percentage Change
|                              |  | Three months ended August 31, |   |  | Six months ended August 31, |   |  | Three months ended August 31, |   | Six months ended August 31,
|                              |  | 2007                          |   |  | 2006                        |   |  | 2007                          |   |                             | 2006    |   |  | 2006 to 2007      |  | 2006 to 2007
|Cost of product support       |  | $11,448                       |   |  | $11,384                     |   |  | $23,245                       |   |                             | $22,611 |   |  | 0.6%              |  | 2.8%        
|Percentage of support revenue |  | 9.9                           | % |  | 11.0                        | % |  | 10.2                          | % |                             | 11.1    | % |  |                   |  |             

The cost of product support revenue was $11.4 million for the three months ended August 31,
2007, virtually unchanged when compared to the corresponding period in the prior fiscal year. For the six months ended August 31, 2007 cost of product support revenue was $23.2 million, an increase of $0.6 million or 3% when compared to the
same period in the prior fiscal year. The cost of product support represented 10% of total product support revenue for both the three and six months ended August 31, 2007, compared to 11% for the corresponding periods in the prior fiscal year.

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



43



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##### Table of Contents

|                            |  |                                       |   |  |            |  
|--------------------------- |  | ------------------------------------- | - |  | ---------- | -
|($000s)                     |  | Year-over-year Change from
August 31, |  
|                            |  | 2006 to 2007                          |  
|                            |  | Three months                          |   |  | Six Months |  
|Staff-related costs         |  | $623                                  |   |  | $1,323     |  
|Computer-related costs      |  | (371                                  | ) |  | (548       | )
|Other                       |  | (188                                  | ) |  | (141       | )
|                            |  |                                       |   |  |            |  
|Total year-over-year change |  | $  64                                 |   |  | $   634    |  
|                            |  |                                       |   |  |            |  

The increase in the cost of product support for the three and six month periods ended
August 31, 2007 was primarily the result of increases in staff-related costs to service our growing customer base, partially offset by a decrease in computer-related costs. The average number of employees within the support organization showed
no increase and a 2% increase in the three and six months ended August 31, 2007, respectively, compared to the same periods last year. The computer-related cost decrease is a result of certain one time items included in the prior year as a
result of a significant increase in capacity during that period. Other includes direct selling and travel and living expenses. The unfavorable effect of fluctuations of foreign currencies relative to the U.S. dollar increased cost of product support
by approximately 5% for both the three and six months ended August 31, 2007, compared to the same periods last year.

Cost of Services



|                               |  |                              |   |  |                            |   |  |                               |   |                             |         |   |  |                   |  |             
|------------------------------ |  | ---------------------------- | - |  | -------------------------- | - |  | ----------------------------- | - | --------------------------- | ------- | - |  | ----------------- |  | ------------
|($000s)                        |  |                              |   |  |                            |   |  |                               |   |                             |         |   |  | Percentage Change
|                               |  | Three months endedAugust 31, |   |  | Six months endedAugust 31, |   |  | Three months ended August 31, |   | Six months ended August 31,
|                               |  | 2007                         |   |  | 2006                       |   |  | 2007                          |   |                             | 2006    |   |  | 2006 to 2007      |  | 2006 to 2007
|Cost of services               |  | $39,863                      |   |  | $39,805                    |   |  | $80,444                       |   |                             | $77,321 |   |  | 0.1%              |  | 4.0%        
|Percentage of services revenue |  | 79.5                         | % |  | 81.9                       | % |  | 82.3                          | % |                             | 84.3    | % |  |                   |  |             

The cost of services was $39.9 million, a negligible increase in the quarter ended August 31,
2007 and was $80.4 million, an increase of $3.1 million or 4% in the six months ended August 31, 2007 compared to the corresponding periods in the prior fiscal year. The cost of services represented 79% and 82% of services revenue for the three
and six months ended August 31, 2007, respectively, compared to 82% and 84% for the corresponding periods in the prior fiscal year. The overall decrease in the cost of services as a percentage of revenue is consistent with our focus on
improving margin and profitability in this area.

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



44



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##### Table of Contents

|                              |  |                                       |   |  |            |  
|----------------------------- |  | ------------------------------------- | - |  | ---------- | -
|($000s)                       |  | Year-over-year Change from
August 31, |  
|                              |  | 2006 to 2007                          |  
|                              |  | Three months                          |   |  | Six months |  
|Staff-related costs           |  | $   88                                |   |  | $2,118     |  
|Travel and living             |  | 700                                   |   |  | 1,312      |  
|Services purchased externally |  | (984                                  | ) |  | (23        | )
|Other                         |  | 254                                   |   |  | (284       | )
|                              |  |                                       |   |  |            |  
|Total year-over-year change   |  | $   58                                |   |  | $3,123     |  
|                              |  |                                       |   |  |            |  

The increase in cost of services for the three and six-month periods ended August 31, 2007
was primarily attributable to increases in staff-related costs, as well as travel and living expenses. The average number of employees within the services organization stayed constant and increased 1% in the three and six months ended
August 31, 2007, respectively, compared to the same periods last year. We continue to invest in services staff as we believe the availability and positioning of services is a key factor in the timing, closure, and success for large
transactions. The increase in travel and living expenses is primarily driven by more activity consistent with the higher revenue as well as using internal resources to complete work for customers. We saw a decrease in services purchased externally
as we made a concerted effort to rebalance the work performed by our staff and work performed by subcontractors, while also improving utilization of internal resources. However, subcontractors have been and will continue to be an important part of
our services offering and are engaged to fill excess demand that cannot be met by internal Cognos service consultants. This demand can be in the form of increased volume or requirements for industry specialization. While we continue to hire new
employees in this area, we intend to continue to supplement our skills by engaging subcontractors. Other includes recruiting fees, staff development costs and direct selling costs. The unfavorable effect of fluctuations of foreign currencies
relative to the U.S. dollar increased cost of services by approximately 3% for both the three and six months ended August 31, 2007.

OPERATING EXPENSES

Selling, General, and Administrative



|                                     |  |                               |   |  |                             |   |  |                               |   |                             |          |   |  |                   |  |             
|------------------------------------ |  | ----------------------------- | - |  | --------------------------- | - |  | ----------------------------- | - | --------------------------- | -------- | - |  | ----------------- |  | ------------
|($000s)                              |  |                               |   |  |                             |   |  |                               |   |                             |          |   |  | Percentage Change
|                                     |  | Three months ended August 31, |   |  | Six months ended August 31, |   |  | Three months ended August 31, |   | Six months ended August
31,
|                                     |  | 2007                          |   |  | 2006                        |   |  | 2007                          |   |                             | 2006     |   |  | 2006 to 2007      |  | 2006 to 2007
|Selling, general, and administrative |  | $135,310                      |   |  | $117,981                    |   |  | $260,737                      |   |                             | $235,573 |   |  | 14.7%             |  | 10.7%       
|Percentage of total revenue          |  | 53.6                          | % |  | 51.3                        | % |  | 53.3                          | % |                             | 52.7     | % |  |                   |  |             



45



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##### Table of Contents

Selling, general, and administrative (SG&A) expenses were $135.3 million, an
increase of $17.3 million or 15% in the quarter ended August 31, 2007, and were $260.7 million, an increase of $25.2 million or 11% in the six months ended August 31, 2007 compared to the corresponding periods in the prior fiscal year.
These costs represented 54% and 53% of total revenue for the three and six months ended August 31, 2007, respectively, compared to 51% and 53% for the corresponding periods in the prior fiscal year.

SG&A expenses include staff-related costs and travel and living expenditures for sales, marketing, management, and administrative personnel. These
expenses also include costs associated with the sale and marketing of our products, professional services, and other administrative costs. The change in SG&A expenses is as follows:



|                            |  |                                       |   |  |            |  
|--------------------------- |  | ------------------------------------- | - |  | ---------- | -
|($000s)                     |  | Year-over-year Change from
August 31, |  
|                            |  | 2006 to 2007                          |  
|                            |  | Three months                          |   |  | Six Months |  
|Staff-related costs         |  | $  9,277                              |   |  | $13,784    |  
|Direct selling              |  | 2,073                                 |   |  | 1,673      |  
|Marketing                   |  | 1,955                                 |   |  | 2,728      |  
|Travel & living             |  | 1,013                                 |   |  | (133       | )
|Facilities                  |  | 971                                   |   |  | 2,259      |  
|Recruiting                  |  | 456                                   |   |  | 1,575      |  
|Professional services       |  | (1,101                                | ) |  | (2,387     | )
|Other                       |  | 2,685                                 |   |  | 5,665      |  
|                            |  |                                       |   |  |            |  
|Total year-over-year change |  | $17,329                               |   |  | $25,164    |  
|                            |  |                                       |   |  |            |  

The increase in SG&A expenses in the three and six months ended August 31, 2007 was
predominately the result of increases in staff-related costs resulting from increased personnel, higher compensation related expenses, and severance, as well as associated benefits, compared to the same periods last year. The average number of
employees within SG&A increased by 4% and 3% for the three and six months ended August 31, 2007 respectively, when compared to the corresponding periods in the prior fiscal year. Also contributing to the increase for both the three and six
months ended August 31, 2007 were direct selling costs relating to finders fees, recruiting as we continue to invest in customer facing positions, increased spending on marketing programs, facilities, and travel and living expenditures. The
unfavorable effect of fluctuations of foreign currencies relative to the U.S. dollar increased SG&A expenses by approximately 4% for both the three and six months ended August 31, 2007, when compared to the corresponding periods in the
prior fiscal year.



46



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##### Table of Contents

Research and Development



|                            |  |                              |   |  |                            |   |  |                               |   |                             |         |   |  |                   |  |             
|--------------------------- |  | ---------------------------- | - |  | -------------------------- | - |  | ----------------------------- | - | --------------------------- | ------- | - |  | ----------------- |  | ------------
|($000s)                     |  |                              |   |  |                            |   |  |                               |   |                             |         |   |  | Percentage Change
|                            |  | Three months endedAugust 31, |   |  | Six months endedAugust 31, |   |  | Three months ended August 31, |   | Six months ended August
31,
|                            |  | 2007                         |   |  | 2006                       |   |  | 2007                          |   |                             | 2006    |   |  | 2006 to 2007      |  | 2006 to 2007
|Research and development    |  | $35,283                      |   |  | $33,869                    |   |  | $70,213                       |   |                             | $67,148 |   |  | 4.2%              |  | 4.6%        
|Percentage of total revenue |  | 14.0                         | % |  | 14.7                       | % |  | 14.4                          | % |                             | 15.0    | % |  |                   |  |             

Research and development (R&D) expenses were $35.3 million, an increase of
$1.4 million or 4% in the quarter ended August 31, 2007, and were $70.2 million, an increase of $3.1 million or 5% for the six months ended August 31, 2007 compared to the corresponding periods in the prior fiscal year. R&D costs were
14% of revenue for both the three and six months ended August 31, 2007, compared to 15% of revenue for both of the corresponding periods in the prior fiscal year.

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



|                              |  |                                       |   |  |           
|----------------------------- |  | ------------------------------------- | - |  | ----------
|($000s)                       |  | Year-over-year Change From
August 31,
|                              |  | 2006 to 2007                         
|                              |  | Three months                          |   |  | Six months
|Services purchased externally |  | $   734                               |   |  | $1,333    
|Staff-related costs           |  | (10                                   | ) |  | 887       
|Other                         |  | 690                                   |   |  | 845       
|                              |  |                                       |   |  |           
|Total year-over-year change   |  | $1,414                                |   |  | $3,065    
|                              |  |                                       |   |  |           

The increase in R&D expenses for the three and six months ended August 31, 2007 was
predominately the result of an increase in services purchased externally. This increase is a result of a continuation and expansion in the outsourcing of certain R&D activities. In addition, staff-related costs increased in the first quarter of
fiscal 2008 and decreased marginally in the second quarter of the year. The decrease is a result of the average number of employees within R&D declining by 4% for both the three and six months ended August 31, 2007, when compared to the
corresponding periods of the prior fiscal year. Despite the decrease, we continue to invest significant resources in R&D as we have outsourced more R&D work in response to the high Canadian dollar. The reduction in headcount was partially
offset by higher compensation cost and associated benefits, compared to the previous fiscal year. The unfavorable effect of fluctuations of foreign currencies, especially the Canadian dollar relative to the U.S. dollar, increased R&D expenses by
approximately 4% and 3% for the three and six months ended August 31, 2007, respectively, when compared to the corresponding periods of the prior fiscal year.

During the quarter ended August 31, 2007, we continued to invest significantly in R&D activities for our next generation of BI and FPM solutions which are the foundation of our PM vision. During the quarter,
we continued to develop the next release for Cognos 8, which will be version 8.3. The focus of this new version of Cognos 8 continues to be enhanced quality, upgradeability and performance, as well as additional capabilities to accelerate adoption
throughout the organization. We also released our newest version of Cognos Planning and Cognos Controller which continue to add new functionality for the Office of Finance. The new releases now deploy Cognos Planning and Cognos Controller products
in the Cognos 8 web-based architecture.



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##### Table of Contents

We currently do not have any internal software development costs capitalized on our balance sheet.
Software development costs are expensed as incurred unless they meet the GAAP 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, 2007 and August 31, 2006. Costs were not deferred in the periods because
either no projects met the criteria for deferral or, if met, the period between achieving technological feasibility and the general availability of the product was short, rendering the associated costs immaterial.

Amortization of Acquisition-related Intangible Assets



|                                                      |  |                              |  |                            |  |                               |  |                             |  |                   |  |             
|----------------------------------------------------- |  | ---------------------------- |  | -------------------------- |  | ----------------------------- |  | --------------------------- |  | ----------------- |  | ------------
|($000s)                                               |  |                              |  |                            |  |                               |  |                             |  | Percentage Change
|                                                      |  | Three months endedAugust 31, |  | Six months endedAugust 31, |  | Three months ended August 31, |  | Six months ended August
31,
|                                                      |  | 2007                         |  | 2006                       |  | 2007                          |  | 2006                        |  | 2006 to 2007      |  | 2006 to 2007
|Amortization of acquisition-related intangible assets |  | $1,805                       |  | $1,702                     |  | $3,607                        |  | $3,403                      |  | 6.0%              |  | 6.0%        

Amortization of acquisition-related intangible assets was $1.8 million, an increase of $0.1
million or 6% for the quarter ended August 31, 2007 and was $3.6 million, an increase of $0.2 million or 6% for the six months ended August 31, 2007 compared to the corresponding periods in the prior year. The increase in this expense in
the three and six months ended August 31, 2007 was due to the amortization of acquired technology relating to the acquisitions of Celequest Corporation during the fourth quarter of fiscal 2007.

INTEREST AND OTHER INCOME, NET



|                               |  |                              |  |                            |  |                               |  |                             |  |                   |  |             
|------------------------------ |  | ---------------------------- |  | -------------------------- |  | ----------------------------- |  | --------------------------- |  | ----------------- |  | ------------
|($000s)                        |  |                              |  |                            |  |                               |  |                             |  | Percentage Change
|                               |  | Three months endedAugust 31, |  | Six months endedAugust 31, |  | Three months ended August 31, |  | Six months ended August
31,
|                               |  | 2007                         |  | 2006                       |  | 2007                          |  | 2006                        |  | 2006 to 2007      |  | 2006 to 2007
|Interest and other income, net |  | $6,210                       |  | $6,216                     |  | $14,475                       |  | $11,227                     |  | (0.1)%            |  | 28.9%       



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##### Table of Contents

Interest and other income, net, was flat at $6.2 million in the quarter ended August 31, 2007 and
was $14.5 million, an increase of $3.2 million or 29%, in the six months ended August 31, 2007 compared to the corresponding periods in the prior fiscal year. The change in interest and other income, net, is as follows:



|                                        |  |                                       |  |           
|--------------------------------------- |  | ------------------------------------- |  | ----------
|($000s)                                 |  | Year-over-year Change from
August 31,
|                                        |  | 2006 to 2007                         
|                                        |  | Three months                          |  | Six months
|Increase (decrease) in interest revenue |  | $(833)                                |  | $1,521    
|Gain on foreign exchange                |  | 572                                   |  | 1,184     
|Ineffective portion of cash flow hedges |  | (10)                                  |  | (20)      
|Decrease in interest and other expenses |  | 265                                   |  | 563       
|                                        |  |                                       |  |           
|Total year-over-year change             |  | $   (6)                               |  | $3,248    
|                                        |  |                                       |  |           

There was no significant change in the interest and other income for the three months ended
August 31, 2007. The decrease in interest revenue was as a result of lower investment balances caused by share repurchases during the quarter, partially offset by a decrease in interest expense due principally to interest expense on tax
liabilities being reclassified to tax expense subsequent to the implementation of FIN 48 in the first quarter. In the prior year these costs were netted against interest income. Gains on foreign exchange are as a result of conversion of foreign
currency denominated assets and liabilities.

The increase in interest and other income during the six months ended August 31, 2007
was attributable to higher interest revenue in the first quarter of fiscal 2008 as a result of an increase in the average portfolio size for that period. As discussed above, subsequent to our large share repurchase the average portfolio balance
decreased in the second quarter. Also contributing to the increase in interest and other income were gains on conversion of foreign currency denominated assets and liabilities, and reduced interest expense due to interest on tax balances being moved
to tax expense as compared to the corresponding periods in the prior fiscal year.

INCOME TAX PROVISION



|                     |  |                              |   |  |                            |   |  |                               |   |                             |         |   |  |                   |  |             
|-------------------- |  | ---------------------------- | - |  | -------------------------- | - |  | ----------------------------- | - | --------------------------- | ------- | - |  | ----------------- |  | ------------
|($000s)              |  |                              |   |  |                            |   |  |                               |   |                             |         |   |  | Percentage Change
|                     |  | Three months endedAugust 31, |   |  | Six months endedAugust 31, |   |  | Three months ended August 31, |   | Six months ended August
31,
|                     |  | 2007                         |   |  | 2006                       |   |  | 2007                          |   |                             | 2006    |   |  | 2006 to 2007      |  | 2006 to 2007
|Income tax provision |  | $6,793                       |   |  | $6,160                     |   |  | $13,356                       |   |                             | $10,601 |   |  | 10.3%             |  | 26.0%       
|Effective tax rate   |  | 20.4                         | % |  | 20.6                       | % |  | 21.4                          | % |                             | 21.7    | % |  |                   |  |             



49



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##### Table of Contents

As we operate globally, we calculate our income tax provision in each of the jurisdictions in which we
conduct business. Our tax rate is therefore affected by the relative profitability of our operations in various geographic regions. In the three and six months ended August 31, 2007, we recorded an income tax provision of $6.8 million and $13.4
million, respectively, representing an effective income tax rate of 20% and 21%, respectively. Comparatively, in the three and six months ended August 31, 2006, we recorded an income tax provision of $6.2 million and $10.6 million,
respectively, representing an effective income tax rate of 21% and 22%, respectively. We estimate our effective tax rate for the current fiscal year to be 22%, exclusive of any significant, unusual, or extraordinary items that will be separately
reported or reported net of their related tax effect. This estimated effective tax rate was reduced for the three and six-month periods ended August 31, 2007 to 20% and 21%, respectively, due to adjustments related to prior year tax provisions
as a result of filing tax returns in certain jurisdictions. The estimated effective tax rate for fiscal 2007 was 24%, exclusive of all other items. This estimated effective tax rate was reduced for the three and six-month periods ended
August 31, 2006 to 21% and 22%, respectively, due to adjustments related to a modification of an intercompany commercial arrangement and an election in respect of the functional currency of a subsidiary.

On March 1, 2007, we adopted FIN 48. As a result of the adoption, there was an increase in income tax liabilities of $18.2 million with a
corresponding decrease in the balance of retained earnings. Upon adoption of FIN 48, the Corporation elected an accounting policy to classify accrued interest related to liabilities for income taxes in income tax expense. Previously, interest
related to liabilities for income taxes was classified as interest expense in arriving at pre-tax income. Penalties related to liabilities for income taxes continue to be classified as income tax expense. The adoption of FIN 48 did not have a
material effect on the current quarters income tax provision. See additional information included in Note 7 to the interim Consolidated Statements.



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##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES



|                                                   |  |                             |   |  |                                               |   |  |                  
|-------------------------------------------------- |  | --------------------------- | - |  | --------------------------------------------- | - |  | -----------------
|($000s)                                            |  | As atAugust 31, 2007        |   |  | As atFebruary 28,2007                         |   |  | Percentage Change
|Cash and cash equivalents                          |  | $379,078                    |   |  | $376,762                                      |   |  | 0.6%             
|Short-term investments                             |  | 60,339                      |   |  | 315,131                                       |   |  | (80.9)           
|                                                   |  |                             |   |  |                                               |   |  |                  
|Cash, cash equivalents, and short-term investments |  | $439,417                    |   |  | $691,893                                      |   |  | (36.5)           
|Working capital                                    |  | 262,939                     |   |  | 488,482                                       |   |  | (46.2)           
|                                                   |  |                            
|($000s)                                            |  | Six months ended August 31, |   |  | Percentage Change Six months ended August 31,
|                                                   |  | 2007                        |   |  | 2006                                          |   |  | 2006 to 2007     
|Net cash provided by (used in):                    |  |                             |   |  |                                               |   |  |                  
|Operating activities                               |  | $  52,208                   |   |  | $  88,771                                     |   |  | (41.2)%          
|Investing activities                               |  | 239,804                     |   |  | (58,983                                       | ) |  | *                
|Financing activities                               |  | (295,557                    | ) |  | (14,032                                       | ) |  | *                
|                                                   |  |                             |  
|                                                   |  | As atAugust 31, 2007        |   |  | As atAugust 31, 2006                          |   |  |                  
|Days sales outstanding (DSO)                       |  | 57                          |   |  | 57                                            |   |  |                  

---

|* | not meaningful
|- | --------------

Cash, Cash Equivalents, and
Short-term Investments

As at August 31, 2007, we held $439.4 million in cash, cash equivalents, and short-term investments, a
decrease of $252.5 million from February 28, 2007. The primary reason for the decline is the net repurchase of our own shares totaling $295.6 million, principally as a result of the 2006 Share Repurchase Program, but also due to our purchase of
treasury shares under our RSU plan, partially offset by our net income of $48.9 million and various other changes in our non-cash working capital items. Cash and cash equivalents include investments which are highly liquid and held to maturity. Cash
equivalents typically include commercial paper, term deposits, bankers acceptances and bearer deposit notes issued by major international 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, corporate bonds, bearer deposit notes, and government
securities.



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##### Table of Contents

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

As at August 31, 2007,
included in our cash, cash equivalents, and short-term investments were two third party-sponsored asset-backed commercial paper (Third Party ABCP) investments totaling $14.6 million or 3% of our total cash, cash equivalents and
short-term investments. During the month of August, the Canadian Third Party ABCP market experienced liquidity problems. As a result, in some cases, as notes matured certain Canadian Third Party ABCP programs were unable to raise funds from new
issuances and therefore were not able to refund maturing notes. Although the assets underlying the Canadian Third Party ABCP conduits are generally believed to be of high quality, the conduits we held experienced liquidity difficulties. At this
time, the conduits are subject to a proposal which calls for the notes to be converted into floating rate notes which better match the duration of the underlying assets to address the liquidity problem. While the credit rating of the investments is
under review, at the time of investment they were rated R1-high by Dominion Bond Rating Service, the highest credit rating for this type of investment.

Given that these investments are classified as held to maturity, they are recorded at cost and are tested for other than temporary impairment. We have concluded that currently there is not an other than
temporary impairment.

Working Capital

Working capital represents our current assets less our current liabilities. As of August 31, 2007, working capital was $262.9 million, a decrease of $225.5 million from February 28, 2007. The decrease in working capital is
primarily attributable to the repurchase of our common shares during the period, partially offset by our net cash inflows from operations.

Days sales outstanding was 57 days at August 31, 2007, down from 70 days at February 28, 2007 and consistent with August 31, 2006. The year end days sales outstanding amount is seasonally high, and the decrease is consistent
with historical patterns. We calculate our days sales outstanding based on ending accounts receivable balances and quarterly revenue.

Long-term
Liabilities

As at August 31, 2007 and February 28, 2007, we had no outstanding long-term debt.

Net 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, 2007 was $52.2 million, a decrease of $36.6 million compared to the same period last year. The decrease is primarily
attributable to changes in working capital, most notably the increased seasonal change in deferred revenue as support revenue increases and a higher value of payments for year end bonuses and commissions in the first quarter compared to the same
period last year.



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##### Table of Contents

Net Cash Provided by (Used in) Investing Activities

Cash provided by investing activities was $239.8 million for the six months ended August 31, 2007, compared to cash used in investing activities of $59.0 million in the corresponding period
last fiscal year. During the six months ended August 31, 2007, we had a net decrease in short-term investments, while during the six months ended August 31, 2006, we had a net increase in short-term investments. In the six months ended
August 31, 2007, our proceeds on maturity of short-term investments, net of purchases, were $256.4 million. In comparison, during the six months ended August 31, 2006, our purchases of short-term investments, net of maturities, were $47.2
million.

During the six months ended August 31, 2007 and August 31, 2006, we spent $12.5 million and $10.9 million,
respectively, on fixed asset additions. The additions for both periods related primarily to computer equipment and software, office furniture and leasehold improvements.

Net Cash Used in Financing Activities

Cash used in financing activities was $295.6 million for the
six months ended August 31, 2007, an increase in financing activities of $281.5 million compared to the same period of the prior fiscal year. We issued 368,000 common shares for proceeds of $9.9 million, during the six months ended
August 31, 2007, compared to the issuance of 556,000 shares for proceeds of $13.5 million during the corresponding period in the prior fiscal year. The issuance of shares in the six months ended August 31, 2007 and 2006 was pursuant to our
stock purchase plan and the exercise of stock options by employees, officers, and directors.

We purchased shares in the open market under
a share repurchase program and our trustee purchased shares in the open market under our Restricted Share Unit Plan. We paid $279.0 million during the six months ended August 31, 2007 to purchase 6,881,000 shares on the open market under the
share repurchase program and $26.4 million for the purchase of 617,000 shares for the Restricted Share Unit Plan. Comparatively, for the six months ended August 31, 2006 we repurchased 652,000 shares at a value of $25.0 million under the share
repurchase plan and 80,000 shares at a value of $2.5 million under the Restricted Share Unit Plan.

The share repurchases made during both
periods were part of distinct open market share repurchase programs through The Nasdaq Global Market or The Toronto Stock Exchange. The share repurchase programs have historically been adopted in October of each year and run for one year. They have
allowed the Corporation to purchase no more than 10% of the issued and outstanding shares of the Corporation on the date the plan is adopted. These programs do not commit the Corporation to make any share repurchases. Purchases can be made on The
Nasdaq Global Market or The Toronto Stock Exchange at prevailing open market prices and are funded out of general corporate funds. We cancel all shares repurchased under the program. A copy of the current Notice of Intention to Make an Issuer
Bid, as amended, is available from the Corporate Secretary.

Liquidity

On September 28, 2007 the Corporation entered into a five year committed unsecured revolving credit facility (the Credit Facility) with major Canadian and U.S. based
banks. The Credit Facility provides for borrowing up to $200.0 million which can be drawn in U.S. dollars or the equivalent in Canadian dollars, subject to certain covenants. As of the date of the agreement, there were no direct borrowings under
this facility.



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We have an unsecured credit facility (Old Credit Facility) subject to annual renewal.
The Old Credit Facility permitted us to borrow funds or issue letters of credit or guarantee up to Cdn $27.0 million (U.S. $20.0 million), subject to certain covenants. As of August 31, 2007 and 2006, there were no direct borrowings under the
Old Credit Facility. On October 1, 2007 the Old Credit Facility was cancelled as a result of the new Credit Facility being signed.

Contracts and
Commitments

On September 4, 2007 we entered into an agreement to acquire all of the outstanding shares of Applix, Inc. for
approximately $339.0 million, subject to receipt of regulatory approvals and other customary closing conditions. It is anticipated that the acquisition will be completed in the fourth quarter of calendar 2007. The acquisition will be funded from
current cash, cash equivalents and short-term investments.

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

During fiscal 2005, the Corporation entered into cash flow hedges in order to offset the risk associated with the
effects of certain foreign currency exposures related to an intercompany loan and the corresponding interest payments between subsidiaries with different functional currencies. As at August 31, 2007, the Corporation had cash flow hedges, with
maturities of January 14, 2008, to exchange the U.S. dollar equivalent of $68.2 million in foreign currency. At August 31, 2007, we had an unrealized loss in the amount of $6.7 million in relation to these contracts. We entered into these
foreign currency exchange forward contracts with major Canadian chartered banks, and therefore we do not anticipate non-performance by these counterparties. The amount of the exposure on account of any non-performance is restricted to the unrealized
gains in such contracts.

We have entered into foreign exchange contracts that we have chosen not to designate as a hedge for accounting
purposes. When we do not designate such contracts as hedges, in accordance with FAS 133 Accounting for Derivative Instruments and Hedging Activities, we carry these contracts at their fair value with any gain or loss included in income. At
August 31, 2007, we had fifteen such contracts to exchange the U.S. dollar equivalent of $323.6 million into Canadian dollars, euros and British pounds, at various dates between September 4, 2007 and January 2, 2008. We entered into
these contracts to offset the foreign exchange risk on inter-company receivables that were not in the functional currency of the subsidiary which held them. The estimated incremental fair value of the derivative instruments is not material.

Except for the commitment to acquire Applix, our contractual obligations have not changed materially from those included in our Annual
Report on Form 10-K for the year ended February 28, 2007. The exact timing of reversal or settlement of our FIN 48 liabilities cannot be reasonably estimated at the end of the quarter. Accordingly, all amounts are recorded as long term.

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 by means of our share repurchase and other programs.

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

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



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CRITICAL ACCOUNTING 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 that may not be readily apparent from other sources. These judgments may change based upon changes in business conditions. As a result, actual
results may differ from these estimates under different assumptions, conditions, and experience.

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



| |  |  | Revenue Recognition
| | - |  | -------------------



| |  |  | Stock-based Compensation
| | - |  | ------------------------



| |  |  | Allowance for Doubtful Accounts
| | - |  | -------------------------------



| |  |  | Accounting for Income Taxes
| | - |  | ---------------------------



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



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

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



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We sell off-the-shelf software generally bundled with PCS and, on occasion, services in multiple-element
arrangements. SOP 97-2 requires that judgment be applied to distinguish whether multiple elements in an arrangement can be treated as separate accounting units. In order to account separately for the services element of an arrangement that includes
both product license and services, the services (a) must not be essential to the functionality of any other element of the transaction and (b) must be stated separately such that the total price of the arrangement can be expected to vary
as a result of the inclusion or exclusion of the services. If these two criteria are not met, the entire arrangement is accounted for using the percentage of completion method in accordance with SOP 81-1, Accounting for Performance of
Construction Type and Certain Production Type Contracts. While the service element must be stated separately, the service element does not have to be priced separately in the contract in order to separately account for the services as a separate
element of the transaction.

For substantially all of our software arrangements, we defer revenue for the PCS and services to be provided
to the customer based on vendor-specific objective evidence (VSOE) of fair value and recognize revenue for the product license when persuasive evidence of an arrangement exists and delivery of the software has occurred, provided
the fee is fixed or determinable and collection is deemed probable.

We evaluate each of these criteria as follows:



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



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



| |  |  | The fee is fixed or determinable: A fee is fixed or determinable if it is a fixed amount of money or an amount that can be determined at the commencement
of the contract, and is payable on Cognos standard payment terms. Fees are considered fixed or determinable unless a significant portion (more than 10%) of the licensing fee is due outside of the Corporations normal payment terms for
similar transactions or is due more than 12 months after delivery, in which case revenue is recognized when payment becomes due from the customer. In addition, we only consider the fee to be fixed or determinable if the fee is not subject to refund
or adjustment. Our typical end user and reseller license agreements do not allow for refunds, returns or adjustments to the licensing fee. However, in the rare circumstance where this might occur and a refund, return or adjustment is agreed upon,
revenue is recognized upon the expiration of the rights of exchange or return. For resellers, if they are newly formed, undercapitalized, or in financial difficulty, or if uncertainties about the number of copies to be sold by the reseller exist,
fees are not considered fixed or determinable. If the arrangement fee is not fixed or determinable, we recognize the revenue as amounts become due and payable.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Collectibility is probable: We extend credit to credit worthy customers in order to facilitate our business. Credit is extended through the process of
risk identification, evaluation, and containment. In practical terms, this process will take the form of: customer credit checks; established credit limits for customers (where necessary); and predetermined terms of sale.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | Collection is deemed probable if we expect that the customer will be able to pay amounts under the arrangement as payments become due. If we determine that
collection is not probable, we defer the revenue and recognize the revenue upon cash collection.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under the residual
method prescribed by SOP 97-2, a portion of the arrangement fee is first allocated to undelivered elements included in the arrangement (i.e., PCS and services) based on VSOE of fair value, with the remainder of the arrangement fee being allocated to
the delivered elements of the arrangement. Our contracts commonly include product license, PCS, and services (e.g., education and consulting). Each product license arrangement requires careful analysis to ensure that each of the individual elements
in the transaction has been identified, along with VSOE of the fair value of each element. If VSOE of fair value cannot be established for the undelivered elements of a product license agreement, the entire amount of revenue from the arrangement is
deferred and recognized over the period that these elements are delivered.

Services revenue primarily consists of implementation services
related to the installation of our products and training revenues. Our software is ready to use by the customer upon receipt. While many of our customers may choose to configure the software to fit their specific needs, our implementation services
do not involve significant customization to or development of the underlying software code. Substantially all of our services arrangements are billed on a time and materials basis and, accordingly, are recognized as the services are performed. The
fair value of the services portion of the arrangement is established according to our standard price list, which includes quantity discounts, and it is based on our history of separate sales using such price lists.

Our customers typically pre-pay PCS for the first year in connection with a new product license. In such cases, an amount equal to VSOE of fair value for
PCS is deferred and recognized ratably over the term of the initial PCS contract, typically 12 months. PCS is renewable by the customer on an annual basis thereafter. We use two methods to determine VSOE of fair value for PCS in a multi-element
arrangement: stated price and the price when an element is sold separately. If a stated rate (either a stated renewal rate or a stated rate for the first year PCS bundled with the software license) is included in a contract (i.e., the first method),
that rate is used to account for the PCS provided to that customer, provided that the rate is substantive and consistent with our customary pricing practices. Historically, there has been a high correlation between the amounts allocated to PCS in
the initial software licensing arrangement for such arrangements and the amounts at which PCS is renewed. The second method is the price charged when the same element is sold separately. We account for PCS using the first method when a stated PCS
rate is included in a contract. For all other contracts, we establish VSOE of fair value for PCS based upon the price charged when PCS is sold separately (i.e., the second method).

Our customer experience has shown that our contractual arrangements have historically used two forms of contract terms regarding PCS; contracts which include a stated PCS rate (either a stated
renewal rate or a stated rate for the first year PCS bundled with the software license); and contracts which do not state a PCS rate. For contracts which include a stated renewal rate, we use that contractually stated renewal rate to allocate
arrangement consideration to the undelivered PCS at the inception of the arrangement and recognize such consideration ratably over the PCS term provided that the stated rate is substantive and consistent with our customary pricing practices.
Historically, there has been a high correlation between the amounts allocated to PCS in the initial software licensing arrangement for such arrangements and the amounts at which PCS is renewed.

For contracts that state a first year PCS rate, we use that stated rate to allocate arrangement consideration to the undelivered PCS at the inception of
the arrangement and recognize such consideration ratably over the PCS term, provided that it is consistent with our customary pricing practices. Our customer experience based on our continual monitoring of the process has been that this stated rate
is typically the rate at which PCS will be renewed and is a substantive rate. Historically, there has been a high correlation between the amounts allocated to PCS in the initial software licensing arrangement for such arrangements and the amounts at
which PCS is renewed. If our renewals history began to indicate that renewals were not highly correlated to the first year PCS amounts that we use to allocate revenue to PCS at the inception of the arrangement, then we would not be able to establish
VSOE of fair value for PCS for such contracts and revenue attributable to the software license and PCS would be recognized ratably over the PCS period.



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For contracts which do not state a PCS rate, we allocate a consistent percentage of the license fee to
PCS in the first year of such arrangements based on a substantive rate at which our customer experience indicates customers will typically agree to renew PCS. Historically, there has been a high correlation between the mean of amounts allocated to
PCS in the initial software licensing arrangement for such arrangements and the mean of amounts at which PCS is renewed.

We allocate
arrangement consideration to PCS included in a software licensing arrangement based upon contemporaneous evidence of stand-alone prices and the application of controlled processes. These controlled processes include making judgments about the amount
of arrangement consideration to allocate to PCS in contracts which do not state a PCS rate. Such judgments include continual monitoring of customer acceptance of renewal rates by other customers of the same customer class and evaluating customer
tolerance for rate changes from a business standpoint at the time the initial license arrangement is established. On an historical basis, the contemporaneous evidence used has enabled us to establish the first year deferral consistent with the
amount at which PCS has actually been renewed in the second and subsequent years. We use these renewals, which represent separate contemporaneous sales of PCS, as a basis to establish VSOE of fair value. Our process has historically provided
experience to establish VSOE for PCS due to our continual monitoring of the process. If there are changes in the customers acceptance of renewal rates or tolerance for rate change or our related ability to monitor and evaluate those changes,
we may no longer be able to establish VSOE of fair value for PCS and accordingly revenue attributable to the software license and PCS would be recognized ratably over the PCS period.

We stratify our customers into three classes in determining VSOE of fair value for PCS. The classifications are based on the amount of software license business (i.e., software license revenues),
life-to-date, that has previously been obtained from the respective customers. For each class of customer, a range of prices exists which represents VSOE of fair value for PCS for that class of customer based upon substantive renewals and our
experience that there is a high correlation between the mean of amount allocated to PCS in the initial software licensing arrangement for such arrangements and the mean of amounts at which PCS is renewed.

When PCS in individual arrangements is stated below the lower limits of our acceptable ranges by customer class, we adjust the percentage allocated for
support upwards to the low end of the applicable range by customer class. This adjustment allocates additional revenue from license revenue to deferred PCS revenue which is amortized over the life of the PCS contract, which is typically one year. If
the stated PCS is above the reasonable range, no adjustment is made and the deferred PCS revenue is measured at the contracted percentage.

In determining VSOE of fair value for PCS, we conduct our analysis on the basis of customer classes as described above. We do not consider other factors, such as: geographic regions or locations; type and nature of products; distribution
channel (i.e. direct and resellers); stage of licensed product life cycle; other arrangement elements; overall economics; term of the license arrangement; or



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other factors. We do not differentiate our pricing policies based on these factors and our customer
experience has indicated no difference in customer renewal behavior based on these factors. While our renewal experience has not shown differences in renewal behavior based on these discriminate factors, it is possible that changes related to these
factors or our related ability to monitor and evaluate those changes could occur. In such circumstances, we may come to the determination that we can no longer substantiate VSOE of fair value for PCS for some or all of our software license
agreements and revenue related to software licenses and PCS in such agreements would be recognized ratably over the PCS period.

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

Stock-based Compensation - Effective March 1, 2006, we adopted FAS 123R to account for our stock option, stock purchase, deferred share and
restricted share unit plans. We elected to implement FAS 123R using the modified retrospective method of transition provided by FAS 123R and, accordingly, financial statement amounts for all prior periods presented herein reflect results as if the
fair value method of expensing had been applied from the original effective date of FAS 123, the predecessor to FAS 123R.

Under this
standard, companies are required to account for stock-based transactions using a fair value method and recognize the expense in the consolidated statements of income. We previously accounted for stock-based compensation transactions using the
intrinsic value method in accordance with APB 25 and provided the pro forma disclosures prescribed by FAS 123. Prior to April 16, 2007 the exercise price of stock awards was equal to the closing market price of the stock on the trading day
preceding the date of grant. Effective April 16, 2007, the exercise price of stock awards is equal to the closing market price of the stock on the trading day on which the awards were granted. The exemption to the accounting treatment for all
periods is certain acquisition-related options. Accordingly, with the exception of the acquisition-related compensation and awards granted under our deferred share and restricted share unit plans, no compensation cost had been recognized in the
financial statements prior to fiscal 2007.

In order to calculate the fair value of stock-based payment awards, we use a binomial lattice
model. This model requires the input of subjective assumptions, including stock price volatility, the expected exercise behavior and forfeiture rate. Expected volatilities are based on the historical volatility of our stock, implied volatilities
from traded options on our stock, and other relevant factors. We use historical data to estimate option exercise and employee termination within the valuation model: separate groups of employees that have similar exercise behavior and turnover rates
are considered separately for valuation purposes. The expected life of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate
for periods within the contractual life of the option are determined by the U.S. Treasury yields and the Government of Canada benchmark bond yields for U.S. dollar and Canadian dollar options, respectively, in effect at the time of the grant.

The assumptions used in calculating the fair value of stock-based payment awards represent managements best estimates, but these
estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change or we use different assumptions, our stock-based compensation expense could be materially different in the future. Further, the
liability incurred as a result of our performance-based restricted share units and our deferred share unit plans is based on the fair value of our stock on the balance sheet date. If the value of our stock were to change significantly, our
stock-based compensation expense could be significantly different in the future. We are also required to estimate the forfeiture rate and only recognize the expense for those shares expected to vest. If our actual forfeiture rate is materially
different from our estimate, our stock-based compensation expense could be significantly different from what we have recorded in the period such determination is made.



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Allowance for Doubtful Accounts - We maintain an allowance for doubtful accounts for estimated
losses resulting from the inability of our customers to make required payments. We regularly review our accounts receivable and use our judgment to assess the collectibility of specific accounts and, based on this assessment, an allowance is
maintained for 100% of all accounts over 360 days and specific accounts deemed to be uncollectible. For those receivables not specifically identified as uncollectible, an allowance is maintained for 1.5% of those receivables at February 28,
2007. In order to determine the percentage used, we analyze, on an annual basis, the geographical aging of the accounts, the nature of the receivables (i.e. license, maintenance, consulting), our historical collection experience, and current
economic conditions.

In the past, changes in these factors have resulted in adjustments to our allowance for doubtful accounts. These
adjustments have been accounted for as changes in estimates, the effect of which has not been significant on our results of operations and financial condition. As these factors change, the estimates made by management will also change, which will
impact our provision for doubtful accounts in the future. Specifically, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, an additional provision for doubtful accounts may
be required.

Accounting for Income Taxes - As an entity which operates globally, we calculate our income tax liabilities in each of
the jurisdictions in which we conduct business. Our tax rate is therefore affected by the relative profitability of our operations in various geographic regions. We are subject to ongoing tax examinations and assessments in various jurisdictions.
Accordingly, we may incur additional tax expense based upon our assessment of the outcomes of such matters. In addition, when applicable, we adjust the previously recorded tax expense to reflect examination results. Our ongoing assessments of the
outcome of the examinations and related tax positions require judgment and can materially increase or decrease our effective tax rate as well as impact our operating results.

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

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

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



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

We adopted the provisions of Financial Standards Accounting Board Interpretation No. 48, Accounting for Uncertainty in Income
Taxes  an interpretation of FASB Statement No. 109, on March 1, 2007. Under FIN 48, only income tax positions that meet the more likely than not recognition threshold may be recognized in the financial statements. An
income tax position that meets the more likely than not recognition threshold shall initially and subsequently be measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a
taxing authority that has full knowledge of all relevant information. As a result of FIN 48, we could have greater volatility in our effective tax rate in the future.

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

Historically, our acquisitions have resulted in the recognition of significant amounts of goodwill and acquired intangible assets. In order to allocate a purchase price to these intangible assets and goodwill, we make
estimates and judgments based on assumptions about the future income producing capabilities of these assets and related future expected cash flows. We also make estimates about the useful life of the acquired intangible assets. Should different
conditions prevail, we could incur write-downs of goodwill, write-downs of intangible assets, or changes in the estimation of useful life of those intangible assets. In the past, we have made adjustments to the valuation allowance on deferred tax
assets related to loss carry forwards acquired through acquisitions and the restructuring accrual related to acquisitions. These adjustments did not affect our result of operations. Instead, these adjustments were applied to goodwill.

In accordance with SFAS No.142, Goodwill and Other Intangible Assets (SFAS 142), goodwill is not amortized, but is subject to
annual impairment testing which is discussed in greater detail below under Impairment of Goodwill and Long-lived Assets.

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

In accordance with SFAS 142, we continuously evaluate the remaining useful life of our intangible assets being amortized to determine whether events or circumstances warrant a revision to the
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Other estimates associated with the accounting for acquisitions include restructuring costs.
Restructuring costs primarily relate to involuntary employee separations and accruals for vacating duplicate premises. Restructuring costs associated with the pre-acquisition activities of an entity acquired are accounted for in accordance with
Emerging Issues Task Force No. 95-3, Recognition of Liabilities in Connection with a Business Combination(EITF 95-3). To calculate restructuring costs accounted for under EITF 95-3, management estimates the number of
employees that will be involuntarily terminated and the associated costs and the future costs to operate and sublease duplicate facilities once they are vacated. Changes to the restructuring plan could result in material adjustments to the
restructuring accrual.

Impairment of Goodwill and Long-lived Assets -In accordance with SFAS 142, goodwill is subject to annual
impairment tests, or on a more frequent basis if events or conditions indicate that goodwill may be impaired. Goodwill is tested for impairment at a level of reporting referred to as a reporting unit. The Corporation as a whole is considered one
reporting unit. Quoted market prices in active markets are considered the best evidence of fair value. Therefore, the first step of our annual test is to compare the fair value of our shares on The Nasdaq Global Select Market to the carrying value
of our net assets. If we determine that our carrying value exceeds our fair value, we would conduct a second step to the goodwill impairment test. The second step compares the implied fair value of the goodwill (determined as the excess fair value
over the fair value assigned to our other assets and liabilities) to the carrying amount of goodwill. To date, we have not needed to perform the second step in testing goodwill impairment. If the carrying amount of goodwill were to exceed the
implied fair value of goodwill, an impairment loss would be recognized.

We evaluate all of our long-lived assets, including intangible
assets other than goodwill and fixed assets, periodically for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets(SFAS 144). SFAS 144 requires that long-lived
assets be evaluated for impairment when events or changes in facts and circumstances indicate that their carrying value may not be recoverable. Events or changes in facts or circumstances can include a strategic change in business direction, decline
or discontinuance of a product line, a reduction in our customer base, or a restructuring. If one of these events or circumstances indicates that the carrying value of an asset may not be recoverable, the amount of impairment will be measured as the
difference between the carrying value and the fair value of the impaired asset as calculated using a net realizable value methodology. An impairment will be recorded as an operating expense in the period of the impairment and as a reduction in the
carrying value of that asset.

NEW ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements, (SFAS 157), which defines fair value,
establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting
pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007. Earlier adoption is permitted. We are currently evaluating the impact of SFAS 157 on our consolidated results of operations and financial condition. We do
not expect the adoption of SFAS 157 to have a material impact on our consolidated results of operations and financial condition.

In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of SFAS No. 115(SFAS 159). This statement permits entities to choose
to measure many financial instruments and



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certain other items at fair value. The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is expected to expand the use of fair value
measurement, which is consistent with the FASBs long-term measurement objectives for accounting for financial instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted, at
the same time as SFAS 157. We are currently evaluating the impact of SFAS 159 on our consolidated results of operations and financial condition. We do not expect the adoption of SFAS 159 to have a material impact on our consolidated results of
operations and financial condition.

In June 2007, the FASB ratified EITF 07-3, Accounting for NonRefundable Advance Payments for Goods
or Services Received for Use in Future Research and Development Activities(EITF 07-3). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and
development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. EITF 07-3 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007
and will be adopted in the first quarter of fiscal 2009. We are currently evaluating the impact of the pending adoption of EITF 07-3 on our consolidated financial statements.



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Item 3. Quantitative and Qualitative Disclosure about Market Risk

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. Our market risk exposure is also affected by liquidity in capital markets. We do not hold or issue financial instruments for trading purposes.

All of our investments are classified as held to maturity, and are made up of investments that are of a short duration to maturity. As a
result, we believe that the impact of any market risk is unlikely to have a material effect on our financial position. During the quarter ended August 31, 2007, we held two investments with a cost of $14.6 million in Canadian third party asset
backed commercial paper (Third Party ABCP). During the month of August, segments of the Canadian Third Party ABCP market experienced liquidity problems. As a result, in some cases, as notes matured, certain Canadian Third Party
ABCP programs were unable to raise funds from new issuances and therefore were not able to refund maturing notes. Although the assets underlying the Canadian Third Party ABCP conduits are generally believed to be of high quality, the conduits we
held experienced liquidity difficulties. At this time, the conduits are subject to a proposal which calls for the notes to be converted into floating rate notes which better match the duration of the underlying assets to address the liquidity
problem. While the credit rating of the investments is under review, at the time of the investment they were rated R1-high by Dominion Bond Rating Services, the highest credit rating for this type of investment.

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 outstanding 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, 2007, a 100 basis-point adverse change in interest rates would have had a $0.01 and $0.03 impact on diluted earnings per share,
respectively, and would not have had a material effect on our consolidated financial position or cash flows.

Foreign Currency Risk

We operate internationally. Accordingly, a substantial portion of our business is conducted in and our financial instruments are held in currencies other
than the U.S. 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. We
typically have entered into foreign exchange forward contracts to manage our exposure. The forward contracts have typically been between the United States dollar and the euro, the British pound, the Swiss franc, the Japanese yen, and the Australian
dollar. Sensitivity analysis is used to measure our foreign currency exchange rate risk. As of August 31, 2007, a 10% adverse change in foreign exchange rates versus the U.S. dollar would have decreased our reported cash, cash equivalents, and
short-term investments by approximately three percent.



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As we operate internationally, a substantial portion of our business is also conducted in 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 U.S. dollar relative to the Canadian dollar, to various European currencies, and, to a lesser extent, other
foreign currencies. Revenues and expenses generated in foreign currencies are translated at exchange rates during the month in which the transaction occurs. We cannot predict the impact future foreign exchange fluctuations may have on our results;
however, if significant foreign exchange losses are experienced, they could have a material adverse effect on our business, results of operations, and financial condition.



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Item 4. Controls and Procedures

a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated
the Corporations disclosure controls and procedures as of the end of the period covered by this quarterly report and as of the filing date.

Based upon our evaluation of the disclosure controls and procedures as of the end of the period covered by this quarterly report, the Chief Executive Officer and Chief Financial Officer conclude that the disclosure controls and procedures
(as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective at a reasonable assurance level as of August 31, 2007 to 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 and that the information required to be disclosed is accumulated and communicated to our
principal executive and principal financial officers as appropriate to allow timely decisions regarding disclosure.

b)
Changes in internal controls

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

Limitations on Controls

Management does not expect
that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide
only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if
any, within the Corporation have been detected.



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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

During the fiscal quarter ended August 31, 2007, two separate,
unrelated lawsuits were filed against a number of enterprise software companies, including Cognos, for patent infringement. The first case, Diagnostic Systems Corporation v. Oracle, et. al., Case No. SACV07-960 AG (MLGx) was filed on August 15,
2007, in the United States District Court for the Central District of California. The second case, Juxtacomm Technologies, Inc v. Ascential Software Corporation, et. al., Case No. 2:07-CV-00359-TJW, was filed on August 17, 2007, in the
United States District Court for the Eastern District of Texas, Marshall Division. Cognos is investigating the allegations in both lawsuits and intends to defend the cases vigorously.

Item 1A. Risk Factors

Certain Factors That May Affect Future Results

In addition to the other information contained in this Form 10-Q and the exhibits hereto, the following risk factors should be considered carefully in
evaluating our business. Our business, financial condition or results of operations could be materially adversely affected by one or more of these risks, independently or in combination. This document contains forward-looking statements. You should
refer to the explanation of the qualifications and limitations on forward-looking statements set forth at the beginning of our Managements Discussion and Analysis. Any one or more of these risks, and any combination of these risks, as well as
additional risks not presently known to us or that we currently deem immaterial may also adversely affect our business, financial condition or results of operations.

Our reliance on larger transactions is increasing and larger transactions are complex and unpredictable.

Our business and our operational performance increasingly rely on larger transactions at the enterprise level. In any particular fiscal period, the presence or absence of one or more of these large transactions may
have a material positive or negative effect on our anticipated revenue in that period. These large transactions represent significant business and financial decisions for our customers and involve the expenditure of considerable time and effort by
us and our customers in the sales process. As well, these large transactions require additional levels of management approval when compared to smaller transactions. These factors tend to increase the risk that the customers purchasing decision
may be postponed or delayed from one period to another subsequent or later period or that the customer will alter his purchasing requirements. The sales effort and service delivery scope for larger transactions also require additional resources to
execute the transaction. These factors, along with any other foreseen or unforeseen event, could result in lower than anticipated revenue for a particular period or in the reduction of estimated revenue in future periods.

As we continue to face intense competition, and the nature of our competition is changing, we may not compete successfully.

We face substantial and increased competition throughout the world. We expect our existing and new competitors to continue to improve the performance of
their current products and to introduce new products (or integrated products) or new technologies. The



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software market and the nature of our competition may continue to consolidate and transform by merger or acquisition. Larger software vendors, including ERP
software vendors, may continue to expand their product offering into our markets. For example, ERP vendor, Oracle Corporation announced in April 2007 that it had acquired Hyperion Solutions. It acquired Siebel Systems, Inc. in January 2006 and
PeopleSoft, Inc. in 2005. In addition, Microsoft has increased its presence in our markets and has announced that it will continue expansion into business intelligence using its Windows platform. As our competitors continue to merge or partner with
other of our competitors or ERP vendors or if we were to become the subject of an unsolicited acquisition initiative by another enterprise, such changes in the competitive landscape may pose new competitive challenges that could adversely affect our
ability to compete either because of an improvement in one of our competitors competitive position or due to distraction caused by an unsolicited acquisition. Entry or expansion of other large software vendors, including ERP vendors, into this
market may establish competitors that have larger customer bases and substantially greater financial and other resources with which to pursue research and development, manufacturing, marketing, and distribution of their products. Their current
customer base and relationships may also provide them with a competitive advantage. New product announcements or introductions by our competitors, including the continuing emergence of open source software offerings, could cause a decline in sales,
a reduction in the sales price, or a loss of market acceptance of our existing products. If we are unable to effectively compete against our current and future competitors, our ability to sell products could be harmed. Any erosion of our competitive
position could have a material adverse effect on our business, results of operations, and financial condition.

Currency fluctuations may adversely
affect us.

A substantial portion of both our revenues and expenditures are generated in currencies other than the U.S. dollar, such
as the Canadian dollar and the euro. Fluctuations in the exchange rate between the U.S. dollar and other currencies, particularly the euro and the Canadian dollar, may have a material adverse effect on our business, financial condition, and
operating results as we report in U.S. dollars. For example, while foreign exchange fluctuations had a favorable impact on results in fiscal 2007, the Canadian dollar strengthened during fiscal 2008 resulting in greater than anticipated expenses
when reported in U.S. dollars. Please see further discussion on foreign currency risk included in the Market Risk section of Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K
filed April 27, 2007.

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

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



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Our products are increasingly used in complex business environments so their installation and
operation in those environments is complex and requires planning and cooperation between us and our customers.

Our current products
are increasingly being adopted in complex business environments. These environments pose considerable challenges to a software vendor and the successful implementation of our products in these environments requires project management expertise and
cooperation between us and our customers. If we cannot enable our customers to successfully implement our products in these challenging and complex environments, we could suffer a decline in follow-on business from that customer, a decline in
successful reference customers and a decline in our reputation in the market  all of which could have a material impact on our financial condition.

We may not be able to hire, integrate, retain, or compensate key personnel essential to our business or we may not be able to manage changes and transitions in our key personnel.

We believe that our success depends on our ability to hire, retain, and incent senior management and other key employees to develop, market, and support
our products and manage our business. The loss of any one of their services could have a material adverse effect on our business. Our success is also highly dependent on our continuing ability to hire, integrate, and retain other highly qualified
personnel as well as our ability to train and develop our existing personnel. The failure to attract and retain or to train and develop key personnel could adversely affect our future growth and profitability. Changes in senior management or other
key personnel can also cause temporary disruption in our operations during transition periods. Also, a decline in our stock price may have a negative impact on the retention value of any stock-based awards to key employees and could negatively
affect our ability to retain and attract key employees.

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

We cannot provide assurance that revenue from our products will continue to grow, or
grow at previous rates or rates projected by management. For example, while our rate of revenue growth between 2007 and 2006 was greater than the rate of growth between fiscal years 2006 and 2005, our rate of revenue growth between fiscal years 2006
and 2005 was lower than the rate of growth between fiscal years 2005 and 2004. Anticipated revenue may be reduced by any one, or a combination of, unforeseen market, economic, or competitive factors some of which are discussed in this section. We
have experienced, and in the future may experience, a shortfall in revenue or earnings or otherwise fail to meet public market expectations, which could materially and adversely affect our business and result in fluctuations in the market price of
our common stock.

Our quarterly and annual operating results may vary between periods.

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



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Our expenses may not match anticipated revenues.

We plan our operating expenses on anticipated revenue trends. Since a high percentage of these expenses are relatively fixed in the short term, a delay in completing license transactions could
cause significant variations in operating results from quarter to quarter and could result in operating losses. If these expenses precede, or are not subsequently followed by, increased revenues, our business, financial condition, or results of
operations could be materially and adversely affected. For example, in fiscal year 2007, we incurred unplanned restructuring charges resulting from our margin improvement plan which was implemented because our revenues were in line with projections,
but our expenses were projected to be greater than expected. In addition, because many of our costs are fixed in the immediate term, it can be difficult to adjust our cost structure for shortfalls in projected revenues. This can result in our
financial results in a fiscal period being below our expectations and guidance.

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

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

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

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



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We operate internationally and face risks attendant to those operations.

We earn a significant portion of our total revenues from international sales generated through our foreign direct and indirect operations. These sales
operations face risks arising from local political, legal and economic factors such as the general economic conditions in each country or region, varying regulatory requirements, compliance with international and local trade, labor and other laws,
and reduced intellectual property protections in certain jurisdictions. We may also face difficulties in managing our international operations, collecting receivables in a timely fashion, and repatriating earnings. Any of these factors, either
individually, or in combination could materially impact our international operations and adversely affect our business as a whole.

Making and
integrating acquisitions and our other strategic decisions could impair our operating results.

We have acquired and, if
appropriate, will continue to seek to acquire additional products or businesses that we believe complement or augment our products. For example, we recently announced a tender offer for all of the outstanding shares of Applix, Inc., a publicly
traded company based in Westborough, Massachusetts. Acquisitions involve a number of risks, including: diversion of managements attention; disruption of our ongoing business; difficulties in integrating and retaining all or part of the
acquired business and its personnel; assumption of disclosed and undisclosed liabilities; dealing with unfamiliar laws, customs and practices in foreign jurisdictions; and the effectiveness of the acquired companys internal controls and
procedures. The individual or combined effect of these risks could have a material adverse effect on our business. As well, in paying for an acquisition, we may deplete our cash resources, dilute our shareholder base by issuing additional shares, or
incur debt. Furthermore, there is the risk that our valuation assumptions and our models for an acquired product or business may be erroneous or inappropriate due to foreseen or unforeseen circumstances and thereby cause us to overvalue an
acquisition target. There is also the risk that the contemplated benefits of an acquisition may not materialize as planned or may not materialize within the time period or to the extent anticipated. Likewise, we make strategic decisions relating to
all aspects of our operations including with respect to the direction of product development, acquisitions and other strategic investments, transactions and initiatives. These decisions often involve the review and consideration of competing
alternatives and advice from various advisors, culminating in the exercise of judgment. There is the risk that our decision to proceed, or not to proceed, in a particular direction or with a particular strategic investment, transaction or initiative
may not ultimately be the optimal decision for the company. Such decisions may hamper our competitiveness in the marketplace and have an adverse impact on our operational and financial performance.

New accounting pronouncements or guidance may require us to change the way in which we account for our operational or business activities.

The Financial Accounting Standards Board (FASB), the SEC, the Public Company Accounting Oversight Board
(PCAOB) and other bodies that have jurisdiction over the form and content of our accounts are constantly discussing and interpreting proposals and existing pronouncements designed to ensure that companies best display relevant and
transparent information relating to their respective businesses. The pronouncements and interpretations of pronouncements by FASB, the SEC, the PCAOB and other bodies may have the effect of requiring us to account for revenues and/or expenses in a
different manner. For example, beginning with the first quarter of fiscal 2007, we began expensing the fair value of stock options. As a result, we now report increased expenses in our income statement and a reduction of our net income and earnings
per share. The impact on Cognos current financial statements of applying a fair value method of accounting for stock options is disclosed in Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of our Form
10-K filed April 27, 2007 and in our Form 8-K filed on March 29, 2007.



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

We rely on various intellectual property protections, including contractual provisions, patents, copyright, trademark, and
trade secret laws, to preserve our intellectual property rights. Despite our precautions, our intellectual property may be misappropriated, causing us to lose potential revenue and competitive advantage. As well, we may ourselves from time to time
become subject to claims by third parties that our technology infringes their intellectual property rights. For example, we were recently named as a defendant in two separate, unrelated lawsuits that were filed against a number of enterprise
software companies, including Cognos, for patent infringement. The first case, Diagnostic Systems Corporation v. Oracle, et. al., Case No. SACV07-960 AG (MLGx) was filed on August 15, 2007, in the United States District Court for the Central
District of California. The second case, Juxtacomm Technologies, Inc v. Ascential Software Corporation, et. al., Case No. 2:07-CV-00359-TJW, was filed on August 17, 2007, in the United States District Court for the Eastern District of
Texas, Marshall Division. In either case, we may incur expenditures to police, protect, and defend our interests and may become involved in litigation that could divert the attention of our management from developing our business. Responding to such
claims could result in substantial expense and result in damages, royalties, or injunctive relief, satisfy indemnification obligations to our customers, or require us to enter into licensing agreements on unfavorable terms, or redesign or stop
selling affected products which could materially disrupt the conduct of our business.

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

The sale, servicing, and support of our products entails the risk of product liability,
security flaws performance or warranty claims, which may be substantial in light of the use of our products in business-critical applications. A successful product liability claim could seriously disrupt our business and adversely affect our
financial results. Software products are complex and may contain errors, defects or security flaws, particularly when first introduced, or when new versions or enhancements are released, or when configured to individual customer requirements.
Although we currently have in place procedures and staff to exercise quality control over our products and respond to defects, errors and security flaws found in current versions, new versions, or enhancements of our products, defects and errors may
still occur. New products and new product versions or enhancements may also contain defects, errors or security flaws which may not be known to us at the time of introduction. If these defects, errors or security flaws are discovered after delivery
to our customers, customers may delay or reduce purchases, our reputation may be damaged, and we may incur additional costs associated with product claims, remedial work, and the addition or diversion of resources to address the defects, errors or
security flaws. This may result in decreased sales, increased costs and a loss of market share, all of which could have a negative impact on our financial results and performance. Specifically, if there are defects, errors or security flaws found in
Cognos 8, it could disrupt our business, impact our sales and adversely affect our financial results. We attempt to contractually limit our liability in accordance with industry practices. However, defects and errors in our products, including
Cognos 8, could inhibit or prevent customer deployment and cause us to lose customers or require us to pay penalties or damages.



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We may have exposure to greater or lower than anticipated tax liabilities.

We are subject to income taxes and non-income taxes in a variety of jurisdictions and our tax structure is subject to review by both domestic and foreign
taxation authorities. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment. Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts
recorded in our financial statements and may materially affect our financial results, positively or negatively, in the fiscal year for which such determination is made. Further, FIN 48 could result in more volatility in our future effective tax rate
as a result of the change in threshold for recognition.

Our periodic sales force restructurings can be disruptive.

We rely heavily on our direct sales force. We have in the past restructured or made other adjustments to our sales force in
response to management changes, product changes, performance issues, acquisitions and other internal and external considerations. In the past, such restructurings have generally resulted in a temporary lack of focus and reduced productivity; these
effects could recur in connection with future acquisitions and other restructurings and our revenues could be negatively affected.

We may need to change our pricing models to compete successfully.

The intensely competitive markets in which we
compete can put pressure on us to reduce our prices. If our competitors offer deep discounts on certain products or services, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes would likely
reduce margins and could adversely affect operating results. Our software license updates and product support fees are generally priced as a percentage of our new license fees. Our competitors may offer a lower percentage pricing on product updates
and support, which could put pressure on us to further discount our new license prices. Any broad-based change to our prices and pricing policies could cause new software license and services revenues to decline or be delayed as our sales force
implements and our customers adjust to the new pricing policies. Some of our competitors may bundle software products for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. These
practices could, over time, significantly constrain the prices that we can charge for our products. If we do not adapt our pricing models to reflect changes in customer use of our products, our new software license revenues could decrease.
Additionally, increased distribution of applications through application service providers may reduce the average price for our products or adversely affect other sales of our products, reducing new software license revenues unless we can offset
price reductions with volume increases or lower spending. The increase in open source software distribution may also cause us to change our pricing models.



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Disruptions of our indirect sales channel could affect our future operating
results.

Our indirect channel network is comprised primarily of resellers, system integrators/implementers, consultants, education
providers, internet service providers, network integrators and independent software vendors. Our relationships with these channel participants are important elements of our marketing and sales efforts. Our financial results could be adversely
affected if our contracts with channel participants were terminated, if our relationships with channel participants were to deteriorate, if any of our competitors enter into strategic relationships with or acquire a significant channel participant
or if the financial condition of our channel participants were to weaken. There can be no assurance that we will be successful in maintaining, expanding or developing our relationships with channel participants. If we are not successful, we may lose
sales opportunities, customers and market share.

Adverse litigation results could affect our business.

We are subject to various legal proceedings. Litigation can be lengthy, expensive, and disruptive to our operations and results cannot be predicted with
certainty. An adverse decision could result in monetary damages or injunctive relief that could affect our business, operating results or financial condition. Additional information regarding certain of the lawsuits we are involved in is discussed
in Item 1 - Legal Proceedings, herein.



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

PURCHASES OF EQUITY
SECURITIES



|                            |  |                               |  |                            |  |                                                                   |  |                                                                   |  |                         
|--------------------------- |  | ----------------------------- |  | -------------------------- |  | ----------------------------------------------------------------- |  | ----------------------------------------------------------------- |  | ------------------------
|Period                      |  | TotalNumber ofSharesPurchased |  | Average PricePaid perShare |  | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plans |  | Maximum Number of Shares that May Yet BePurchased Under the Plans
|                            |  |                               |  |                            |  |                                                                   |  | Restricted Share Unit Plan                                        |  | Share Repurchase Program
|June 1 to June 30, 2007     |  | 15,000                        |  | $38.87                     |  | NIL                                                               |  | 1,725,000                                                         |  | 4,814,700               
|July 1 to July 31, 2007     |  | 5,715,000                     |  | $40.42                     |  | 5,715,000                                                         |  | 1,725,000                                                         |  | 33,700                  
|August 1 to August 31, 2007 |  | NIL                           |  | NIL                        |  | NIL                                                               |  | 1,725,000                                                         |  | 33,700                  
|                            |  |                               |  |                            |  |                                                                   |  |                                                                   |  |                         
|Total                       |  | 5,730,000                     |  | $40.42                     |  | 5,715,000                                                         |  |                                                                   |  |                         
|                            |  |                               |  |                            |  |                                                                   |  |                                                                   |  |                         

On September 25, 2002, the Board of Directors of Cognos adopted a restricted share unit plan
under which awards of restricted share units can be granted to employees, officers and directors of Cognos. On June 23, 2005, the Corporations shareholders approved the extension of the term of the plan to September 30, 2015 and
increased the number of authorized shares from 2,000,000 to 3,000,000. Subject to the vesting provisions set out in each participants award agreement, each restricted share unit may be exchanged for one common share of Cognos. The common
shares for which the restricted share units may be exchanged are purchased on the open market by a trustee appointed and funded by Cognos. During the quarter ended August 31, 2007, Cognos repurchased 15,000 shares at an average price of $38.87
under the restricted share unit plan.

On September 21, 2006, Cognos announced that it had adopted a share repurchase program which
commenced on October 10, 2006 and ends on October 9, 2007 (the 2006 Share Repurchase Program). The program allows Cognos to repurchase up to 8,000,000 common shares (which is less than 10% of the common shares
outstanding on that date) provided that no more than $200,000,000 is expended in total under the program.

On July 5, 2007, Cognos
announced that it had amended the 2006 Share Repurchase Program announced on September 21, 2006 to increase the maximum number of shares to be repurchased and the amount authorized to be expended under the program to 8,934,000 shares and U.S.
$400,000,000. During the quarter ended August 31, 2007, Cognos repurchased 5,715,000 shares at an average price of $40.42 under the 2006 Share Repurchase Program.

On September 27, 2007, Cognos announced that it had adopted a share repurchase program which will commence on October 10, 2007 and ends on October 9, 2008 (the 2007 Share Repurchase
Program). The program allows Cognos to repurchase up to 6,000,000 common shares (which is approximately 7% of the common shares outstanding on that date) provided that no more than $200,000,000 is expended in total under the program.



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



|a) | The Corporation held its Annual and Special Meeting of Shareholders on June 21, 2007.
|-- | -------------------------------------------------------------------------------------



|b) | At the Annual and Special Meeting, shareholders elected the persons listed below as directors of the Corporation and approved the appointment of Ernst &
Young LLP as the Corporations independent auditors for the fiscal year ending February 28, 2008 and authorized the Audit Committee of the Board to fix their remuneration. Shareholders also approved amendments to the Cognos Incorporated
2003-2016 Stock Option Plan (Plan) to: (i) increase the number of shares issuable under the Plan by 1,000,000 shares; and (ii) amend the Termination and Amendment provision (Section 17) of the Plan.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The voting results of the meeting are presented in the following table:

Voting Results

Annual and Special
Meeting of Shareholders

June 21, 2007



|                                                                                                                                                                                            |  |            |  |           |  |                 |  |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- |  | --------- |  | --------------- |  | ----------
|                                                                                                                                                                                            |  | FOR        |  | WITHHELD  |  | BROKERNON-VOTES |  | AGAINST   
|Election of Directors                                                                                                                                                                       |  |            |  |           |  |                 |  |           
|                                                                                                                                                                                            |  |            |  |          
|Robert G. Ashe                                                                                                                                                                              |  | 59,735,493 |  | 42,458    |  |                |  |          
|John E. Caldwell                                                                                                                                                                            |  | 56,358,420 |  | 3,421,531 |  |                |  |          
|Paul D. Damp                                                                                                                                                                                |  | 59,732,435 |  | 45,516    |  |                |  |          
|Pierre Y. Ducros                                                                                                                                                                            |  | 58,435,885 |  | 1,342,066 |  |                |  |          
|Robert W. Korthals                                                                                                                                                                          |  | 57,553,990 |  | 2,223,961 |  |                |  |          
|Janet R. Perna                                                                                                                                                                              |  | 59,734,285 |  | 43,666    |  |                |  |          
|John J. Rando                                                                                                                                                                               |  | 58,834,388 |  | 943,563   |  |                |  |          
|William V. Russell                                                                                                                                                                          |  | 58,837,836 |  | 940,115   |  |                |  |          
|James M. Tory                                                                                                                                                                               |  | 59,602,177 |  | 175,774   |  |                |  |          
|Renato Zambonini                                                                                                                                                                            |  | 59,338,781 |  | 439,170   |  |                |  |          
|                                                                                                                                                                                            |  |            |  |          
|Appointment of Auditors                                                                                                                                                                     |  | 59,299,933 |  | 477,618   |  |                |  |          
|                                                                                                                                                                                            |  |            |  |          
|Amendments to the 2003-2016 Stock Option Plan to increase the shares of common stock reserved for awards thereunder by 1.0 million shares
as well as the other amendments summarized above. |  | 35,798,609 |  |          |  | 7,618,517       |  | 16,386,239
|                                                                                                                                                                                            |  |            |  |          
|Amendment to the provisions (Section 17) of the 2003-2016 Stock Option Plan.                                                                                                                |  | 44,713,764 |  |          |  | 7,681,212       |  | 7,408,389 



76



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##### Table of Contents

Item 6. Exhibits

a) Exhibits



|      |  |                                                                                                                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1   |  | Agreement and Plan of Merger by and among Cognos Incorporated, Dimension Acquisition Corp., and Applix, Inc, dated as of September 4, 2007 (incorporated by reference
to Form 8-K filed on September 5, 2007)
|      | 
|2.2   |  | Tender and Voting Agreement, dated September 4, 2007 (incorporated by reference to Form 8-K filed on September 5, 2007)                                                                                      
|      | 
|3.1   |  | Restated Articles of Incorporation dated May 3, 2006 (incorporated by reference to Exhibit 3.1 of the Corporations Form 10-K filed for the year ended February 28, 2007)                                    
|      | 
|3.2   |  | Amended By-Laws of the Corporation (filed as Exhibit 3.3 to Form 10-K for the year ended February 28, 2002)                                                                                                  
|      | 
|10.41 |  | Amended and Restated 2002-2015 Restricted Share Unit Plan                                                                                                                                                    
|      | 
|31.1  |  | Certification of Chief Executive Officer Pursuant to Rule 13a  14(a) and 15d  14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002           
|      | 
|31.2  |  | Certification of Chief Financial Officer Pursuant to Rule 13a  14(a) and 15d  14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002           
|      | 
|32    |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002                                



77



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##### Table of Contents

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 5, 2007 |  |  |  | /s/ Tom Manley                                                                                                                       
|Date            |  |  |  | Tom Manley                                                                                                                           
|                |  |  |  | Senior Vice President, Finance &Administration and Chief Financial Officer (Principal Financial Officer and Chief Accounting
Officer)



78



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##### Table of Contents

SELECTED EXHIBIT INDEX



|           |  |                                                                                                                                                                                                    |  |     
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|EXHIBITNO. |  | DESCRIPTION                                                                                                                                                                                        |  | PAGE
|10.41      |  | Amended and Restated 2002-2015 Restricted Share Unit Plan                                                                                                                                          |  | 80  
|           |  |                                                                                                                                                                                                   
|31.1       |  | Certification of Chief Executive Officer Pursuant to Rule 13a  14(a) and 15d  14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |  | 85  
|           |  |                                                                                                                                                                                                   
|31.2       |  | Certification of Chief Financial Officer Pursuant to Rule 13a  14(a) and 15d  14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |  | 86  
|           |  |                                                                                                                                                                                                   
|32         |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of
2002                      |  | 87  



79