##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---

FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended May 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
June 27, 2007, was 88,869,359.



---



---

##### Table of Contents

COGNOS INCORPORATED

INDEX



|                               |  |                                                                                                |  |     
|------------------------------ |  | ---------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                                |  | Page
|PART I  FINANCIAL INFORMATION
|                               |  |                                                                                               
|Item 1.                        |  | Consolidated Financial Statements (unaudited)                                                  |  |     
|                               |  |                                                                                               
|                               |  | Consolidated Statements of Income for the three months ended May 31, 2007 and May 31, 2006     |  | 3   
|                               |  |                                                                                               
|                               |  | Consolidated Balance Sheets as of May 31, 2007 and February 28, 2007                           |  | 4   
|                               |  |                                                                                               
|                               |  | Consolidated Statements of Cash Flows for the three months ended May 31, 2007 and May 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          |  | 20  
|                               |  |                                                                                               
|Item 3.                        |  | Quantitative and Qualitative Disclosure about Market Risk                                      |  | 54  
|                               |  |                                                                                               
|Item 4.                        |  | Controls and Procedures                                                                        |  | 55  
|                              
|PART II  OTHER INFORMATION   
|                               |  |                                                                                               
|Item 1A.                       |  | Risk Factors                                                                                   |  | 56  
|                               |  |                                                                                               
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                    |  | 62  
|                               |  |                                                                                               
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                            |  | 63  
|                               |  |                                                                                               
|Item 6.                        |  | Exhibits                                                                                       |  | 64  
|                               | 
|Signature                      |  | 65                                                                                            



2



---

##### Table of Contents

PART I  FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

COGNOS INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

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

(Unaudited)



|                                                      |  |                           |         |      |   |        
|----------------------------------------------------- |  | ------------------------- | ------- | ---- | - | -------
|                                                      |  | Three months endedMay 31,
|                                                      |  | 2007                      |         | 2006
|Revenue                                               |  |                           |         |      |   |        
|Product license                                       |  | $                         | 75,692  |      | $ | 73,735 
|Product support                                       |  |                           | 113,438 |      |   | 100,181
|Services                                              |  |                           | 47,524  |      |   | 43,124 
|                                                      |  |                           |         |      |   |        
|Total revenue                                         |  |                           | 236,654 |      |   | 217,040
|                                                      |  |                           |         |      |   |        
|Cost of revenue                                       |  |                           |         |      |   |        
|Cost of product license                               |  |                           | 1,433   |      |   | 1,757  
|Cost of product support                               |  |                           | 11,797  |      |   | 11,227 
|Cost of services                                      |  |                           | 40,581  |      |   | 37,516 
|                                                      |  |                           |         |      |   |        
|Total cost of revenue                                 |  |                           | 53,811  |      |   | 50,500 
|                                                      |  |                           |         |      |   |        
|Gross margin                                          |  |                           | 182,843 |      |   | 166,540
|                                                      |  |                           |         |      |   |        
|Operating expenses                                    |  |                           |         |      |   |        
|Selling, general, and administrative                  |  |                           | 125,427 |      |   | 117,592
|Research and development                              |  |                           | 34,930  |      |   | 33,279 
|Amortization of acquisition-related intangible assets |  |                           | 1,802   |      |   | 1,701  
|                                                      |  |                           |         |      |   |        
|Total operating expenses                              |  |                           | 162,159 |      |   | 152,572
|                                                      |  |                           |         |      |   |        
|Operating income                                      |  |                           | 20,684  |      |   | 13,968 
|Interest and other income, net                        |  |                           | 8,265   |      |   | 5,011  
|                                                      |  |                           |         |      |   |        
|Income before taxes                                   |  |                           | 28,949  |      |   | 18,979 
|Income tax provision                                  |  |                           | 6,563   |      |   | 4,441  
|                                                      |  |                           |         |      |   |        
|Net income                                            |  | $                         | 22,386  |      | $ | 14,538 
|                                                      |  |                           |         |      |   |        
|Net income per share                                  |  |                           |         |      |   |        
|Basic                                                 |  |                           | $0.25   |      |   | $0.16  
|                                                      |  |                           |         |      |   |        
|Diluted                                               |  |                           | $0.25   |      |   | $0.16  
|                                                      |  |                           |         |      |   |        
|Weighted average number of shares (000s)              |  |                           |         |      |   |        
|Basic                                                 |  |                           | 89,306  |      |   | 89,893 
|                                                      |  |                           |         |      |   |        
|Diluted                                               |  |                           | 90,158  |      |   | 90,825 
|                                                      |  |                           |         |      |   |        

(See accompanying notes)



3



---

##### Table of Contents

COGNOS INCORPORATED

CONSOLIDATED BALANCE SHEETS

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

(Unaudited)



|                                                                                                        |  |              |           |   |                   |             
|------------------------------------------------------------------------------------------------------- |  | ------------ | --------- | - | ----------------- | ------------
|                                                                                                        |  | May 31, 2007 |           |   | February 28, 2007
|Assets                                                                                                  |  |              |           |   |                   |             
|Current assets                                                                                          |  |              |           |   |                   |             
|Cash and cash equivalents                                                                               |  | $            | 490,714   |   |                   | $   376,762 
|Short-term investments                                                                                  |  |              | 163,306   |   |                   | 315,131     
|Accounts receivable                                                                                     |  |              | 166,682   |   |                   | 221,393     
|Income taxes receivable                                                                                 |  |              | 6,641     |   |                   | 2,274       
|Prepaid expenses and other current assets                                                               |  |              | 30,091    |   |                   | 29,724      
|Deferred tax assets                                                                                     |  |              | 13,791    |   |                   | 13,768      
|                                                                                                        |  |              |           |   |                   |             
|                                                                                                        |  |              | 871,225   |   |                   | 959,052     
|Fixed assets, net                                                                                       |  |              | 77,634    |   |                   | 72,256      
|Intangible assets, net                                                                                  |  |              | 15,973    |   |                   | 17,767      
|Other assets                                                                                            |  |              | 5,161     |   |                   | 5,642       
|Deferred tax assets                                                                                     |  |              | 9,949     |   |                   | 5,950       
|Goodwill                                                                                                |  |              | 226,455   |   |                   | 232,094     
|                                                                                                        |  |              |           |   |                   |             
|                                                                                                        |  | $            | 1,206,397 |   |                   | $1,292,761  
|                                                                                                        |  |              |           |   |                   |             
|Liabilities                                                                                             |  |              |           |   |                   |             
|Current liabilities                                                                                     |  |              |           |   |                   |             
|Accounts payable                                                                                        |  | $            | 36,283    |   |                   | $     36,970
|Accrued charges                                                                                         |  |              | 35,713    |   |                   | 36,628      
|Salaries, commissions, and related items                                                                |  |              | 66,837    |   |                   | 96,970      
|Income taxes payable                                                                                    |  |              | 8,823     |   |                   | 8,743       
|Deferred income taxes                                                                                   |  |              | 6,054     |   |                   | 6,363       
|Deferred revenue                                                                                        |  |              | 259,671   |   |                   | 284,896     
|                                                                                                        |  |              |           |   |                   |             
|                                                                                                        |  |              | 413,381   |   |                   | 470,570     
|Non-current income tax payable                                                                          |  |              | 50,085    |   |                   |            
|Deferred income taxes                                                                                   |  |              | 3,412     |   |                   | 30,751      
|                                                                                                        |  |              |           |   |                   |             
|                                                                                                        |  |              | 466,878   |   |                   | 501,321     
|                                                                                                        |  |              |           |   |                   |             
|Stockholders Equity                                                                                    |  |              |           |   |                   |             
|Capital stock                                                                                           |  |              |           |   |                   |             
|Common shares and additional paid-in capital(May 31, 2007  88,840,628; February 28, 2007 
89,725,774) |  |              | 547,232   |   |                   | 535,589     
|Treasury shares (May 31, 2007  1,190,035; February 28, 2007  617,369)                                 |  |              | (46,694   | ) |                   | (22,064)    
|Retained earnings                                                                                       |  |              | 233,925   |   |                   | 273,575     
|Accumulated other comprehensive income                                                                  |  |              | 5,056     |   |                   | 4,340       
|                                                                                                        |  |              |           |   |                   |             
|                                                                                                        |  |              | 739,519   |   |                   | 791,440     
|                                                                                                        |  |              |           |   |                   |             
|                                                                                                        |  | $            | 1,206,397 |   |                   | $1,292,761  
|                                                                                                        |  |              |           |   |                   |             

(See accompanying notes)



4



---

##### Table of Contents

COGNOS INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(Unaudited)



|                                                                  |  |                            |          |   |      |   |          |  
|----------------------------------------------------------------- |  | -------------------------- | -------- | - | ---- | - | -------- | -
|                                                                  |  | Three months ended May 31, |         
|                                                                  |  | 2007                       |          |   | 2006 |  
|Cash flows from operating activities                              |  |                            |          |   |      |   |          |  
|Net income                                                        |  | $                          | 22,386   |   |      | $ | 14,538   |  
|Non-cash items                                                    |  |                            |          |   |      |   |          |  
|Depreciation and amortization                                     |  |                            | 7,329    |   |      |   | 7,240    |  
|Stock-based compensation                                          |  |                            | 7,634    |   |      |   | 5,157    |  
|Deferred income taxes                                             |  |                            | 394      |   |      |   | 5,181    |  
|Non-current income taxes                                          |  |                            | 2,136    |   |      |   |         |  
|Loss on disposal of fixed assets                                  |  |                            | 53       |   |      |   | 139      |  
|Change in non-cash working capital                                |  |                            |          |   |      |   |          |  
|Decrease in accounts receivable                                   |  |                            | 57,440   |   |      |   | 81,140   |  
|Increase in income tax receivable                                 |  |                            | (4,362   | ) |      |   | (4,307   | )
|Decrease in prepaid expenses and other current assets             |  |                            | 912      |   |      |   | 6,891    |  
|Decrease in accounts payable                                      |  |                            | (2,077   | ) |      |   | (7,027   | )
|Increase (decrease) in accrued charges                            |  |                            | (1,545   | ) |      |   | 1,600    |  
|Decrease in salaries, commissions, and related items              |  |                            | (31,887  | ) |      |   | (14,825  | )
|Increase (decrease) in income taxes payable                       |  |                            | 488      |   |      |   | (3,355   | )
|Decrease in deferred revenue                                      |  |                            | (29,020  | ) |      |   | (19,732  | )
|                                                                  |  |                            |          |   |      |   |          |  
|Net cash provided by operating activities                         |  |                            | 29,881   |   |      |   | 72,640   |  
|                                                                  |  |                            |          |   |      |   |          |  
|Cash flows from investing activities                              |  |                            |          |   |      |   |          |  
|Maturity of short-term investments                                |  |                            | 295,841  |   |      |   | 112,615  |  
|Purchase of short-term investments                                |  |                            | (143,519 | ) |      |   | (232,636 | )
|Additions to fixed assets                                         |  |                            | (5,989   | ) |      |   | (6,371   | )
|Additions to intangible assets                                    |  |                            | (290     | ) |      |   | (326     | )
|Decrease in other assets                                          |  |                            | 138      |   |      |   | 269      |  
|                                                                  |  |                            |          |   |      |   |          |  
|Net cash provided by (used in) investing activities               |  |                            | 146,181  |   |      |   | (126,449 | )
|                                                                  |  |                            |          |   |      |   |          |  
|Cash flows from financing activities                              |  |                            |          |   |      |   |          |  
|Issue of common shares                                            |  |                            | 7,156    |   |      |   | 12,935   |  
|Purchase of treasury shares                                       |  |                            | (25,825  | ) |      |   |         |  
|Repurchase of shares                                              |  |                            | (48,019  | ) |      |   | (24,998  | )
|                                                                  |  |                            |          |   |      |   |          |  
|Net cash used in financing activities                             |  |                            | (66,688  | ) |      |   | (12,063  | )
|                                                                  |  |                            |          |   |      |   |          |  
|Effect of exchange rate changes on cash                           |  |                            | 4,578    |   |      |   | 4,416    |  
|                                                                  |  |                            |          |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents              |  |                            | 113,952  |   |      |   | (61,456  | )
|Cash and cash equivalents, beginning of period                    |  |                            | 376,762  |   |      |   | 398,634  |  
|                                                                  |  |                            |          |   |      |   |          |  
|Cash and cash equivalents, end of period                          |  |                            | 490,714  |   |      |   | 337,178  |  
|Short-term investments, end of period                             |  |                            | 163,306  |   |      |   | 273,006  |  
|                                                                  |  |                            |          |   |      |   |          |  
|Cash, cash equivalents, and short-term investments, end of period |  | $                          | 654,020  |   |      | $ | 610,184  |  
|                                                                  |  |                            |          |   |      |   |          |  

(See accompanying notes)



5



---

##### Table of Contents

COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

(In accordance with U.S. GAAP)



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

The accompanying unaudited consolidated financial statements have been prepared by the Corporation in United States (U.S.) dollars and in accordance with generally accepted accounting principles (GAAP)
in the U.S. with respect to interim financial statements, applied on a 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.

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.



6



---

##### Table of Contents

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)



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.

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.



7



---

##### Table of Contents

COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

(In accordance with U.S. GAAP)



The 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.



8



---

##### Table of Contents

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)



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



Three months ended May 31,2007


2006($000s)Compensation cost recognizedCost of Product Support

$   110


$     96Cost of Services

189


187Selling, General and Administrative

6,514


4,304Research and Development

693


491Total

7,506


5,078Tax benefit recognized

(1,601
)

(931
)Net Stock-based Compensation Cost

$5,905


$4,147Stock 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 May 31,2007


2006Risk-free interest rates

4.2
%

4.7
%Expected volatility

35
%

33
%Dividend yield

0
%

0
%Expected life of options (years)

4.1


3.7


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 our
fiscal year 2008 we changed the date we use when issuing stock options. 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.



9



---

##### Table of Contents

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)



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



|                           |  |                       |   |  |                                     |  |                                      |  |                                                    
|-------------------------- |  | --------------------- | - |  | ----------------------------------- |  | ------------------------------------ |  | ---------------------------------------------------
|                           |  | Number ofAwards(000s) |   |  | Weightedaverageexerciseprice (in $) |  | Aggregateintrinsic value (1) ($000s) |  | Weighted-averageremainingcontractualterm
(in years)
|Outstanding, March 1, 2007 |  | 8,381                 |   |  | $33.55                              |  | $47,215                              |  | 2.5                                                
|Granted                    |  | 405                   |   |  | 42.88                               |  |                                      |  |                                                    
|Cancelled                  |  | (178                  | ) |  | 35.42                               |  |                                      |  |                                                    
|Exercised                  |  | (264                  | ) |  | 24.43                               |  |                                      |  |                                                    
|                           |  |                       |   |  |                                     |  |                                      |  |                                                    
|Outstanding, May 31, 2007  |  | 8,344                 |   |  | 37.07                               |  | 38,253                               |  | 2.4                                                
|                           |  |                       |   |  |                                     |  |                                      |  |                                                    
|Exercisable, May 31, 2007  |  | 5,161                 |   |  | 36.62                               |  | 29,287                               |  | 1.9                                                
|Unvested, May 31, 2007     |  | 3,183                 |   |  | 37.82                               |  | 8,966                                |  | 3.2                                                



---

|(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 $40.00 for the Corporations stock on the NASDAQ on February 28, 2007 and May 31, 2007, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



|                          |  |  |  |  |  |  |  |                           |   |  |                                            
|------------------------- |  |  |  |  |  |  |  | ------------------------- | - |  | -------------------------------------------
|                          |  |  |  |  |  |  |  | Number ofAwards (in 000s) |   |  | Weighted-average grantdate fairvalue (in $)
|Unvested at March 1, 2007 |  |  |  |  |  |  |  | 3,078                     |   |  | $11.12                                     
|Granted                   |  |  |  |  |  |  |  | 405                       |   |  | 14.21                                      
|Vested                    |  |  |  |  |  |  |  | (158                      | ) |  | 11.68                                      
|Forfeited                 |  |  |  |  |  |  |  | (142                      | ) |  |                                            
|                          |  |  |  |  |  |  |  |                           |   |  |                                            
|Unvested at May 31, 2007  |  |  |  |  |  |  |  | 3,183                     |   |  | 11.34                                      
|                          |  |  |  |  |  |  |  |                           |   |  |                                            

The weighted-average grant date fair value of options granted during the three
month period ended May 31, 2007 was $14.21 for a total fair value of $5,755,000. Options with a fair value of $1,845,000 completed vesting during the three-month period ended May 31, 2007. The total intrinsic value of options exercised
during the three month period ended May 31, 2007 was $4,548,000. 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 three-month
period ended May 31, 2007 was $546,000.

As of May 31, 2007, there was $27,698,000 of total unrecognized
compensation cost related to unvested stock options; that cost is expected to be recognized over a weighted-average period of 1.5 years.



10



---

##### Table of Contents

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)



Restricted Share Unit Plan

The Corporation also maintains a Restricted Share Unit Plan pursuant to which employees, officers, and directors of the Corporation and
its subsidiaries are eligible to participate. Subject to performance and/or vesting 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 on 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 for the Corporations outlook for the fiscal year as at the end of each
fiscal period. Compensation cost is only recognized to the extent that performance goals are achieved.

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

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



|                           |  |                       |   |  |                                      |  |                                                    |  |                        
|-------------------------- |  | --------------------- | - |  | ------------------------------------ |  | -------------------------------------------------- |  | -----------------------
|                           |  | RestrictedShare Units |   |  | Weighted Average Grant DayFair Value |  | WeightedAverageRemainingContractualTerm (in years) |  | AggregateIntrinsicValue
|                           |  | (000s)                |   |  |                                      |  |                                                    |  | ($000)                 
|Outstanding, March 1, 2007 |  | 754                   |   |  | $35.46                               |  | 3.0                                                |  | $28,745                
|Granted                    |  | 473                   |   |  | 42.24                                |  |                                                    |  |                        
|Vested                     |  | (29                   | ) |  | 30.55                                |  |                                                    |  |                        
|Forfeited                  |  | (13                   | ) |  | 38.59                                |  |                                                    |  |                        
|                           |  |                       |   |  |                                      |  |                                                    |  |                        
|Outstanding, May 31, 2007  |  | 1,185                 |   |  | $38.25                               |  | 3.4                                                |  | $47,408                
|                           |  |                       |   |  |                                      |  |                                                    |  |                        

The weighted-average grant date fair value of RSUs granted during the three month
period ended May 31, 2007 was $42.24. The fair value of the Corporations stock at May 31, 2007 was $40.00. The total intrinsic value of RSUs that vested during the three month period ended May 31, 2007 was $1,213,000.

As of May 31, 2007, there was $35,278,000 of total unrecognized compensation cost related to unvested RSUs; that cost
is expected to be recognized over a weighted-average period of 2.9 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.



11



---

##### Table of Contents

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)



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 lesser of the
simple average of the high and low prices of the 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 $48,000 of ESPP compensation expense in the
three-month period ended May 31, 2007, compared to $174,000 in the corresponding period last fiscal year.

Deferred
Share Plan for Non-employee Directors

The Corporation has established a deferred share 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 a 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 May 31, 2007, the Corporation had a liability of $5,665,000 in relation to the DSU Plan based on the value of the Corporations stock at that date.



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



|                          |  |                    |   |                         |                          |  |         |   |  |                          |  |                   |  
|------------------------- |  | ------------------ | - | ----------------------- | ------------------------ |  | ------- | - |  | ------------------------ |  | ----------------- | -
|                          |  | As at May 31, 2007 |   | As at February 28, 2007 |                          |  |        
|                          |  | Cost               |   |                         | Accumulated Amortization |  | Cost    |   |  | Accumulated Amortization |  | Amortization Rate |  
|                          |  | ($000s)            |   | ($000s)                 |                          |  |        
|Acquired technology       |  | $43,107            |   |                         | $35,230                  |  | $43,107 |   |  | $33,758                  |  | 20                | %
|Contractual relationships |  | 10,154             |   |                         | 4,936                    |  | 10,154  |   |  | 4,609                    |  | 12.5              | %
|Trademarks and patents    |  | 7,507              |   |                         | 4,629                    |  | 7,217   |   |  | 4,344                    |  | 20                | %
|                          |  |                    |   |                         |                          |  |         |   |  |                          |  |                   |  
|                          |  | 60,768             |   |                         | $44,795                  |  | 60,478  |   |  | $42,711                  |  |                   |  
|                          |  |                    |   |                         |                          |  |         |   |  |                          |  |                   |  
|Accumulated amortization  |  | (44,795            | ) |                         |                          |  | (42,711 | ) |  |                          |  |                   |  
|                          |  |                    |   |                         |                          |  |         |   |  |                          |  |                   |  
|Net book value            |  | $15,973            |   |                         |                          |  | $17,767 |   |  |                          |  |                   |  
|                          |  |                    |   |                         |                          |  |         |   |  |                          |  |                   |  

During the three months ended May 31, 2007 and May 31, 2006, there were
additions to trademarks and patents in the amount of $290,000 and $325,000, respectively.



12



---

##### Table of Contents

COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

(In accordance with U.S. GAAP)



The 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:



|                                                |  |                             |  |       
|----------------------------------------------- |  | --------------------------- |  | ------
|                                                |  | Three months ended, May 31,
|                                                |  | 2007                        |  | 2006  
|                                                |  | ($000s)                    
|Amortization of acquisition-related intangibles |  | $1,802                      |  | $1,701
|Selling, general, and administrative expenses   |  | 282                         |  | 242   
|                                                |  |                             |  |       
|Total                                           |  | $2,084                      |  | $1,943
|                                                |  |                             |  |       

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



|                |  |  |  |       
|--------------- |  |  |  | ------
|2008 (Q2 to Q4) |  |  |  | $5,577
|2009            |  |  |  | 4,102 
|2010            |  |  |  | 3,313 
|2011            |  |  |  | 2,414 
|2012            |  |  |  | 561   
|2013            |  |  |  | 6     



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

For the
three months ended May 31, 2007, there was a decrease to goodwill of $5,814,000, related to the acquisition of Adaytum, Inc. and an increase to goodwill of $175,000 relating to the acquisition of Celequest Corporation
(Celequest). The decrease relating to Adaytum goodwill resulted from tax benefits that were recognized during the quarter. The increase relating to Celequest resulted from the assumption of a tax liability on acquisition. For the
three months ended May 31, 2006, there were no adjustments to goodwill.



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



13



---

##### Table of Contents

COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

(In accordance with U.S. GAAP)



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

Legal Proceedings

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

Customer Indemnification

The Corporation has entered into licensing agreements with customers that include limited intellectual property
indemnification clauses. These clauses are typical in the software industry and require the Corporation to compensate the customer for certain liabilities and damages incurred as a result of third party intellectual property claims arising from
these transactions. The Corporation 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.



|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 increased for the three-month period ended May 31, 2007 to 23% due to an adjustment related to interest on unrecognized tax benefits, which was partially offset by disqualifying dispositions of incentive
stock options in the U.S. For the three months ended May 31, 2006, 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-month
period ended May 31, 2006 to 23% due to the reversal of a tax reserve of $118,000 in respect of a fiscal year that was closed for audit purposes in the quarter.

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.



14



---

##### Table of Contents

COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

(In accordance with U.S. GAAP)



The 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 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. 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.

Using the
recognition and measurement criteria in FIN 48 during the quarter, the total amount of unrecognized tax benefits and related interest increased by approximately $1,771,000. This increase included $606,000 for unrecognized tax benefits related to
transfer pricing positions and $1,165,000 for interest related to unrecognized tax benefits from prior periods. In addition, the Corporation received correspondence during the quarter from the UK tax authorities relating to the ongoing United
Kingdom tax audit of the 2004 taxation year. As a result of the position taken by the UK tax authorities in this correspondence, the Corporation believes that certain tax positions previously reserved have become more-likely-than-not of being
sustained. Accordingly, the Corporation recorded a decrease of its unrecognized tax benefits of approximately $4,762,000 as a reduction to goodwill in the first quarter of fiscal 2008.

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 for
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 our estimated effective tax rate for the full year.

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 to 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    |  | 2005 to 2007
|Australia      |  | 2003 to 2007



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

The Corporation issued 281,000 common shares for proceeds of $7,156,000 during the three months ended May 31, 2007, and issued 537,000 common shares for proceeds of $12,935,000 during the three months ended May 31, 2006. The
issuance of shares in fiscal 2007 and 2006 was pursuant to the Corporations stock purchase plan and the exercise of stock options by employees, officers and directors.



15



---

##### Table of Contents

COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

(In accordance with U.S. GAAP)



The Corporation repurchases shares in the open market under a share repurchase
program and under a restricted share unit plan. During the three months ended May 31, 2007 and May 31, 2006, the Corporation repurchased 1,166,000 shares at a value of $48,019,000 and 653,000 shares at a value of $24,998,000, respectively,
under the Corporations share repurchase program. During the three months ended May 31, 2007 a trustee purchased 602,000 shares valued at $25,825,000 at the Corporations expense to honor commitments under the Corporations
restricted share unit plan. No shares were purchased under the restricted share unit plan during the three months ended May 31, 2006.

Net Income per Share

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



|                                                       |  |                            |  |        
|------------------------------------------------------ |  | -------------------------- |  | -------
|                                                       |  | Three months ended May 31,
|                                                       |  | 2007                       |  | 2006   
|Basic Net Income per Share                             |  |                            |  |        
|Net income                                             |  | $22,386                    |  | $14,538
|                                                       |  |                            |  |        
|Weighted average number of shares outstanding          |  | 89,306                     |  | 89,893 
|                                                       |  |                            |  |        
|Basic net income per share                             |  | $0.25                      |  | $0.16  
|                                                       |  |                            |  |        
|Diluted Net Income per Share                           |  |                            |  |        
|Net income                                             |  | $22,386                    |  | $14,538
|                                                       |  |                            |  |        
|Weighted average number of shares outstanding          |  | 89,306                     |  | 89,893 
|Dilutive effect of stock options                       |  | 852                        |  | 932    
|                                                       |  |                            |  |        
|Adjusted weighted average number of shares outstanding |  | 90,158                     |  | 90,825 
|                                                       |  |                            |  |        
|Diluted net income per share                           |  | $0.25                      |  | $0.16  
|                                                       |  |                            |  |        



|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, 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.



16



---

##### Table of Contents

COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

(In accordance with U.S. GAAP)



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



|                                                                        |  |                            |   |  |         |  
|----------------------------------------------------------------------- |  | -------------------------- | - |  | ------- | -
|                                                                        |  | Three months ended May 31, |  
|                                                                        |  | 2007                       |   |  | 2006    |  
|Net income                                                              |  | $22,386                    |   |  | $14,538 |  
|Other comprehensive income (loss):                                      |  |                            |   |  |         |  
|Foreign currency translation adjustments                                |  | 1,021                      |   |  | 1,381   |  
|Change in net unrealized loss on derivative instruments                 |  | 128                        |   |  | (172    | )
|Change in the funded status of the defined benefits postretirement plan |  | (433                       | ) |  |        |  
|                                                                        |  |                            |   |  |         |  
|Comprehensive income                                                    |  | $23,102                    |   |  | $15,747 |  
|                                                                        |  |                            |   |  |         |  



|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 are 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.



17



---

##### Table of Contents

COGNOS INCORPORATED

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

(In accordance with U.S. GAAP)



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



|                                 |  |                     |  
|-------------------------------- |  | ------------------- | -
|                                 |  | Employeeseparations |  
|Balance as at February 28, 2007  |  | $7,582              |  
|Cash payments during the quarter |  | (2,997              | )
|Adjustment                       |  | (263                | )
|Foreign exchange adjustment      |  | 535                 |  
|                                 |  |                     |  
|Balance as at May 31, 2007       |  | $4,857              |  
|                                 |  |                     |  



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

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments - an Amendment to SFAS Nos. 133 and 140(SFAS 155). SFAS 155 simplifies the
accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain
other provisions of SFAS No. 133 and SFAS No. 140. SFAS No. 155 is effective for all financial instruments acquired, issued, or subject to a re-measurement event occurring in fiscal years beginning after September 15, 2006. This Statement is
effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. The Corporation adopted this standard in the first quarter of fiscal year 2008, and it did not
have a material impact on its consolidated results of operations and financial condition.

In March 2006, the FASB issued
SFAS No. 156, Accounting for Servicing of Financial Instruments  an Amendment of SFAS No. 140 (SFAS 156). This Statement amends SFAS No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. This Statement is effective for fiscal years beginning after September 15, 2006. The Corporation
adopted this standard in the first quarter of fiscal year 2008, and it did not have a material impact on its consolidated results of operations and financial condition.

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.



18



---

##### Table of Contents

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)



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.



19



---

##### Table of Contents

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 our future revenues and earnings; 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; 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; product and technological improvements by our competitors and consolidation in our industry;
foreign currency trends and their effects; our policy regarding payment of dividends; the adequacy of our capital to meet our requirements; the strength of our intellectual property protection; drivers of growth in the business intelligence
(BI) market; and 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 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; 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.



20



---

##### Table of Contents

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 and the amortization of acquisition-related intangible assets. The Non-GAAP Measures also exclude the restructuring charges related to our margin improvement plan implemented in the third quarter of fiscal
2007, 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.

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. Stock-based compensation, amortization of
acquisition-related intangible assets and restructuring charges 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.



21



---

##### Table of Contents

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 to motivate or reward 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, operating margin
achievement has been measured 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.

The margin
improvement plan reflects 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 is intended to align our business model and expense structure to our position in the market
we are experiencing, and expect 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, stock-based compensation, amortization of acquisition-related intangible assets and restructuring expenses 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 excluding
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.



22



---

##### Table of Contents

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



| |  |  | 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 is a global leader in BI and performance management (PM)
software solutions. Our solutions provide world-class enterprise planning and BI software and services to help companies plan, understand, and manage financial and operational performance.



23



---

##### Table of Contents

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. Cognos performance management solutions and services are also available from our
more than 3,000 worldwide partners and resellers.

Our revenue is derived primarily from the licensing of our software and the provision of
related services for BI and PM 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 results for the first quarter of fiscal 2008, in what is seasonally our most
challenging quarter. Highlights of the results were growth in total revenue of 9% and net income of 54% compared to the first quarter of the prior year. The growth in revenue was lead by a significant improvement in our services and support
revenues, which were up 10% and 13%, respectively, when compared to the corresponding period last year. Our net income for the quarter was negatively affected by a strong Canadian dollar which continued to increase against the U.S. dollar in the
quarter. We continue to prudently manage expenses given the negative impact of the exchange rate fluctuations.

Operating Performance

Revenue for the three-month period ended May 31, 2007 was $236.7 million, an increase of 9% from $217.0 million for the corresponding period last
year. License revenue increased 3% to $75.7 million, compared with $73.7 million in the first quarter of fiscal 2007, on the strength of Cognos 8, Cognos Planning and Cognos Performance Applications. These sales increases were partially offset by
reductions in sales of our Series 7 Business Intelligence products.

We signed 7 contracts in excess of one million dollars during the
quarter, compared with 13 contracts in the corresponding period last year. The number of contracts greater than $200,000 increased 8% compared to the corresponding period last year. Average license order size for orders greater than $50,000 was
$200,000, compared to $186,000 last year. We believe that the increase in average license order size is an indication of enterprise-scale investment in our products by our customers which creates a foundation for future growth as it enables us to
generate additional software licensing and ongoing maintenance renewals.

Product support revenue increased 13% to $113.4 million as we
continued to expand our customer base and experience solid renewal rates. Services revenue also contributed to the growth in revenue during the quarter, increasing 10% to $47.5 million from $43.1 million for the same quarter last year.

Net income for the three-month period ended May 31, 2007 was $22.4 million or $0.25 per diluted share, compared to net income of $14.5 million or
$0.16 per diluted share for the same period last year, representing an increase in net income of 54%. The increase in net income for the quarter was primarily due to increased revenue, and additional interest and other income compared to the same
period last year, which were partially offset by increased expenses and the unfavorable effect of foreign currency, predominantly the stronger Canadian dollar.



24



---

##### Table of Contents

Non-GAAP net income for the three months ended May 31, 2007 was $29.2 million and non-GAAP net
income per diluted share was $0.32 compared to non-GAAP net income of $19.8 million and non-GAAP net income per diluted share of $0.22 for the corresponding period last year. This represents a growth in non-GAAP net income of 48%. 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 the section entitled Non-GAAP Financial Measures.

Our balance
sheet remains strong, ending the quarter with $654.0 million in cash, cash equivalents, and short-term investments. This represents a decrease of $37.9 million in cash, cash equivalents and short-term investments from February 28, 2007,
primarily attributable to repurchase of our own shares as part of both the Share Repurchase Program and our Restricted Share Unit Plan and the reduction of salaries, commissions and related items payable partially offset by our net income and the
collection of accounts receivable.

Recent Announcements

During the quarter we hosted our annual Cognos Forum and Partner Summit (Cognos Forum). There were more than 3,000 attendees including 500 Partners, which made attendance at this years
conference our highest ever. This years focus was to provide customers and partners the opportunity to learn best practices and technical tips, as well as strategies for achieving success and high impact with Cognos tools. The Corporation uses
Cognos Forum to engage with our customers and partners to obtain feedback to help us constantly improve our product offering.

Our Annual
and Special Meeting of Shareholders was held on June 21, 2007. At the meeting, shareholders reappointed Ernst & Young as auditors, elected Directors of the Corporation for the coming year, and approved an amendment to our 2003-2016 Stock
Option Plan which increased the number of shares of common stock reserved for awards under the Plan by 1,000,000 to 8,360,000. Shareholders also approved an amendment to our 2003-2016 Stock Option Plan which amended the Term and
Amendment provision of the Plan.

During the quarter, we announced Cognos Now!, an innovative solution that offers self-service
dashboards, integrated data, analysis, and reports as a prepackaged BI appliance or as a hosted service. Cognos Now! allows customers to easily deploy and maintain a complete, operational BI solution at a low cost, even when IT staff or resources
are limited. The product is based on technology from the recent Celequest acquisition.

During the quarter, we also announced Cognos 8
Controller version 8.2 offering a proven finance-managed application to support the close, consolidate, and report process; to ensure financial statement quality and close efficiency; and to meet modern compliance requirements. We believe this
solution will help our customers reduce the amount they spend on Sarbanes-Oxley Section 404 compliance.

Outlook for the balance of the fiscal year

We continue to expect revenue and net income to increase for the full fiscal year when compared to fiscal 2007 on a consistent basis.
We believe that the BI market remains strong and that we will benefit from the Cognos 8 product cycle in the upcoming year.



25



---

##### Table of Contents

With the general availability of Cognos 8 and its second maintenance release, 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 reporting and analysis capabilities. Given the positive response we have experienced for Cognos 8
since its release, we believe that Cognos 8 will continue to make a significant contribution to fiscal 2008 license revenue.

We continue
to experience a healthy market for our other products, including our performance management applications. Cognos Planning and Cognos Controller are the key components of our Office of Finance product strategy and we believe that the strength of
these two products in the market will be significant contributors to our business. We will continue to focus on bringing innovative new products to market and we continue to develop new releases of our products.

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.

In the first quarter
of fiscal 2008, the Canadian dollar continued to strengthen when compared to the U.S. dollar. If this trend continues through fiscal 2008, it will continue to put pressure on our business and operating margin percentage as 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 $18,245,000 with a corresponding decrease in the March 1, 2007 balance of retained earnings of $18,245,000. 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. The adoption of FIN 48 did not have a material effect on the current quarters income tax provision.



26



---

##### Table of Contents

GAAP Operating Performance



|                                  |  |                            |   |  |                                            |   |  |             
|--------------------------------- |  | -------------------------- | - |  | ------------------------------------------ | - |  | ------------
|($000s, except per share amounts) |  | Three months ended May 31, |   |  | PercentageChange Three monthsended May 31,
|                                  |  |                           
|                                  |  | 2007                       |   |  | 2006                                       |   |  | 2006 to 2007
|Revenue                           |  | $236,654                   |   |  | $217,040                                   |   |  | 9.0%        
|Cost of revenue                   |  | 53,811                     |   |  | 50,500                                     |   |  | 6.6         
|                                  |  |                            |   |  |                                            |   |  |             
|Gross margin                      |  | 182,843                    |   |  | 166,540                                    |   |  | 9.8         
|Operating expenses                |  | 162,159                    |   |  | 152,572                                    |   |  | 6.3         
|                                  |  |                            |   |  |                                            |   |  |             
|Operating income                  |  | $  20,684                  |   |  | $  13,968                                  |   |  | 48.1        
|                                  |  |                            |  
|Gross margin percentage           |  | 77.3                       | % |  | 76.7                                       | % |  |             
|Operating margin percentage       |  | 8.7                        | % |  | 6.4                                        | % |  |             
|                                  |  |                            |  
|Net income                        |  | $  22,386                  |   |  | $  14,538                                  |   |  | 54.0%       
|                                  |  |                            |   |  |                                            |   |  |             
|Basic net income per share        |  | $0.25                      |   |  | $0.16                                      |   |  |             
|                                  |  |                            |   |  |                                            |   |  |             
|Diluted net income per share      |  | $0.25                      |   |  | $0.16                                      |   |  |             
|                                  |  |                            |   |  |                                            |   |  |             

Revenue for the quarter ended May 31, 2007 was $236.7 million, a 9% increase from revenue of
$217.0 million for the same quarter last year. Net income for the current quarter was $22.4 million, a 54% increase from net income of $14.5 million for the same quarter last year. Diluted net income per share was $0.25 for the current quarter,
compared to diluted net income per share of $0.16 for the same quarter last year. Basic net income per share was $0.25 and $0.16 for the quarters ended May 31, 2007 and May 31, 2006, respectively.

Gross margin for the quarter ended May 31, 2007 was $182.8 million, an increase of 10% over gross margin of $166.5 million for the same quarter last
year. Gross margin percentage was 77.3% for the quarter ended May 31, 2007 as compared to 76.7% for the same quarter last year. Total operating expenses for the quarter ended May 31, 2007 were $162.2 million, a 6% increase from operating
expenses of $152.6 million for the same quarter last year. Operating income for the quarter ended May 31, 2007 was $20.7 million, an increase of 48% from operating income of $14.0 million in the same quarter last year. Operating margin for the
quarter ended May 31, 2007 was 8.7% as compared to 6.4% for the comparative quarter of the previous fiscal year.

The increase in
operating income and net income for the quarter is primarily due to increases in revenue on all three revenue streams. Also contributing to the increase in net income was higher interest and other income compared to the same quarter last year. The
increase in net income was partially offset by increased expenses and the unfavorable effect of foreign currency, predominantly the stronger Canadian dollar which increased our operating expenses.



27



---

##### Table of Contents

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 these other currencies.



|                                       |  |                                           |  |                 |  |          
|-------------------------------------- |  | ----------------------------------------- |  | --------------- |  | ---------
|                                       |  | Three Months Ended May 31, 2007 over 2006
|                                       |  | GrowthExcludingForeignExchange            |  | ForeignExchange |  | NetGrowth
|Revenue                                |  | 5.9%                                      |  | 3.1%            |  | 9.0%     
|Cost of Revenue and Operating Expenses |  | 3.3%                                      |  | 3.1%            |  | 6.4%     
|Operating Income                       |  | 43.1%                                     |  | 5.0%            |  | 48.1%    

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 ended May 31, |        |   | Percentage Change Three months ended May 31,
|                                      |  |                           
|                                      |  | 2007                       |        |   | 2006                                         |   |        | 2006 to 2007
|Non-GAAP Operating Income             |  | $                          | 29,729 |   |                                              | $ | 20,747 |              |  | 43.3%
|Non-GAAP Operating Margin             |  |                            | 12.6   | % |                                              |   | 9.6    | %            |  |      
|Non-GAAP Net Income                   |  | $                          | 29,220 |   |                                              | $ | 19,762 |              |  | 47.9%
|Non-GAAP Net Income per Diluted Share |  |                            | $0.32  |   |                                              |   | $0.22  |              |  |      

Non-GAAP operating margin for the quarter ended May 31, 2007 was 12.6% compared to 9.6% for
the corresponding quarter of the previous fiscal year. Non-GAAP net income for the current quarter was $29.2 million, compared to $19.8 million for the same quarter last year. Non-GAAP net income per diluted share was $0.32 for the current quarter,
compared to non-GAAP net income per diluted share of $0.22 for the same quarter last year.

Most of the factors driving the increase in
non-GAAP operating margin and non-GAAP net income for the three months ended May 31, 2007, compared to the same period in the prior fiscal year, were the same as the related GAAP metrics described 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 period in the prior year.



28



---

##### Table of Contents

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



|                                                                           |  |                            |        |   |      |   |        |  
|-------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ---- | - | ------ | -
|                                                                           |  | Three months ended May 31, |       
|                                                                           |  | 2007                       |        |   | 2006 |  
|Operating Income                                                           |  |                            |        |   |      |   |        |  
|GAAP Operating Income                                                      |  | $                          | 20,684 |   |      | $ | 13,968 |  
|Plus:                                                                      |  |                            |        |   |      |   |        |  
|Amortization of acquisition-related intangible assets                      |  |                            | 1,802  |   |      |   | 1,701  |  
|Stock-based compensation expense                                           |  |                            | 7,506  |   |      |   | 5,078  |  
|Restructuring charge                                                       |  |                            | (263   | ) |      |   |       |  
|                                                                           |  |                            |        |   |      |   |        |  
|Non-GAAP Operating Income                                                  |  | $                          | 29,729 |   |      | $ | 20,747 |  
|                                                                           |  |                            |        |   |      |   |        |  
|Operating Margin Percentage                                                |  |                            |        |   |      |   |        |  
|GAAP Operating Margin Percentage                                           |  |                            | 8.7    | % |      |   | 6.4    | %
|Plus:                                                                      |  |                            |        |   |      |   |        |  
|Amortization of acquisition-related intangible assets                      |  |                            | 0.8    |   |      |   | 0.8    |  
|Stock-based compensation expense                                           |  |                            | 3.2    |   |      |   | 2.4    |  
|Restructuring charge                                                       |  |                            | (0.1   | ) |      |   |       |  
|                                                                           |  |                            |        |   |      |   |        |  
|Non-GAAP Operating Margin Percentage                                       |  |                            | 12.6   | % |      |   | 9.6    | %
|                                                                           |  |                            |        |   |      |   |        |  
|Net Income                                                                 |  |                            |        |   |      |   |        |  
|GAAP Net Income                                                            |  | $                          | 22,386 |   |      | $ | 14,538 |  
|Plus:                                                                      |  |                            |        |   |      |   |        |  
|Amortization of acquisition-related intangible assets                      |  |                            | 1,802  |   |      |   | 1,701  |  
|Stock-based compensation expense                                           |  |                            | 7,506  |   |      |   | 5,078  |  
|Restructuring charge                                                       |  |                            | (263   | ) |      |   |       |  
|Less:                                                                      |  |                            |        |   |      |   |        |  
|Income tax effect of amortization of acquisition-related intangible assets |  |                            | (610   | ) |      |   | (624   | )
|Income tax effect of stock-based compensation expense                      |  |                            | (1,601 | ) |      |   | (931   | )
|                                                                           |  |                            |        |   |      |   |        |  
|Non-GAAP Net Income                                                        |  | $                          | 29,220 |   |      | $ | 19,762 |  
|                                                                           |  |                            |        |   |      |   |        |  
|Net Income per diluted share                                               |  |                            |        |   |      |   |        |  
|GAAP Net Income per diluted share                                          |  |                            | $0.25  |   |      |   | $0.16  |  
|Plus:                                                                      |  |                            |        |   |      |   |        |  
|Amortization of acquisition-related intangible assets                      |  |                            | 0.02   |   |      |   | 0.02   |  
|Stock-based compensation expense                                           |  |                            | 0.08   |   |      |   | 0.06   |  
|Less:                                                                      |  |                            |        |   |      |   |        |  
|Income tax effect of amortization of acquisition-related intangible assets |  |                            | (0.01  | ) |      |   | (0.01  | )
|Income tax effect of stock-based compensation expense                      |  |                            | (0.02  | ) |      |   | (0.01  | )
|                                                                           |  |                            |        |   |      |   |        |  
|Non-GAAP Net Income per diluted share                                      |  |                            | $0.32  |   |      |   | $0.22  |  
|                                                                           |  |                            |        |   |      |   |        |  
|Shares used in computing diluted net income per share                      |  |                            | 90,158 |   |      |   | 90,825 |  



29



---

##### Table of Contents

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 as compared to the indicated prior period.



|                                                      |  |                            |   |  |                                         |   |  |      
|----------------------------------------------------- |  | -------------------------- | - |  | --------------------------------------- | - |  | -----
|                                                      |  | Percentage of Revenue      |   |  | Percentage Change                      
|                                                      |  | Three months ended May 31, |   |  | Three months ended May 31, 2006 to
2007
|                                                      |  | 2007                       |   |  | 2006                                    |   | 
|Revenue                                               |  | 100.0                      | % |  | 100.0                                   | % |  | 9.0% 
|                                                      |  |                            |   |  |                                         |   |  |      
|Cost of revenue                                       |  | 22.7                       |   |  | 23.3                                    |   |  | 6.6  
|                                                      |  |                            |   |  |                                         |   |  |      
|Gross margin                                          |  | 77.3                       |   |  | 76.7                                    |   |  | 9.8  
|                                                      |  |                            |   |  |                                         |   |  |      
|Operating expenses                                    |  |                            |   |  |                                         |   |  |      
|Selling, general, and administrative                  |  | 53.0                       |   |  | 54.2                                    |   |  | 6.7  
|Research and development                              |  | 14.8                       |   |  | 15.3                                    |   |  | 5.0  
|Amortization of acquisition-related intangible assets |  | 0.8                        |   |  | 0.8                                     |   |  | 5.9  
|                                                      |  |                            |   |  |                                         |   |  |      
|Total operating expenses                              |  | 68.6                       |   |  | 70.3                                    |   |  | 6.3  
|                                                      |  |                            |   |  |                                         |   |  |      
|Operating income                                      |  | 8.7                        |   |  | 6.4                                     |   |  | 48.1 
|Interest and other income, net                        |  | 3.5                        |   |  | 2.3                                     |   |  | 64.9 
|                                                      |  |                            |   |  |                                         |   |  |      
|Income before taxes                                   |  | 12.2                       |   |  | 8.7                                     |   |  | 52.5 
|Income tax provision                                  |  | 2.7                        |   |  | 2.0                                     |   |  | 47.8 
|                                                      |  |                            |   |  |                                         |   |  |      
|Net income                                            |  | 9.5                        | % |  | 6.7                                     | % |  | 54.0%
|                                                      |  |                            |   |  |                                         |   |  |      



30



---

##### Table of Contents

REVENUE



|                |  |                            |         |                                             |   |              |  |     
|--------------- |  | -------------------------- | ------- | ------------------------------------------- | - | ------------ |  | ----
|($000s)         |  | Three months ended May 31, |         | Percentage Change Three months endedMay 31,
|                |  |                           
|                |  | 2007                       |         | 2006                                        |   | 2006 to 2007
|Product License |  | $                          | 75,692  |                                             | $ | 73,735       |  | 2.7%
|Product Support |  |                            | 113,438 |                                             |   | 100,181      |  | 13.2
|Services        |  |                            | 47,524  |                                             |   | 43,124       |  | 10.2
|                |  |                            |         |                                             |   |              |  |     
|Total Revenue   |  | $                          | 236,654 |                                             | $ | 217,040      |  | 9.0 
|                |  |                            |         |                                             |   |              |  |     

Our total revenue was $236.7 million for the quarter ended May 31, 2007, an increase of $19.6
million or 9% compared to the quarter ended May 31, 2006. The strong increase in revenue was derived primarily from Cognos 8, our business intelligence platform. The functionality of the products included in our Series 7 suite of BI products have
been combined on a services oriented architecture into a new product, Cognos 8. 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
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 revenue from these products that will be more than offset by increased revenue from Cognos 8.We also experienced strong license
revenue growth in our PM products, including Cognos Planning and Cognos Controller. Finally,Cognos Performance Applications continued to represent a small but growing portion of our revenues for the first quarter of fiscal year 2008.

The overall change in total revenue from our three revenue categories in the quarter ended May 31, 2007 from May 31, 2006
was as follows: a 3% increase in product license revenue, a 13% increase in product support revenue, and a 10% increase in services revenue.

Industry
Trends and Geographic Information

We believe that the 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 driven by the increasing importance of compliance and transparency, and (3) a growing focus on PM.

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 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 systems 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.



31



---

##### Table of Contents

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, PM is a growing segment in the software industry. It blends BI with
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 PM solution that are appealing to both the finance and operational segments of enterprises. Our single platform for BI differentiates us from our competition by enabling
enterprises to easily integrate new and existing IT assets into their PM plan.

We believe that our customers purchase and deploy our BI
and 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 such, a typical customer purchases only the products and
the number of licenses of those required products to meet its immediate needs. As it continues to deploy our software to more users or identify other needs our products can meet, it purchases additional licenses for products previously licensed or
other products of the Corporation 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 May 31,
|                                                                         |  | 2007                       |  | 2006
|Orders (License, Support, Services)                                      |  |                            |  |     
|Transactions greater than $1 million                                     |  | 7                          |  | 13  
|Transactions greater than $200,000                                       |  | 127                        |  | 118 
|Transactions greater than $50,000                                        |  | 761                        |  | 728 
|Average selling price (License Orders Only) ($000s) Greater than $50,000 |  | $200                       |  | $186

During the quarter we had 7 transactions greater than $1 million compared with 13 in the same
quarter last year. This decline was not unexpected given the unusually strong performance in these contracts last year and our performance in the first quarter of fiscal year 2008 was in line with the performance in the first quarter of fiscal year
2006 and 2005 when we recorded 6 and 8 greater than $1 million deals respectively. 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 9 and 33 respectively compared to the comparative quarter last year, and the average selling price increased by $14,000 during the
comparable period.

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 the customers investment budgets.



32



---

##### Table of Contents

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 as compared to the prior fiscal period.

Revenue by Geography



|             |  |                            |         |                                             |   |              |  |     
|------------ |  | -------------------------- | ------- | ------------------------------------------- | - | ------------ |  | ----
|($000s)      |  | Three months ended May 31, |         | Percentage Change Three months endedMay 31,
|             |  |                           
|             |  | 2007                       |         | 2006                                        |   | 2006 to 2007
|The Americas |  | $                          | 135,208 |                                             | $ | 129,913      |  | 4.1%
|EMEA         |  |                            | 82,833  |                                             |   | 72,225       |  | 14.7
|Asia/Pacific |  |                            | 18,613  |                                             |   | 14,902       |  | 24.9
|             |  |                            |         |                                             |   |              |  |     
|Total        |  | $                          | 236,654 |                                             | $ | 217,040      |  | 9.0 
|             |  |                            |         |                                             |   |              |  |     

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 ended May 31,
|             |  | 2007                       |  | 2006  
|The Americas |  | 57.1%                      |  | 59.8% 
|EMEA         |  | 35.0                       |  | 33.3  
|Asia/Pacific |  | 7.9                        |  | 6.9   
|             |  |                            |  |       
|Total        |  | 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 quarter ending May 31, 2007 by geographic area between change attributable to growth and change due to
fluctuations in the value of the U.S. dollar.

Year-over-year Percentage Change in Revenue by Geography



|             |  |                                          |  |                 |  |          
|------------ |  | ---------------------------------------- |  | --------------- |  | ---------
|             |  | Three Months Ended May 31,2007 over 2006
|             |  | GrowthExcludingForeignExchange           |  | ForeignExchange |  | NetGrowth
|The Americas |  | 3.6%                                     |  | 0.5%            |  | 4.1%     
|EMEA         |  | 7.3%                                     |  | 7.4%            |  | 14.7%    
|Asia/Pacific |  | 18.2%                                    |  | 6.7%            |  | 24.9%    
|Total        |  | 5.9%                                     |  | 3.1%            |  | 9.0%     



33



---

##### Table of Contents

The growth rate of our revenue in the Americas during the three months ended May 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 increase in revenue in EMEA was largely due to growth in services revenue, whereas the increase in revenue in
Asia Pacific was largely due to a strong performance in license revenue. Both regions were positively impacted by foreign exchange in the current quarter as compared to the same period last fiscal year. 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)                     |  | Three months ended May 31, |        |   | Percentage Change Three months endedMay 31,
|                            |  |                           
|                            |  | 2007                       |        |   | 2006                                        |   |        | 2006 to 2007
|Product license revenue     |  | $                          | 75,692 |   |                                             | $ | 73,735 |              |  | 2.7%
|Percentage of total revenue |  |                            | 32.0   | % |                                             |   | 34.0   | %            |  |     

Product license revenue was $75.7 million in the quarter ended May 31, 2007, an increase of $2.0
million or 3% over the corresponding period last year. The increase in product license revenue during the quarter reflects the strength of Cognos 8 and our Performance Management products; these increases were partially offset by declines in sales
of our Series 7 BI product suite which we continue to individually license. Product license revenue accounted for 32% of total revenue for the three months ended May 31, 2007 as compared to 34% for the comparative quarter of the previous fiscal
year.

The breadth of our solution is allowing us to develop long-term strategic relationships with our customers which, in turn, enables
us to generate additional software licensing and ongoing maintenance renewals. These relationships are a significant asset as approximately 72% of our license revenue came from existing customers in the three-month period ended May 31, 2007.

We license our software through our direct sales force and third-party channels including resellers, value-added resellers, and OEMs.
Total product license revenue for the quarter from direct sales was $56.4 million compared to $51.8 million in the corresponding period last fiscal year. Direct sales accounted for approximately 74% and 70% of our license revenue for the first
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 system integrators will help us succeed as the role of system 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 system integrators and direct and indirect international sales and support channels.



34



---

##### Table of Contents

Product Support Revenue



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                            |         |   |                                             |   |         |              |  |      
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------------------------- | - | ------- | ------------ |  | -----
|($000s)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | Three months ended May 31, |         |   | Percentage Change Three months endedMay 31,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 2007                       |         |   | 2006                                        |   |         | 2006 to 2007
|Product support revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | $                          | 113,438 |   |                                             | $ | 100,181 |              |  | 13.2%
|Percentage of total revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                            | 47.9    | % |                                             |   | 46.1    | %            |  |      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                            |         |   |                                             |   |         |              |  |      
|Product support revenue was $113.4 million in the
quarter ended May 31, 2007, an increase of $13.3 million or 13% compared to the corresponding period in the prior fiscal year. The increase was the result of the strong rate 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 48% of our total revenue in the quarter ended May 31, 2007 as compared to 46% for the comparative quarter of
the previous fiscal year.  Services Revenue
|($000s)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | Three months ended May 31, |         |   | Percentage Change Three months endedMay 31,
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 2007                       |         |   | 2006                                        |   |         | 2006 to 2007
|Services revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |                            | $47,524 |   |                                             |   | $43,124 |              |  | 10.2%
|Percentage of total revenue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                            | 20.1    | % |                                             |   | 19.9    | %            |  |      

Services revenue (training, consulting, and other revenue) was $47.5 million in the quarter ended
May 31, 2007, an increase of $4.4 million or 10% compared to the corresponding period in the prior fiscal year. Services revenue accounted for 20% of our total revenue for the three months ended May 31, 2007 and May 31, 2006.

The increase 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/deployment of our solutions and accelerates the benefits gained from using our software and overall customer success. As a result, our customers have increasingly requested
services such as project management, analysis and design, technical advisory, and instruction to optimize the deployment our solutions. Exchange rate fluctuations had approximately a 3% positive impact on services revenue for the quarter.



35



---

##### Table of Contents

COST OF REVENUE

Cost of Product License



|                              |  |                           |   |  |                                            |   |  |             
|----------------------------- |  | ------------------------- | - |  | ------------------------------------------ | - |  | ------------
|($000s)                       |  | Three months endedMay 31, |   |  | Percentage ChangeThree months endedMay 31,
|                              |  | 2007                      |   |  | 2006                                       |   |  | 2006 to 2007
|Cost of product license       |  | $1,433                    |   |  | $1,757                                     |   |  | (18.4)%     
|                              |  |                           |  
|Percentage of license revenue |  | 1.9                       | % |  | 2.4                                        | % |  |             

For the three months ended May 31, 2007, the cost of product license revenue was $1.4
million, a decrease of $0.3 million or 18% compared to the corresponding period in the prior fiscal year. These costs represented 2% of product license revenue for both the quarters ended May 31, 2007 and May 31, 2006.

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



|                            |  |                                 
|--------------------------- |  | --------------------------------
|($000s)                     |  | Year-over-yearChange fromMay 31,
|                            |  | 2006 to 2007                    
|Royalty cost                |  | $(410)                          
|                            | 
|Other                       |  | 86                              
|                            |  |                                 
|Total year-over-year change |  | $(324)                          
|                            |  |                                 

Royalties are paid to suppliers whose technology is embedded in our product offering. The decrease
in royalty costs 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.



36



---

##### Table of Contents

Cost of Product Support



|                              |  |                           |   |  |                                            |   |  |             
|----------------------------- |  | ------------------------- | - |  | ------------------------------------------ | - |  | ------------
|($000s)                       |  | Three months endedMay 31, |   |  | Percentage ChangeThree months endedMay 31,
|                              |  | 2007                      |   |  | 2006                                       |   |  | 2006 to 2007
|Cost of product support       |  | $11,797                   |   |  | $11,227                                    |   |  | 5.1%        
|Percentage of support revenue |  | 10.4                      | % |  | 11.2                                       | % |  |             

The cost of product support revenue was $11.8 million, an increase of $0.6 million or 5% in the
quarter ended May 31, 2007 compared to the corresponding period in the prior fiscal year. The cost of product support represented 10% of total product support revenue for the quarter ended May 31, 2007 as compared to 11% for the quarter
ended May 31, 2006.

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



|                            |  |                                    |  
|--------------------------- |  | ---------------------------------- | -
|($000s)                     |  | Year-over-year Change from May
31, |  
|                            |  | 2006 to 2007                       |  
|Staff-related costs         |  | $700                               |  
|Other                       |  | (130                               | )
|                            |  |                                    |  
|Total year-over-year change |  | $570                               |  
|                            |  |                                    |  

The increase in the cost of product support for the three months ended May 31, 2007 was
primarily the result of increases in staff-related costs to service our growing customer base. The average number of employees within the support organization increased 4% from one year ago. The unfavorable effect of fluctuations of foreign
currencies relative to the U.S. dollar increased cost of product support by approximately 4% for the quarter.

Cost of Services



|                              |  |                           |   |  |                                            |   |  |             
|----------------------------- |  | ------------------------- | - |  | ------------------------------------------ | - |  | ------------
|($000s)                       |  | Three months endedMay 31, |   |  | Percentage ChangeThree months endedMay 31,
|                              |  | 2007                      |   |  | 2006                                       |   |  | 2006 to 2007
|Cost of services              |  | $40,581                   |   |  | $37,516                                    |   |  | 8.2%        
|Percentage of service revenue |  | 85.4                      | % |  | 87.0                                       | % |  |             

The cost of services was $40.6 million, an increase of $3.1 million or 8% in the quarter ended
May 31, 2007 compared to the corresponding period in the prior fiscal year. The cost of services decreased as a percentage of services revenue, representing 85% for the quarter ended May 31, 2007 as compared to 87% for the corresponding
period in the prior fiscal year.



37



---

##### Table of Contents

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



|                              |  |                                   |  
|----------------------------- |  | --------------------------------- | -
|($000s)                       |  | Year-over-yearChange from May 31, |  
|                              |  | 2006 to 2007                      |  
|Staff-related costs           |  | $2,030                            |  
|Services purchased externally |  | 961                               |  
|Travel and living             |  | 612                               |  
|Other                         |  | (538                              | )
|                              |  |                                   |  
|Total year-over-year change   |  | $3,065                            |  
|                              |  |                                   |  

The increase in cost of services for the three months ended May 31, 2007 was primarily
attributable to increases in staff-related costs, specifically the recent investment in additional staff, and services purchased externally to meet the growing demand for these services. The average number of employees within the services
organization increased 3% from one year ago. 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. Also contributing to the
increase were services purchased externally and travel and living expenses. Subcontractors are currently an important part of our services offering and are engaged to fill excess demand that cannot be met by internal Cognos service consultants. This
demand can be in the form of increased volume or requirements for industry specialization. While we continue to hire new employees in this area, we intend to continue to supplement our skills by engaging subcontractors. The unfavorable effect of
fluctuations of foreign currencies relative to the U.S. dollar increased cost of services by approximately 3% for the quarter.

OPERATING
EXPENSES

Selling, General, and Administrative



|                                     |  |                           |         |   |                                            |   |         |              |  |     
|------------------------------------ |  | ------------------------- | ------- | - | ------------------------------------------ | - | ------- | ------------ |  | ----
|($000s)                              |  | Three months endedMay 31, |         |   | Percentage ChangeThree months endedMay 31,
|                                     |  | 2007                      |         |   | 2006                                       |   |         | 2006 to 2007
|                                     |  |                           |        
|Selling, general, and administrative |  | $                         | 125,427 |   |                                            | $ | 117,592 |              |  | 6.7%
|Percentage of total revenue          |  |                           | 53.0    | % |                                            |   | 54.2    | %            |  |     

Selling, general, and administrative (SG&A) expenses were $125.4 million,
an increase of $7.8 million or 7% in the quarter ended May 31, 2007, compared to the corresponding period in the prior fiscal year. These costs decreased as a percentage of revenue, representing 53% for the three months ended May 31, 2007
compared to 54% for the corresponding period in the prior fiscal year.



38



---

##### Table of Contents

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-yearChange From May 31,
|                            |  | 2006 to 2007                     
|Staff-related costs         |  | $4,507                           
|Facilities                  |  | 1,288                            
|Recruiting                  |  | 1,119                            
|Other                       |  | 921                              
|                            |  |                                  
|Total year-over-year change |  | $7,835                           
|                            |  |                                  

The increase in SG&A expenses for the three-month period ended May 31, 2007 was
predominantly the result of increases in staff related costs including compensation as well as associated benefits, in addition to facilities and recruiting costs. The average number of employees within SG&A increased by 1% in the first quarter
of fiscal 2008 when compared to the same period in the previous fiscal year. The increase was partially attributable to growth in the number of quota carrying sales representatives, which increased by 14% during the first quarter of fiscal 2008 when
compared to the same period in the previous fiscal year. This was partially offset by a decline in other SG&A staff due primarily to the margin improvement plan that occurred in the third quarter of fiscal 2007. Stock based compensation costs
relating to SG&A are also included in staff-related costs and increased for the three-month period ended May 31, 2007 as compared to the same period in the prior year. Facilities costs increased primarily due to higher occupancy costs, and
unfavorable effects of foreign exchange. The increase in other costs is partially due to Cognos Forum which was held during the first quarter of 2008, versus the second quarter of fiscal 2007. The unfavorable effect of fluctuations of foreign
currencies relative to the U.S. dollar increased SG&A expenses by approximately 3% during the quarter.

Research and Development



|                            |  |                           |   |  |                                            |   |  |             
|--------------------------- |  | ------------------------- | - |  | ------------------------------------------ | - |  | ------------
|($000s)                     |  | Three months endedMay 31, |   |  | Percentage ChangeThree months endedMay 31,
|                            |  | 2007                      |   |  | 2006                                       |   |  | 2006 to 2007
|                            |  |                           |  
|Research and development    |  | $34,930                   |   |  | $33,279                                    |   |  | 5.0%        
|Percentage of total revenue |  | 14.8                      | % |  | 15.3                                       | % |  |             

Research and development (R&D) expenses were $34.9 million, an increase of
$1.7 million or 5% in the quarter ended May 31, 2007, compared to the corresponding period in the prior fiscal year. R&D costs were 15% of revenue for both the quarters ended May 31, 2007 and May 31, 2006.

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:



39



---

##### Table of Contents

|                              |  |                                  
|----------------------------- |  | ---------------------------------
|($000s)                       |  | Year-over-yearChange From May 31,
|                              |  | 2006 to 2007                     
|                              | 
|Staff-related costs           |  | $   897                          
|Services purchased externally |  | 599                              
|Other                         |  | 155                              
|                              |  |                                  
|Total year-over-year change   |  | $1,651                           
|                              |  |                                  

The increase in R&D expenses for the three months ended May 31, 2007 was predominantly the
result of increases in staff-related costs resulting from increases in salaries and associated benefits. The average number of employees within R&D decreased by 5% from the previous fiscal year. The unfavorable effect of fluctuations of foreign
currencies relative to the U.S. dollar increased R&D expenses by approximately 2% in the quarter.

During the quarter ended May 31,
2007, we continued to invest significantly in R&D activities for our next generation of BI 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.

We also continued to develop
our next releases of Cognos Planning and Cognos Controller which continue to add new functionality for the Office of Finance. During the quarter we announced Cognos 8 Controller version 8.2 which offers a proven finance-managed application to
support the close, consolidate, and report process; to ensure financial statement quality and close efficiency; and to meet modern compliance requirements.

During the quarter, we also announced Cognos Now!, an innovative solution that offers self-service dashboards, integrated data, analysis, and reports as a prepackaged BI appliance or as a hosted service. Cognos Now!
allows customers to easily deploy and maintain a complete, operational BI solution at a low cost, even when IT staff or resources are limited. Based on technology from the recent Celequest acquisition, Cognos Now! This innovative appliance
represents a further milestone in making BI accessible to more people with organizations and enabling higher adoption of business intelligence for enhanced decision making and improved organizational performance.

We currently do not have any software development costs capitalized on our balance sheet. Software development costs are expensed as incurred unless they
meet generally accepted accounting criteria for deferral and amortization. Software development costs incurred prior to the establishment of technological feasibility do not meet these criteria, and are expensed as incurred. Capitalized costs are
amortized over a period not exceeding 36 months. No costs were deferred in the quarters ended May 31, 2007 and May 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.



40



---

##### Table of Contents

Amortization of Acquisition-related Intangible Assets



|                                                                                                                                                                                                                                                                                                                                                                                       |  |                            |  |                                              |  |             
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- |  | -------------------------------------------- |  | ------------
|($000s)                                                                                                                                                                                                                                                                                                                                                                                |  | Three months endedMay 31,  |  | Percentage Change Three months ended May 31,
|                                                                                                                                                                                                                                                                                                                                                                                       |  | 2007                       |  | 2006                                         |  | 2006 to 2007
|Amortization of acquisition-related intangible assets                                                                                                                                                                                                                                                                                                                                  |  | $1,802                     |  | $1,701                                       |  | 5.9%        
|                                                                                                                                                                                                                                                                                                                                                                                      
|Amortization of acquisition-related intangible assets was $1.8 million, an increase of $0.1 million or 6% for the quarter ended May 31, 2007 compared to the
corresponding period in the prior fiscal year. This increase was due primarily 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)                                                                                                                                                                                                                                                                                                                                                                                |  | Three months ended May 31, |  | Percentage ChangeThree months endedMay 31,  
|                                                                                                                                                                                                                                                                                                                                                                                       |  | 2007                       |  | 2006                                         |  | 2006 to 2007
|Interest and other income, net                                                                                                                                                                                                                                                                                                                                                         |  | $8,265                     |  | $5,011                                       |  | 64.9%       

Interest and other income, net, was $8.3 million, an increase of $3.3 million or 65% in the
quarter ended May 31, 2007 compared to the corresponding period in the prior fiscal year. The change in net interest and other income is as follows:



|                                        |  |                                   |  
|--------------------------------------- |  | --------------------------------- | -
|($000s)                                 |  | Year-over-yearChange From May 31, |  
|                                        |  | 2006 to 2007                      |  
|Increase in interest revenue            |  | $2,354                            |  
|Gain on foreign exchange                |  | 612                               |  
|Ineffective portion of cash flow hedges |  | (10                               | )
|Decrease in interest expenses           |  | 298                               |  
|                                        |  |                                   |  
|Total year-over-year change             |  | $3,254                            |  
|                                        |  |                                   |  

The increase in interest revenue is attributable to a higher average portfolio size accompanied by
a higher average yield on investments in the current quarter as compared to the same period in the prior fiscal year.



41



---

##### Table of Contents

Income Tax Provision



|                     |  |                           |   |  |                                            |   |  |             
|-------------------- |  | ------------------------- | - |  | ------------------------------------------ | - |  | ------------
|($000s)              |  | Three months endedMay 31, |   |  | Percentage ChangeThree months endedMay 31,
|                     |  | 2007                      |   |  | 2006                                       |   |  | 2006 to 2007
|Income tax provision |  | $6,563                    |   |  | $4,441                                     |   |  | 47.8%       
|Effective tax rate   |  | 22.7                      | % |  | 23.4                                       | % |  |             

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 months ended May 31, 2007, we recorded an income tax provision of $6.6 million,
representing an effective income tax rate of 23%. Comparatively, in the three months ended May 31, 2006, we recorded an income tax provision of $4.4 million, representing an effective income tax rate of 23%. We estimate our effective tax rate
for the current fiscal year to be 22%, exclusive of any discreet items. This estimated effective tax rate was increased for the three-month period ended May 31, 2007 to 23% due to an adjustment related to interest on unrecognized tax benefits,
which was partially offset by disqualifying dispositions of incentive stock options in the U.S. The estimated effective tax rate for fiscal 2007 was 24%, exclusive of any discreet items, which was reduced for the three-month period ended
May 31, 2006 to 23% due to the reversal of a tax reserve of $118,000 in respect of a fiscal year that was closed for audit purposes in the quarter.

On March 1, 2007, we adopted FIN 48. As a result of the adoption there was an increase in income tax liabilities of $18,245,000 with a corresponding decrease in the balance of retained earnings. 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. 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.



42



---

##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES



|                                                   |  |                            |   |  |                                            |   |  |                  
|-------------------------------------------------- |  | -------------------------- | - |  | ------------------------------------------ | - |  | -----------------
|($000s)                                            |  | As at May 31, 2007         |   |  | As at February 28,2007                     |   |  | Percentage Change
|Cash and cash equivalents                          |  | $490,714                   |   |  | $376,762                                   |   |  | 30.2%            
|Short-term investments                             |  | 163,306                    |   |  | 315,131                                    |   |  | (48.2)           
|                                                   |  |                            |   |  |                                            |   |  |                  
|Cash, cash equivalents, and short-term investments |  | $654,020                   |   |  | $691,893                                   |   |  | (5.5)            
|Working capital                                    |  | 457,844                    |   |  | 488,482                                    |   |  | (6.3)            
|                                                   |  |                           
|($000s)                                            |  | Three months ended May 31, |   |  | Percentage ChangeThree months endedMay 31,
|                                                   |  | 2007                       |   |  | 2006                                       |   |  | 2006 to 2007     
|Net cash provided by (used in):                    |  |                            |   |  |                                            |   |  |                  
|Operating activities                               |  | $  29,881                  |   |  | $  72,640                                  |   |  | (58.9)%          
|Investing activities                               |  | 146,181                    |   |  | (126,449                                   | ) |  | 215.6%           
|Financing activities                               |  | (66,688                    | ) |  | (12,063                                    | ) |  | *                
|                                                   |  |                            |  
|                                                   |  | As at May 31, 2007         |   |  | As at May 31, 2006                         |   |  |                  
|Days sales outstanding (DSO)                       |  | 63                         |   |  | 58                                         |   |  |                  

---

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

Cash, Cash Equivalents, and
Short-term Investments

As of May 31, 2007, we held $654.0 million in cash, cash equivalents, and short-term investments, a
decrease of $37.9 million from February 28, 2007. This decrease is primarily attributable to the repurchase of our shares on the open market as part of our publicly announced Share Repurchase Program and purchases by the trustee under our
Restricted Share Unit Plan and cash payments for compensation related to our fiscal 2007 performance, partially offset by the collection of accounts receivable which were seasonally high at the end of fiscal 2007 and our net income for the period.
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.

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.



43



---

##### Table of Contents

Working Capital

Working capital represents our current assets less our current liabilities. As of May 31, 2007, working capital was $457.8 million, a decrease of $30.6 million from February 28, 2007. The change in working
capital is attributable to the repurchase of our own shares under the previously announced 2006 Share Repurchase Plan as well as net purchases made under our Restricted Share Unit Plan, partially offset by collection of accounts receivable.

Days sales outstanding was 63 days at May 31, 2007, down from 70 days at February 28, 2007 and up from 58 days at May 31,
2006. We calculate our days sales outstanding based on ending accounts receivable balances and quarterly revenue.

Long-term Debt

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

Net Cash Provided by Operating Activities

Cash
provided by operating activities (after changes in non-cash working capital items) for the three months ended May 31, 2007 was $29.9 million, as compared to $72.6 million in the comparative period last year. The decrease is largely attributable
to changes in non-cash working capital items between the two periods. The significant changes in non-cash working capital between the periods relate to a decreased collection of accounts receivable and increased amounts of liabilities paid such as
salaries, commissions, and related items compared to the same quarter last year.

Net Cash Used in Investing Activities

Cash provided by investing activities was $146.2 million for the three months ended May 31, 2007, as compared to a use of $126.4 million in the
comparative period last year. During the quarter ended May 31, 2007, we had a decrease in short-term investments, as maturities of short-term investments, net of purchases, were $152.3 million. In comparison, during the quarter ended
May 31, 2006, we had an increase in net short-term investments, as our purchases of short-term investments, net of maturities, were $120.0 million.

During the three month periods ended May 31, 2007 and May 31, 2006, we made fixed asset additions in the amount of $6.0 million and $6.4 million, respectively. The fixed asset additions in 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 $66.7 million for the three months ended May 31, 2007, an increase of $54.6 million compared
to the same period of the prior fiscal year. We issued 281,000 common shares for proceeds of $7.2 million during the three months ended May 31, 2007, compared to the issuance of 537,000 shares for proceeds of $12.9 million during the
corresponding period in the prior fiscal year. The issuance of shares in the three months ended May 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 $48.0 million during the quarter to purchase 1,166,000 shares on the open market under the share repurchase program and $25.8 million for the purchase of 602,000 shares for the restricted share unit plan. Comparatively, for the
three months ended May 31, 2006 we repurchased 652,000 shares at a value of $25.0 million under the share repurchase plan and there were no purchases under the restricted share unit plan.



44



---

##### Table of Contents

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 paid out of general corporate funds. We cancel all shares repurchased under the bid. A copy of the Notice of Intention to Make an Issuer Bid is available from the Corporate Secretary.

Contracts and Commitments

We have an unsecured
credit facility subject to annual renewal. This credit facility permits 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 May 31, 2007 and 2006, there
were no direct borrowings under this facility.

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

During fiscal 2005, the Corporation entered into cash flow hedges in order to offset the risk associated with the effects
of certain foreign currency exposures related to an intercompany loan and the corresponding interest payments between subsidiaries with different functional currencies. As of May 31, 2007, the Corporation had cash flow hedges, with maturities
on January 14, 2008, to exchange the U.S. dollar equivalent of $68.2 million in foreign currency. At May 31, 2007 we had an unrealized loss in the amount of $5.4 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 may enter into foreign exchange contracts that we choose not to designate as a hedge for accounting purposes. We
carry these contracts at their fair value with any gain or loss included in income. At May 31, 2007, we had twelve such contracts to exchange the U.S. dollar equivalent of $139.6 million Canadian dollars, at various dates between June 1,
2007 and August 28, 2007. 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.

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.



45



---

##### Table of Contents

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

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

CRITICAL 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.

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.



46



---

##### Table of Contents

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. 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.



47



---

##### Table of Contents

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.

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.



48



---

##### Table of Contents

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 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.



49



---

##### Table of Contents

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.

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.



50



---

##### Table of Contents

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.

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.



51



---

##### Table of Contents

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 estimated remaining amortization period.

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

Impairment of Goodwill and Long-lived Assets - In accordance with SFAS 142, goodwill is subject to annual impairment tests, or on a more frequent
basis if events or conditions indicate that goodwill may be impaired. Goodwill is tested for impairment at a level of reporting referred to as a reporting unit. The Corporation as a whole is considered one reporting unit. Quoted market prices in
active markets are considered the best evidence of fair value. Therefore, the first step of our annual test is to compare the fair value of our shares on The Nasdaq 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.



52



---

##### Table of Contents

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. 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.



53



---

##### Table of Contents

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. We do not hold or issue financial instruments for trading purposes.

Interest Rate Risk

Our exposure to market rate risk for changes in interest rates relates primarily
to our investment portfolio. The investment of cash is regulated by our investment policy of which the primary objective is security of principal. Among other selection criteria, the investment policy states that the term to maturity of investments
cannot exceed two years in length. We do not use derivative financial instruments in our investment portfolio.

Interest income on our
cash, cash equivalents, and short-term investments is subject to interest rate fluctuations, but we believe that the impact of these fluctuations does not have a material effect on our financial position due to the short-term nature of these
financial instruments. We have no long-term debt. Our interest income and interest expense are most sensitive to the general level of interest rates in Canada and the United States. Sensitivity analysis is used to measure our interest rate risk. For
the quarter ending May 31, 2007, a 100 basis-point adverse change in interest rates would have had a $0.01 impact on diluted earnings per share 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 May 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 two percent.

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 effect of foreign exchange losses in the future; however, if significant foreign exchange losses are experienced, they could have a material adverse effect on our
business, results of operations, and financial condition.



54



---

##### Table of Contents

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 May 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.



55



---

##### Table of Contents

PART II - OTHER INFORMATION

Item 1A. Risk Factors

Certain Factors That May Affect Future Results

This report contains forward-looking statements, including statements regarding the future success of our business and technology strategies, our research
and development, our future market opportunities, our revenues, and our intellectual property. These statements are neither promises nor guarantees, but involve known and unknown risks and uncertainties that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed in or implied by these forward-looking statements. These risks include risks related to our revenue
growth, operating results, industry, products including the integration and customer acceptance of Cognos 8, and litigation, as well as the other factors discussed below and elsewhere in this report. Readers should not place undue reliance on any
such forward-looking statements, which speak only as of the date they were made. Except to the extent required by applicable law, we disclaim any obligation to publicly update or revise any such statements to reflect any change in our expectations
or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

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 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.



56



---

##### Table of Contents

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.

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.

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.



57



---

##### Table of Contents

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.

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.

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 2006 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.



58



---

##### Table of Contents

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.

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. 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.



59



---

##### Table of Contents

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.

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

We rely on various intellectual property
protections, including contractual provisions, patents, copyright, trademark, and trade secret laws, to preserve our intellectual property rights. Despite our precautions, our intellectual property may be misappropriated, causing us to lose
potential revenue and competitive advantage. As well, we may ourselves from time to time become subject to claims by third parties that our technology infringes their intellectual property rights. In either case, we may incur expenditures to police,
protect, and defend our interests and may become involved in litigation that could divert the attention of our management 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.



60



---

##### Table of Contents

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

The sale, servicing, and support of our products entails the risk of product liability, performance or warranty claims, which may be substantial in
light of the use of our products in business-critical applications. A successful product liability claim could seriously disrupt our business and adversely affect our financial results. Software products are complex and may contain errors or
defects, particularly when first introduced, or when new versions or enhancements are released, or when configured to individual customer requirements. Although we currently have in place procedures and staff to exercise quality control over our
products and respond to defects and errors found in current versions, new versions, or enhancements of our products, defects and errors may still occur. New products and new product versions or enhancements may also contain defects or errors which
may not be known to us at the time of introduction. If these defects or errors 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 or errors. 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 and errors 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.

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.



61



---

##### Table of Contents

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 orApproximate Dollar Value ofShares that May
Yet BePurchased Under the Plans
|                          |  |                               |  |                            |  |                                                                   |  | Restricted ShareUnit Plan (# of shares)                                                               |  | ShareRepurchaseProgram
|March 1 to March 31, 2007 |  | NIL                           |  | NIL                        |  | NIL                                                               |  | 2,341,500                                                                                             |  | $                      | 117,176,736
|April 1 to April 30, 2007 |  | 1,672,800                     |  | $41.75                     |  | 1,071,300                                                         |  | 1,740,000                                                                                             |  | $                      | 73,164,700 
|May 1 to May 31, 2007     |  | 94,300                        |  | $42.49                     |  | 94,300                                                            |  | 1,740,000                                                                                             |  | $                      | 69,157,662 
|                          |  |                               |  |                            |  |                                                                   |  |                                                                                                       |  |                        |            
|Total                     |  | 1,767,100                     |  | $41.79                     |  | 1,165,600                                                         |  |                                                                                                       |  |                        |            
|                          |  |                               |  |                            |  |                                                                   |  |                                                                                                       |  |                        |            

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 May 31, 2007, Cognos repurchased 601,500 shares at an average price of $42.93
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. During the quarter ended May 31, 2007, Cognos repurchased 1,165,600 shares at an average price of $41.20 under the 2006 Share Repurchase
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.



62



---

##### Table of Contents

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 



63



---

##### Table of Contents

Item 6. Exhibits

a) Exhibits



|      |  |                                                                                                                                                                                                   
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                                                                                       
|      | 
|10.40 |  | Amended and Restated 2003-2016 Stock Option 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                     



64



---

##### 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)




|             |  |  |  |                                                                                                                                                 
|------------ |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|July 9, 2007 |  |  |  | /s/ Tom Manley                                                                                                                                  
|Date         |  |  |  | Tom Manley Senior Vice President, Finance &Administration and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer)



65



---

##### Table of Contents

EXHIBIT INDEX



|           |  |                                                                                                                                                                                                    |  |     
|---------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|EXHIBITNO. |  | DESCRIPTION                                                                                                                                                                                        |  | PAGE
|10.40      |  | Amended and Restated 2003-2016 Stock Option Plan                                                                                                                                                   |  | 67  
|           |  |                                                                                                                                                                                                   
|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 |  | 78  
|           |  |                                                                                                                                                                                                   
|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 |  | 79  
|           |  |                                                                                                                                                                                                   
|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                      |  | 80  



66