10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________

FORM 10-Q

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

For the Quarterly Period Ended August 31, 2005

OR

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

Commission File Number 0-16006

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

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

3755 Riverside Drive,
P.O. Box 9707, Station T,
Ottawa, Ontario, Canada
(Address Of Principal Executive Offices) K1G 4K9
(Zip Code)

(613) 738-1440
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES   X       NO         

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

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

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

COGNOS INCORPORATED

INDEX

PAGE
PART I – FINANCIAL INFORMATION
Item 1.	Unaudited Consolidated Financial Statements	3
	Consolidated Statements of Income for the three and six months ended August 31, 2005 and August 31, 2004	3
	Consolidated Balance Sheets as of August 31, 2005 and February 28, 2005	4
	Consolidated Statements of Cash Flows for the three and six months ended August 31, 2005 and August 31, 2004	5
	Condensed Notes to the Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	54
Item 4.	Controls and Procedures	55
PART II – OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 4.	Submission of Matters to a Vote of Security Holders	57
Item 6.	Exhibits	58
Signature		59

2

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements

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

	Three months ended August 31,				Six months ended August 31,
	2005		2004		2005		2004
Revenue
Product license	$  78,649		$  75,362		$149,795		$141,432
Product support	92,062		76,156		180,567		150,943
Services	41,331		33,702		81,755		66,464
Total revenue	212,042		185,220		412,117		358,839
Cost of revenue
Cost of product license	1,409		546		2,631		1,167
Cost of product support	8,797		7,074		17,679		14,249
Cost of services	32,511		27,457		64,601		52,932
Total cost of revenue	42,717		35,077		84,911		68,348
Gross margin	169,325		150,143		327,206		290,491
Operating expenses
Selling, general, and administrative	106,241		90,371		209,254		181,016
Research and development	28,526		25,382		57,400		49,707
Amortization of acquisition-related intangible
assets	1,637		1,228		3,274		2,464
Total operating expenses	136,404		116,981		269,928		233,187
Operating income	32,921		33,162		57,278		57,304
Interest and other expenses	(506	)	(8	)	(845	)	(79	)
Interest income	3,557		1,781		6,676		3,185
Income before taxes	35,972		34,935		63,109		60,410
Income tax provision	7,253		7,336		10,565		12,686
Net income	$  28,719		$  27,599		$ 52,544		$ 47,724
Net income per share
Basic	$0.32		$0.31		$0.58		$0.53
Diluted	$0.31		$0.30		$0.56		$0.51
Weighted average number of shares (000s)
Basic	90,740		90,382		90,909		90,237
Diluted	92,806		92,849		93,350		92,771

(See accompanying notes)

3

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

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

(See accompanying notes)

4

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

	Three months ended August 31,				Six months ended August 31,
	2005		2004		2005		2004
Cash flows from operating activities
Net income	$ 28,719		$ 27,599		$   52,544		$   47,724
Non-cash items
Depreciation and amortization	7,240		6,504		14,405		13,002
Amortization of deferred stock-based compensation	167		220		335		405
Amortization of other deferred compensation	--		--		--		7
Deferred income taxes	1,863		1,285		(2,026	)	2,301
Loss on disposal of fixed assets	186		123		273		124
	38,175		35,731		65,531		63,563
Change in non-cash working capital
Decrease (increase) in accounts receivable	(1,871	)	(8,472	)	44,964		36,461
Decrease (increase) in prepaid expenses and other current     assets	(586	)	(699	)	837		171
Decrease in accounts payable	(981	)	(18	)	(9,024	)	(6,985	)
Increase (decrease) in accrued charges	2,629		1,298		(5,374	)	(1,897	)
Increase (decrease) in salaries, commissions, and related items	5,615		8,468		(30,518	)	(7,275	)
Increase (decrease) in income taxes payable	(1,348	)	2,048		(19,291	)	(44	)
Decrease in deferred revenue	(12,821	)	(8,942	)	(23,646	)	(21,491	)
Net cash provided by operating activities	28,812		29,414		23,479		62,503
Cash flows from investing activities
Maturity of short-term investments	118,610		99,081		246,535		244,674
Purchase of short-term investments	(96,140	)	(85,566	)	(198,123	)	(156,961	)
Additions to fixed assets	(6,161	)	(4,637	)	(10,917	)	(7,710	)
Additions to intangible assets	(196	)	(460	)	(441	)	(529	)
Increase in other assets	(365	)	--		(120	)	--
Acquisition costs, net of cash and cash equivalents	--		--		131		--
Net cash provided by investing activities	15,748		8,418		37,065		79,474
Cash flows from financing activities
Issue of common shares	6,246		8,983		18,553		19,272
Purchase of treasury shares	(177	)	(335	)	(177	)	(335	)
Repurchase of shares	(23,694	)	(9,866	)	(48,948	)	(19,855	)
Net cash used in financing activities	(17,625	)	(1,218	)	(30,572	)	(918	)
Effect of exchange rate changes on cash	751		727		(3,208	)	(1,107	)
Net increase in cash and cash equivalents	27,686		37,341		26,764		139,952
Cash and cash equivalents, beginning of period	377,426		327,441		378,348		224,830
Cash and cash equivalents, end of period	405,112		364,782		405,112		364,782
Short-term investments, end of period	96,140		75,628		96,140		75,628
Cash, cash equivalents, and short-term investments,   end of period	$501,252		$440,410		$ 501,252		$ 440,410

(See accompanying notes)

5

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

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Corporation in United States (“U.S.”) dollars and in accordance with generally accepted accounting principles (“GAAP”) in the U.S. with respect to interim financial statements, applied on a consistent basis. The consolidated balance sheet as at February 28, 2005 has been extracted from the audited consolidated financial statements at that date. These consolidated financial statements do not include all of the information and footnotes required for compliance with GAAP in the U.S. for annual financial statements. These unaudited condensed notes to the consolidated financial statements should be read in conjunction with the audited financial statements and notes included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended February 28, 2005.

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

2. Revenue Recognition

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

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

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

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

6

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

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

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

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

3. Stock-Based Compensation

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

7

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

If the fair values of the options granted had been recognized as compensation expense on a straight-line basis over the vesting period of the grant in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-based Compensation, (“SFAS 123”) stock-based compensation costs would have reduced net income, basic net income per share, and diluted net income per share as indicated in the table below (000s, except per share amounts):

	Three months ended August 31,				Six months ended August 31,
	2005		2004		2005		2004
Net income:
As reported	$28,719		$27,599		$52,544		$47,724
Add: Stock-based employee
compensation included above	167		220		335		405
Less: Stock-based employee
compensation using fair value based
method	(3,986	)	(3,428	)	(7,607	)	(6,837	)
Pro forma	$24,900		$24,391		$45,272		$41,292
Basic net income per share:
As reported	$0.32		$0.31		$0.58		$0.53
Add: Stock-based employee
compensation included above	--		--		--		--
Less: Stock-based employee
compensation using fair value based
method	(0.05	)	(0.04	)	(0.08	)	(0.07	)
Pro forma	$0.27		$0.27		$0.50		$0.46

8

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

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

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

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

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

9

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

4. Goodwill

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

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

5. Intangible Assets

	As at August 31, 2005			As at February 28, 2005
	Cost		Accumulated Amortization	Cost		Accumulated Amortization	Amortization Rate
	($000s)			($000s)
Acquired technology	$ 40,419		$25,362	$ 40,419		$22,688	20	%
Contractual relationships	9,608		2,780	9,608		2,179	12.5	%
Trademarks and patents	5,042		2,908	4,597		2,523	20	%
	55,069		$31,050	54,624		$27,390
	(31,050	)		(27,390	)
Net book value	$ 24,019			$ 27,234

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

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

10

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

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

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

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

6. Commitments and Contingencies

Legal Proceedings

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

Customer Indemnification

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

11

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

7. Income Taxes

The Corporation provides for income taxes in its quarterly unaudited financial statements based on the estimated effective tax rate for the full fiscal year. The estimated effective tax rate is adjusted on a quarterly basis when a tax asset or exposure is ultimately resolved.

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

8. Stockholders’ Equity

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

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

12

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

During the three and six months ended August 31, 2004, the corporation repurchased 287,000 shares at a value of $9,866,000 and 587,000 shares at a value of $19,855,000 respectively, in the open market under its share repurchase program. During these same periods, the Corporation repurchased 10,000 shares valued at $335,000 under its restricted share unit plan.

Net Income per Share

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

	Three months ended August 31,		Six months ended August 31,
	2005	2004	2005	2004
Basic Net Income per Share
Net income	$28,719	$27,599	$52,544	$47,724
Weighted average number of shares
outstanding	90,740	90,382	90,909	90,237
Basic net income per share	$0.32	$0.31	$0.58	$0.53
Diluted Net Income per Share
Net income	$28,719	$27,599	$52,544	$47,724
Weighted average number of shares
outstanding	90,740	90,382	90,909	90,237
Dilutive effect of stock options	2,066	2,467	2,441	2,534
Adjusted weighted average number of
shares outstanding	92,806	92,849	93,350	92,771
Diluted net income per share	$0.31	$0.30	$0.56	$0.51

9. Comprehensive Income

Comprehensive income includes net income and other comprehensive income (“OCI”). OCI refers to changes in net assets from transactions and other events, and circumstances not included in net income and other than transactions with stockholders. These changes are recorded directly as a separate component of Stockholders’ Equity. OCI includes the foreign currency translation adjustments for subsidiaries that do not use the U.S. dollar as their functional currency net of gains or losses on derivatives designated as a hedge of the net investment in foreign operations and the effective portion of cash flow hedges where the hedged item has not yet been recognized in income. Tax effects of foreign currency translation adjustments pertaining to those subsidiaries are generally included in OCI.

13

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

The components of comprehensive income were as follows ($000’s):

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

10. Segmented Information

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

11. Liabilities in Connection with Acquisition

The Corporation undertook a restructuring plan in conjunction with the acquisition of Frango in September 2004. In accordance with Emerging Issues Task Force No. 95-3, Recognition of Liabilities in Connection with a Business Combination, the liability associated with this restructuring is considered a liability assumed in the purchase price allocation. The Corporation recorded restructuring costs of approximately $5,445,000 in relation to this restructuring plan. This restructuring primarily related to involuntary employee separations of approximately 20 employees of Frango and accruals for vacating leased premises of Frango. The employee separations impacted all functional groups, primarily in Europe. The restructuring accrual is included on the balance sheet as accrued charges and salaries, commissions, and related items. All amounts excluding lease payments are expected to be paid during fiscal 2006. Outstanding balances for the lease payments will be paid over the lease term unless settled earlier. As of August 31, 2005, the plan was not yet finalized and as a result there may be unresolved contingencies, purchase price allocation issues, or additional liabilities that could result in a material adjustment to the acquisition cost allocation.

14

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

The following table sets forth the activity in the Corporation’s restructuring accrual for the six-month period ended August 31, 2005: ($000s)

	Employee separations		Other restructuring accruals		Total accrual
Balance as at February 28, 2005	$ 2,913		$2,261		$ 5,174
Adjustments to accrual	(305	)	(453	)	(758	)
Cash payments during the first six months of
fiscal 2006	(1,649	)	(554	)	(2,203	)
Foreign exchange adjustment	(177	)	(148	)	(325	)
Balance as at August 31, 2005	$    782		$1,106		$ 1,888

12. Comparative Results

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

13. New Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123 (Revised), Share-based Payment (“SFAS 123R”) which is a revision of SFAS 123 and supersedes APB 25 and SFAS No. 148, Accounting for Stock-based Compensation – Transition and Disclosure. This revised standard addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair value method and recognize the expense in the consolidated statement of income. SFAS 123R will be effective for fiscal years beginning after June 15, 2005. Early adoption is permitted. The Corporation is currently examining the different changes contemplated by the new rules and has yet to determine which transitional provision it will follow. The impact on the Corporation’s financial statements of applying one of the acceptable fair value based methods of accounting for stock options is disclosed in Note 3 “Stock-based Compensation”.

15

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

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

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

14. Canadian Generally Accepted Accounting Principles

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

16

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

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

Condensed Consolidated Balance Sheets

$000s, as at	August 31, 2005						February 28, 2005
	U.S. GAAP		Adjustments		Canadian GAAP		U.S. GAAP		Adjustments		Canadian GAAP
Current assets	$661,780		$            --		$661,780		$   735,299		$            --		$   735,299
Fixed assets, net	74,357		--		74,357		73,566		--		73,566
Intangible assets, net	24,019		126		24,145		27,234		626		27,860
Other assets	6,564		--		6,564		6,378		--		6,378
Goodwill	220,488		--		220,488		221,490		--		221,490
Total Assets	$987,208		$         126		$987,334		$1,063,967		$         626		$1,064,593
Current liabilities	$293,500		$     (1,217	)	$292,283		$   391,063		$        (348	)	$   390,715
Deferred income taxes	13,680		32		13,712		17,083		232		17,315
Common shares and
additional paid-in
capital	267,248		168,751		435,999		252,561		153,310		405,871
Treasury shares	(915	)	--		(915	)	(1,199	)	--		(1,199	)
Deferred stock-based
compensation	(21	)	(45,723	)	(45,744	)	(277	)	(37,555	)	(37,832	)
Retained earnings	409,100		(122,934	)	286,166		402,020		(115,361	)	286,659
Accumulated other
comprehensive     income	4,616		1,217		5,833		2,716		348		3,064
Total Liabilities and
Stockholders' Equity	$987,208		$        126		$987,334		$1,063,967		$         626		$1,064,593

17

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

Reconciliation of Consolidated Net Income

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

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

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

A.        Acquired in-process technology

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

18

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

B.        Stock-based compensation

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

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

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

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

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

D.        Derivative financial instruments

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

19

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

E.        Investment tax credits

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

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Item 2.

COGNOS INCORPORATED

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

FORWARD-LOOKING STATEMENTS/SAFE HARBOR

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the unaudited Consolidated Financial Statements and Notes included in Item 1 of this Quarterly Report and can also be read in conjunction with the audited Consolidated Financial Statements and Notes, and MD&A contained in our Annual Report on Form 10-K for the fiscal year ended February 28, 2005 (“fiscal 2005”). MD&A contains forward-looking statements including statements concerning future revenue and earnings and drivers of revenue growth; the effect of foreign currency fluctuations, changes in accounting principles and changes in actual or assumed tax liabilities; our expectations regarding tax exposure; product demand and growth opportunities; business outlook and business momentum; industry trends, including standardization, greater investment within the Office of Finance, and the emergence of CPM; purchasing environment; larger transactions and changes in buying cycle; new product introductions/development and customer reaction and acceptance of such products, including new releases of Cognos Planning and Cognos Controller as well as Cognos 8 Business Intelligence and the impact of Cognos 8 Business Intelligence on our business, financial performance, customers, and industry; market positioning and conditions, business model and technology strategies and execution; the growth, strategic importance, benefits, and acceptance of corporate performance management, business intelligence and solution standardization; our deployment of resources to expand our direct and indirect sales activities; our relationships with system integrators and the importance of those relationships; our use of subcontractors and direct and indirect sales channels; increases in enterprise-wide deployments; expense monitoring and our anticipated capital requirements and working capital needs. These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements. Factors that may cause such differences include, but are not limited to, our ability to maintain or accurately forecast revenue growth or to anticipate and accurately forecast a decline in revenue from any of our products or services, particularly our license revenues as a result of the release of Cognos 8 Business Intelligence; a continuing increase in the number of larger customer transactions and the potential for a related lengthening of sales cycles; our ability to compete in an intensely competitive market; our ability to develop and introduce new products and enhancements on schedule that respond to customer requirements and rapid technological change; new product introductions and enhancements by competitors; our ability to select and implement appropriate business models, plans and strategies and to execute on them; our ability to identify, hire, train, motivate, and retain highly qualified management and other key personnel; continued BI market consolidation and other competitive changes in the BI market; the incursion of enterprise resource planning companies into the BI market; fluctuations in our quarterly and annual operating results; currency fluctuations; fluctuations in our tax exposure; the impact of global economic conditions on our business; unauthorized use or misappropriation of our intellectual property; claims by third parties that our software infringes their intellectual property; the risks inherent in international operations, such as the impact of the laws of foreign jurisdictions; the impact of recent hurricanes on the overall economic condition of North America; and our ability to identify, pursue, and complete acquisitions with desired business results; as well as the risk factors discussed below and in other periodic reports filed with the SEC. Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation to publicly update or revise any such statement to reflect any change in our expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements.

21

ABOUT COGNOS

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

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

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

OVERVIEW OF THE QUARTER

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

Operating Performance

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

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

22

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

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

We signed nine contracts in excess of one million dollars during the quarter compared with seven in the same period last fiscal year. In addition, the number of contracts greater than $200,000 and $50,000 increased 14% and 15%, respectively, compared to the corresponding period last year. We believe this increase in the number of large contracts is evidence of the continuing growth and deepening strategic importance of performance management within our customers’ businesses.

Outlook for the balance of the fiscal year

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

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

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

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

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

23

RESULTS OF OPERATIONS

									Percentage Change
($000s, except per share amounts)		Three months ended August 31,			Six months ended August 31,				Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005		2004		2005		2004
Revenue	$212,042		$185,220		$412,117		$358,839		14.5	%	14.8	%
Cost of revenue	42,717		35,077		84,911		68,348		21.8		24.2
Gross margin	169,325		150,143		327,206		290,491		12.8		12.6
Operating expenses	136,404		116,981		269,928		233,187		16.6		15.8
Operating income	$  32,921		$  33,162		$  57,278		$  57,304		(0.7	)	0.0
Gross margin percentage	79.9	%	81.1	%	79.4	%	81.0	%
Operating margin percentage	15.5	%	17.9	%	13.9	%	16.0	%
Net income	$28,719		$27,599		$52,544		$47,724		4.1	%	10.1	%
Basic net income per share	$0.32		$0.31		$0.58		$0.53
Diluted net income per share	$0.31		$0.30		$0.56		$0.51

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

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

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

24

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

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

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

Year-over-year Percentage Change in Revenue and Expenses

	Three Months Ended August 31, 2005 over 2004						Six Months Ended August 31, 2005 over 2004
	Growth Excluding Foreign Exchange		Foreign Exchange		Net Change		Growth Excluding Foreign Exchange		Foreign Exchange		Net Change
Revenue	13.3	%	1.2	%	14.5	%	13.1	%	1.7	%	14.8	%
Cost of Revenue and
Operating Expenses	14.6	%	3.2	%	17.8	%	13.9	%	3.8	%	17.7	%
Operating Income	7.1	%	(7.8	)%	(0.7	)%	8.6	%	(8.6	)%	0.0	%

25

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

	Percentage of Revenue								Percentage Change
	Three months ended August 31,				Six months ended August 31,				Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005		2004		2005		2004
Revenue	100.0	%	100.0	%	100.0	%	100.0	%	14.5	%	14.8	%
Cost of revenue	20.1		18.9		20.6		19.0		21.8		24.2
Gross margin	79.9		81.1		79.4		81.0		12.8		12.6
Operating expenses
Selling, general, and
administrative	50.1		48.8		50.8		50.5		17.6		15.6
Research and     development	13.5		13.7		13.9		13.8		12.4		15.5
Amortization of
acquisition-related
intangible assets	0.8		0.7		0.8		0.7		33.3		32.9
Total operating expenses	64.4		63.2		65.5		65.0		16.6		15.8
Operating income	15.5		17.9		13.9		16.0		(0.7	)	0.0
Interest expense	(0.2	)	0.0		(0.2	)	0.0		*		*
Interest income	1.7		1.0		1.6		0.8		99.7		109.6
Income before taxes	17.0		18.9		15.3		16.8		3.0		4.5
Income tax provision	3.5		4.0		2.6		3.5		(1.1	)	(16.7	)
Net income	13.5	%	14.9	%	12.7	%	13.3	%	4.1		10.1

* not meaningful

REVENUE

					Percentage Change
($000s)	Three months ended August 31,		Six months ended August 31,		Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005	2004	2005	2004
Product License	$  78,649	$  75,362	$149,795	$141,432	4	.4%	5	.9%
Product Support	92,062	76,156	180,567	150,943	20	.9	19	.6
Services	41,331	33,702	81,755	66,464	22	.6	23	.0
Total Revenue	$212,042	$185,220	$412,117	$358,839	14	.5	14	.8

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

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

Industry Trends and Geographic Information

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

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

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

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

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

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Key Revenue Indicators

	Three months ended August 31,		Six months ended August 31,
	2005	2004	2005	2004
Orders (License, Support, Services)
Transactions greater than $1 million	9	7	15	15
Transactions greater than $200,000	124	109	228	200
Transactions greater than $50,000	754	655	1,422	1,224
Average selling price (License orders only) ($000s)
Greater than $50,000	172	176	173	173

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

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

Revenue by Geography

					Percentage Change
($000s)	Three months ended August 31,		Six months ended August 31,		Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005	2004	2005	2004
The Americas	$122,593	$110,240	$238,109	$215,071	11	.2%	10	.7%
Europe	67,596	57,952	134,057	112,941	16	.6	18	.7
Asia/Pacific	21,853	17,028	39,951	30,827	28	.3	29	.6
Total	$212,042	$185,220	$412,117	$358,839	14	.5	14	.8

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 August 31,				Six months ended August 31,
	2005		2004		2005		2004
The Americas	57.8	%	59.5	%	57.8	%	59.9	%
Europe	31.9		31.3		32.5		31.5
Asia/Pacific	10.3		9.2		9.7		8.6
Total	100.0	%	100.0	%	100.0	%	100.0	%

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The growth rates of our revenue in Europe, Asia/Pacific and, to a much lesser extent, in the Americas can be affected by foreign exchange rate fluctuations. The following table breaks down the year-over-year percentage change in revenue for the three and six months ended August 31, 2005 by geographic area between change attributable to growth and change due to fluctuations in the value of the U.S. dollar.

Year-over-year Percentage Change in Revenue by Geography

	Three Months Ended August 31, 2005 over 2004			Six Months Ended August 31, 2005 over 2004
	Growth Excluding Foreign Exchange	Foreign Exchange	Net Change	Growth Excluding Foreign Exchange	Foreign Exchange	Net Change
The Americas	9.6%	1.6%	11.2%	9.3%	1.4%	10.7%
Europe	17.3%	(0.7)%	16.6%	16.9%	1.8%	18.7%
Asia/Pacific	22.4%	5.9%	28.3%	24.1%	5.5%	29.6%
Total	13.3%	1.2%	14.5%	13.1%	1.7%	14.8%

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

Product License Revenue

									Percentage Change
($000s)	Three months ended August 31,				Six months ended August 31,				Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005		2004		2005		2004
Product license revenue	$78,649		$75,362		$149,795		$141,432		4.4	%	5.9	%
Percentage of total revenue	37.1	%	40.7	%	36.4	%	39.4	%

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

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The breadth of our solution is also allowing us to develop long-term strategic relationships with our customers which, in turn, enables us to generate additional software licensing and ongoing maintenance renewals. These relationships are a significant asset as approximately 69% of our license revenue came from existing customers in the three-month period ended August 31, 2005.

We license our software through our direct sales force and value-added resellers, system integrators, and OEMs. Direct sales accounted for approximately 74% and 73% of our license revenue for the second quarter of fiscal 2006 and 2005, respectively.

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

Product Support Revenue

									Percentage Change
($000s)	Three months ended August 31,				Six months ended August 31,				Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005		2004		2005		2004
Product support revenue	$92,062		$76,156		$180,567		$150,943		20.9	%	19.6	%
Percentage of total revenue	43.4	%	41.1	%	43.8	%	42.1	%

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

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

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Services Revenue

									Percentage Change
($000s)	Three months ended August 31,				Six months ended August 31,				Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005		2004		2005		2004
Services revenue	$41,331		$33,702		$81,755		$66,464		22.6	%	23.0	%
Percentage of total revenue	19.5	%	18.2	%	19.8	%	18.5	%

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

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

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COST OF REVENUE

Cost of Product License

									Percentage Change
($000s)	Three months ended August 31,				Six months ended August 31,				Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005		2004		2005		2004
Cost of product license	$1,409		$546		$2,631		$1,167		158	.1%	125	.4%
Percentage of license revenue	1.8	%	0.7	%	1.8	%	0.8	%

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

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

($000s)	Year-over-year Change from August 31, 2004 to 2005
	Three months	Six months
Royalty cost	$802	$1,473
Other	61	(9	)
Total year-over-year change	$863	$1,464

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

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Cost of Product Support

									Percentage Change
($000s)	Three months ended August 31,				Six months ended August 31,				Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005		2004		2005		2004
Cost of product support	$8,797		$7,074		$17,679		$14,249		24	.4%	24	.1%
Percentage of support revenue	9.6	%	9.3	%	9.8	%	9.4	%

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

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

($000s)	Year-over-year Change from August 31, 2004 to 2005
	Three months	Six           months
Staff-related costs	$1,368	$3,000
Other	355	430
Total year-over-year change	$1,723	$3,430

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

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Cost of Services

									Percentage Change
($000s)	Three months ended August 31,				Six months ended August 31,				Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005		2004		2005		2004
Cost of services	$32,511		$27,457		$64,601		$52,932		18	.4%	22	.0%
Percentage of services revenue	78.7	%	81.5	%	79.0	%	79.6	%

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

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

($000s)	Year-over-year Change from August 31, 2004 to 2005
	Three months	Six months
Staff-related costs	$1,400	$  4,153
Services purchased externally	3,149	6,191
Other	505	1,325
Total year-over-year change	$5,054	$11,669

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

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OPERATING EXPENSES

Selling, General, and Administrative

									Percentage Change
($000s)	Three months ended August 31,				Six months ended August 31,				Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005		2004		2005		2004
Selling, general, and
administrative	$106,241		$90,371		$209,254		$181,016		17	.6%	15	.6%
Percentage of total revenue	50.1	%	48.8	%	50.8	%	50.5	%

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

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

($000s)	Year-over-year Change from August 31, 2004 to 2005
	Three months	Six months
Staff-related costs	$  7,578	$16,641
Professional services	2,486	2,486
Staff development	2,039	2,344
Travel & living	1,622	2,165
Facilities	1,537	3,069
Other	608	1,533
Total year-over-year change	$15,870	$28,238

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

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Research and Development

									Percentage Change
($000s)	Three months ended August 31,				Six months ended August 31,				Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005		2004		2005		2004
Research and development	$28,526		$25,382		$57,400		$49,707		12	.4%	15	.5%
Percentage of total revenue	13.5	%	13.7	%	13.9	%	13.8	%

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

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

($000s)	Year-over-year Change from August 31, 2004 to 2005
	Three months	Six months
Staff-related costs	$1,575	$4,370
Other	1,569	3,323
Total year-over-year change	$3,144	$7,693

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

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We continue to invest significantly in R&D activities for our next generation of BI solutions which are the foundation of our CPM vision. In September 2005, we launched Cognos 8 BI. Cognos 8 BI offers a complete range of BI functionality, including reporting, analysis, dashboarding, scorecarding, and event management, on a single, proven web-based architecture. This services oriented architecture was first introduced with Cognos ReportNet and will allow customers to easily expand their BI deployment.

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

We currently do not have any software development costs capitalized on our balance sheet. Software development costs are expensed as incurred unless they meet generally accepted accounting criteria for deferral and amortization. Software development costs incurred prior to the establishment of technological feasibility do not meet these criteria, and are expensed as incurred. Capitalized costs would be amortized over a period not exceeding 36 months. No costs were deferred in the three and six months ended August 31, 2005 and August 31, 2004. Costs were not deferred in the periods because either no projects met the criteria for deferral or, if met, the period between achieving technological feasibility and the general availability of the product was short, rendering the associated costs immaterial.

Amortization of Acquisition-related Intangible Assets

					Percentage Change
($000s)	Three months ended August 31,		Six months ended August 31,		Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005	2004	2005	2004
Amortization of
acquisition-related
intangible assets	$1,637	$1,228	$3,274	$2,464	33	.3%	32	.9%

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

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Net Interest and Other Income

					Percentage Change
($000s)	Three months ended August 31,		Six months ended August 31,		Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005	2004	2005	2004
Net interest and other income	$3,051	$1,773	$5,831	$3,106	72	.1%	87	.7%

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

($000s)	Year-over-year Change from August 31, 2004 to 2005
	Three months		Six months
Increase in interest revenue	$1,776		$3,491
Increase in interest and other expenses	(498	)	(766	)
Total year-over-year change	$1,278		$2,725

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

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Income Tax Provision

									Percentage Change
($000s)	Three months ended August 31,				Six months ended August 31,				Three months ended August 31, 2004 to 2005		Six months ended August 31, 2004 to 2005
	2005		2004		2005		2004
Tax expense	$7,253		$7,336		$10,565		$12,686		(1	.1)%	(16	.7)%
Effective tax rate	20.2	%	21.0	%	16.7	%	21.0	%

As we operate globally, we calculate our income tax provision in each of the jurisdictions in which we conduct business. Our tax rate is therefore affected by the relative profitability of our operations in various geographic regions. In the three and six months ended August 31, 2005, we recorded an income tax provision of $7.3 million and $10.6 million, respectively, representing an effective income tax rate of 20% and 17%, respectively. Comparatively, in the three and six months ended August 31, 2004, we recorded an income tax provision of $7.3 million and $12.7 million, respectively, representing an effective income tax rate of 21% for both periods. We estimate our effective tax rate for the current fiscal year to be 21%, exclusive of any one-time events. For the three-month period ended August 31, 2005, this estimated effective tax rate was reduced to approximately 20% by adjustments relating to various tax audits and prior year tax provisions. For the six-month period ended August 31, 2005, the estimated effective tax rate was reduced to approximately 17% by, in addition to the tax adjustments in the current quarter, the first quarter adjustments related to the recognition of benefits resulting from (i) a tax court decision that allowed corporations to claim investment tax credits on stock-based compensation for research and development personnel relating to fiscal years 2004 and 2005 and (ii) a change in tax withholding legislation relating to one of the Corporation’s subsidiaries.

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LIQUIDITY AND CAPITAL RESOURCES

($000s)	As at August 31, 2005	As at February 28, 2005	Percentage Change
Cash and cash equivalents	$405,112	$378,348	7.1	%
Short-term investments	96,140	144,552	(33.5	)
Cash, cash equivalents, and short-term investments	$501,252	$522,900	(4.1	)
Working capital	368,280	344,236	7.0

($000s)	Six months ended August 31,				Percentage Change Six months ended August 31,
	2005		2004		2004 to 2005
Net cash provided by (used in):
Operating activities	$ 23,479		$ 62,503		(62.4	)%
Investing activities	37,065		79,474		(53.4	)
Financing activities	(30,572	)	(918	)	*

	As at August 31, 2005	As at August 31, 2004
Days sales outstanding (DSO)	60	56

* not meaningful

Cash, Cash Equivalents, and Short-term Investments

As of August 31, 2005, we held $501.3 million in cash, cash equivalents, and short-term investments, a decrease of $21.6 million from February 28, 2005. This decrease is primarily attributable to share repurchases of $48.9 million partially offset by cash flow from operations of $23.5 million. Cash and cash equivalents include investments which are highly liquid and held to maturity. Cash equivalents typically include commercial paper and term deposits, banker’s acceptances and bearer deposit notes issued by major North American banks. All cash equivalents have terms to maturity of ninety days or less. Short-term investments are investments that are highly liquid and held to maturity with terms to maturity greater than ninety days, but less than twelve months. Short-term investments typically consist of commercial paper and corporate bonds.

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

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Working Capital

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

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

Long-term Liabilities

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

Cash Provided by Operating Activities

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

Cash Provided by Investing Activities

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

Cash Used in Financing Activities

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

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

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Contracts and Commitments

We have an unsecured credit facility subject to annual renewal. The credit facility permits us to borrow funds or issue letters of credit or guarantee up to Cdn $12.5 million (U.S. $10.5 million), subject to certain covenants. As of August 31, 2005 and 2004, there were no direct borrowings under this facility.

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

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

In connection with the acquisition of Frango, we undertook a restructuring plan in conjunction with the business combination. The restructuring primarily relates to involuntary employee separations of approximately 20 employees of Frango and accruals for vacating leased premises of Frango. During the six-month period ended August 31, 2005, the total cash payments made in relation to the accrual were $2.2 million, and cash payments remaining at August 31, 2005 were $1.9 million. The remaining accrual is included in the balance sheet as accrued charges and salaries, commissions, and related items. All amounts excluding lease payments are expected to be paid during fiscal 2006. Outstanding balances for the lease payments will be paid over the lease term unless settled earlier.

Our contractual obligations have not changed materially from those included in our Annual Report on Form 10-K for the year ended February 28, 2005.

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

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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. Actual results may differ from these estimates under different assumptions, conditions, and experience.

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

• Revenue Recognition

• Allowance for Doubtful Accounts

• Accounting for Income Taxes

• Business Combinations

• Impairment of Goodwill and Long-lived Assets

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

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

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

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

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

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

We evaluate each of these criteria as follows:

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

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

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

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

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

Allowance for Doubtful Accounts — We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We regularly review our accounts receivable and use our judgment to assess the collectibility of specific accounts and, based on this assessment, an allowance is maintained for 100% of all accounts over 360 days and specific accounts deemed to be uncollectible. For those receivables not specifically identified as uncollectible, an allowance is maintained for 2% of those receivables at August 31, 2005. In order to determine the percentage used, we analyze, on an annual basis, the geographical aging of the accounts, the nature of the receivables (i.e. license, maintenance, consulting), our historical collection experience, and current economic conditions.

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

Accounting for Income Taxes — As an entity which operates globally, we calculate our income tax liabilities in each of the jurisdictions in which we conduct business. Our tax rate is therefore affected by the relative profitability of our operations in various geographic regions. We employ tax planning strategies which, by their nature, involve complicated transactions. Those transactions are subject to review or audit by taxation authorities and the ultimate tax outcome bears a measure of uncertainty. We must therefore make estimates and judgments based on our knowledge and understanding of local and international tax legislation in determining our worldwide tax provision and it may take a considerable period of time for the ultimate tax outcome to be known. In the past, we have made adjustments as a result of these changes in circumstance. These adjustments have been accounted for as changes in estimates. The effect of these changes has not been significant on our results of operations and financial condition. We believe our estimates are reasonable, however, we will continue to adjust our estimates as circumstances change. Therefore, the ultimate tax outcome could differ materially from the amounts recorded in our financial statements. These differences could have a material effect on our financial position and our net income in the period such determination is made.

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

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

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

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

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

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

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

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

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

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

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

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

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 123 (Revised), Share-based Payment (“SFAS 123R”) which is a revision of SFAS 123 and supersedes Accounting Principles Board (“APB”) Opinion 25, Accounting for Stock Issued to Employees, (“APB 25”) and SFAS No. 148, Accounting for Stock-based Compensation – Transition and Disclosure. This revised standard addresses the accounting for share-based payment transactions in which a company receives employee services in exchange for either equity instruments of the company or liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. Under the new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair value method and recognize the expense in the consolidated statement of income. SFAS 123R will be effective for fiscal years beginning after June 15, 2005. Early adoption is permitted. We are currently examining the different changes contemplated by the new rules and we have yet to determine which transitional provision we will follow. The impact on our financial statements of applying one of the acceptable fair value based methods of accounting for stock options is disclosed in Note 3 “Stock-based Compensation”.

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

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

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

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

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We face intense competition and we may not compete successfully.

We face substantial competition throughout the world, primarily from software companies located in the United States, Europe, and Canada. We expect our competitors to continue to improve the performance of their current products and to introduce new products (or integrated products) or new technologies. The software market may continue to consolidate by merger or acquisition and larger software vendors, including enterprise resource planning (“ERP”) software vendors, may continue to expand their product offering. For example, ERP vendor, Oracle Corporation, has recently announced that it will acquire Siebel Systems, Inc. and has also recently acquired one of its major ERP competitors, PeopleSoft, Inc. If one or more of our competitors merges or partners with another of our competitors or ERP vendors or if we were to become the subject of an unsolicited acquisition initiative by another enterprise, any such change in the competitive landscape could adversely affect our ability to compete either because of an improvement in one of our competitor’s competitive position or due to distraction caused by an unsolicited acquisition. Entry or expansion of other large software vendors, including ERP vendors, into this market may establish competitors which have substantially greater financial and other resources with which to pursue research and development, manufacturing, marketing, and distribution of their products. Their current customer base and relationships may also provide them with a competitive advantage. New product announcements or introductions by our competitors could cause a decline in sales, a reduction in the sales price, or a loss of market acceptance of our existing products. To the extent that we are unable to effectively compete against our current and future competitors, our ability to sell products could be harmed and our market share reduced. Any erosion of our competitive position could have a material adverse effect on our business, results of operations, and financial condition.

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

As our business continues to evolve toward larger transactions at the enterprise level, the presence or absence of one or more of these large transactions in a particular period may have a material positive or negative effect on our revenue estimates in that period. These significant transactions require a considerable effort on the part of customers to assess alternative products and require additional levels of management approvals before being concluded. They are also often more complex than smaller transactions. These factors could lengthen the typical sales cycle and increase the risk that the customer’s purchasing decision may be postponed or delayed from one period to another subsequent or later period or that the customer will alter its purchasing requirements. The sales effort and service delivery scope for larger transactions also require additional resources to execute the transaction. These factors, along with any other foreseen or unforeseen event, could result in lower than anticipated revenue for a particular period or in the reduction of estimated revenue in future periods. For example, in the second quarter of fiscal year 2006, we closed nine contracts greater than $1 million, compared to seven in the second quarter of fiscal year 2005.

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

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

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

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

Currency fluctuations may adversely affect us.

A substantial portion of both our revenues and expenditures are generated in currencies other than the U.S. dollar, such as the Canadian dollar and the euro. Fluctuations in the exchange rate between the U.S. dollar and other currencies, particularly the euro and the Canadian dollar, may have a material adverse effect on our business, financial condition, and operating results as we report in U.S. dollars. For example, the Canadian dollar has continued to strengthen during the second quarter of fiscal 2006, leading to higher than anticipated expenses when reported in U.S. dollars. Please see further discussion on foreign currency risk included in the Quantitative and Qualitative Disclosure on Market Risk in Item 3 of this Form 10-Q.

We operate internationally and face risks attendant to those operations.

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

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

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

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

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

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

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

Our quarterly and annual operating results may vary between periods.

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

Our expenses may not match anticipated revenues.

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

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

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

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

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

Making and integrating acquisitions could impair our operating results.

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

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

We are subject to income taxes and non-income taxes in a variety of jurisdictions and our tax structure is subject to review by both domestic and foreign taxation authorities. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment. Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results, positively or negatively, in the quarter or quarters for which such determination is made. For example, in the second quarter of fiscal 2006, the estimated effective tax rate for the year was reduced due to adjustments relating to various tax audits and prior year tax provisions and, in the first quarter of fiscal 2006, the estimated effective tax rate for the fiscal year was adjusted downward for the recognition of one-time benefits resulting from (i) a tax court decision that allowed corporations to claim investment tax credits on stock-based compensation for research and development personnel relating to fiscal years 2004 and 2005 and (ii) a change in tax withholding legislation relating to one of the Corporation’s subsidiaries.

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

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

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

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

Our share price may fluctuate.

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

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

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

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes.

Interest Rate Risk

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

Interest income on our cash, cash equivalents, and short-term investments is subject to interest rate fluctuations, but we believe that the impact of these fluctuations does not have a material effect on our financial position due to the short-term nature of these financial instruments. We have no long-term debt. Our interest income and interest expense are most sensitive to the general level of interest rates in Canada and the United States. Sensitivity analysis is used to measure our interest rate risk. For the three and six months ending August 31, 2005, a 100 basis-point adverse change in interest rates would not have had a material effect on our consolidated financial position, earnings, or cash flows.

Foreign Currency Risk

We operate internationally. Accordingly, a substantial portion of our financial instruments are held in currencies other than the U.S. dollar. Our policy with respect to foreign currency exposure as it relates to financial instruments, is to manage financial exposure to certain foreign exchange fluctuations with the objective of neutralizing some of the impact of foreign currency exchange movements. Sensitivity analysis is used to measure our foreign currency exchange rate risk. As of August 31, 2005, a 10% adverse change in foreign exchange rates versus the U.S. dollar would have decreased our reported cash, cash equivalents, and short-term investments by approximately one percent.

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

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Item 4. Controls and Procedures

a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the disclosure controls and procedures as of a date within 90 days before the filing date of this quarterly report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer conclude that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934) effectively ensure that information required to be disclosed in our filings and submissions under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

b) Changes in internal control over financial reporting

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

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PART II – OTHER INFORMATION

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

PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans	Approximate Number of Shares or Dollar Value of Shares that May Yet Be Purchased Under the Plans
				Restricted Share Unit Plan (# of shares)	Share Repurchase Program
June 1 to June 30, 2005	Nil	Nil	Nil	2,946,500	$55,484,667
July 1 to July 31, 2005	649,100	$36.50	649,100	2,946,500	$31,790,408
August 1 to August 31, 2005	5,000	$35.56	5,000	2,941,500	$31,790,408
Total	654,100	$36.50	654,100

On September 25, 2002, the Board of Directors of Cognos adopted a restricted share unit plan under which awards of restricted share units can be granted to employees, officers and directors of Cognos up to an aggregate of 2,000,000 restricted share units. On June 23, 2005, the Shareholders of the Corporation approved the extension of the term of the plan to September 30, 2015 and increased the number of authorized shares to 3,000,000. Subject to the vesting provisions set out in each participant’s award agreement, each restricted share unit can be exchangeable for one common share of Cognos. The common shares for which the restricted share units may be exchanged will be purchased on the open market by a trustee appointed and funded by Cognos. During the quarter ended August 31, 2005, Cognos repurchased 5,000 shares at an average price of $35.56 for the restricted share unit plan.

On October 6, 2004, Cognos announced that it had adopted a stock repurchase program authorizing the repurchase of up to 4,530,256 common shares (not more than 5% of the common shares outstanding on that date) up to a maximum of $50,000,000 between October 9, 2004 and October 8, 2005. On June 22, 2005, the Board of Directors of Cognos approved additional purchases up to a total of $100,000,000 with no increase in the number of shares. During the quarter ended August 31, 2005, Cognos repurchased 649,100 shares at an average price of $36.50 under the stock repurchase program.

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

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

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

Voting Results
Annual and Special Meeting of Shareholders
June 23, 2005

	FOR	WITHHELD	AGAINST
Election of Directors
Robert G. Ashe	73,689,521	279,834	--
John E. Caldwell	72,508,159	1,461,196	--
Paul D. Damp	73,688,511	280,844	--
Pierre Y. Ducros	73,136,728	820,203	--
Robert W. Korthals	73,642,637	326,718	--
John J. Rando	73,688,940	280,415	--
Bill V. Russell	73,558,211	411,144	--
James M. Tory	73,504,695	452,236	--
Renato Zambonini	73,546,237	410,694	--
Appointment of Auditors	72,077,438	301,091	--
Amendment to the 2003-2008 Stock Option Plan to increase the shares of common stock reserved for awards thereunder by 1.8 million shares	54,502,803	--	13,859,312
Amendment to the 2002-2005 Restricted Share Unit Plan to extend its term to 2015, to increase the number of authorized shares to 3,000,000, and to delete Section 4B	54,976,770	--	13,382,251
Amendment to the Employee Stock Purchase Plan to extend its term to 2008	66,607,563	--	1,729,285

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Item 6. Exhibits

a)	Exhibits
	3.1	Articles of Incorporation and Amendments thereto (incorporated by reference to Exhibit 3.1 of Cognos Form 10-Q filed for the quarter ended November 30, 2002 and Exhibit 3.1 (i) of Cognos’ Form 10-Q filed for the quarter ended May 31, 2004)
	3.2	By-Laws of Cognos (incorporated by reference to Exhibit 3.2 of Cognos’ Form 10-K filed for the year ended February 28, 1997)
	10.30	Amended and Restated 2003-2008 Stock Option Plan
	10.31	Amended and Restated 2002-2015 Restricted Share Unit Plan
	10.32	Amended and Restated Cognos Employee Stock Purchase Plan
	10.33	FY06 Compensation Plan for Robert G. Ashe
	10.34	FY06 Compensation Plan for Tom Manley
	10.35	FY06 Compensation Plan for Anthony Sirianni
	10.36	FY06 Compensation Plan for Peter Griffiths
	10.37	FY06 Compensation Plan for David Laverty
	31.1	Certification of Chief Executive Officer Pursuant to Rule 13a - 14(a) and 15d - 14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of Chief Financial Officer Pursuant to Rule 13a - 14(a) and 15d - 14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
	99.1	Management’s Discussion and Analysis of Financial Condition and Results of Operations — Canadian Supplement

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SIGNATURE

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

	COGNOS INCORPORATED
	(Registrant)
October 4, 2005	/s/ Tom Manley
Date	Tom Manley Senior Vice President, Finance & Administration and     Chief Financial Officer (Principal Financial     Officer and Chief Accounting Officer)

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EXHIBIT INDEX

EXHIBIT NO.	DESCRIPTION	PAGE
10.30	Amended and Restated 2003-2008 Stock Option Plan	61
10.31	Amended and Restated 2002-2015 Restricted Share Unit Plan	69
10.32	Amended and Restated Cognos Employee Stock Purchase Plan	73
10.33	FY06 Compensation Plan for Robert G. Ashe	77
10.34	FY06 Compensation Plan for Tom Manley	78
10.35	FY06 Compensation Plan for Anthony Sirianni	79
10.36	FY06 Compensation Plan for Peter Griffiths	80
10.37	FY06 Compensation Plan for David Laverty	81
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a - 14(a) and 15d - 14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	82
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a - 14(a) and 15d - 14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	83
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	84
99.1	Management’s Discussion and Analysis of Financial Condition and Results of Operations — Canadian Supplement	85

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EX-10.30

Exhibit 10.30

COGNOS INCORPORATED

2003-2008 STOCK OPTION PLAN
(Adopted by the Cognos Board of Directors May 1, 2003, approved by the Shareholders on June 19, 2003
and by the TSX. Amendment approved by Cognos Board of Directors on June 22, 2004 and
Shareholders on June 23, 2004 and by the TSX. Further amendment approved by Cognos Board of Directors on April 7, 2005 and Shareholders on June 23, 2005 and by the TSX)

1. PURPOSE

                This 2003-2008 Stock Option Plan (the “Plan”) is intended to provide incentives to employees of Cognos Incorporated and any present or future subsidiary of the Corporation wherever located (the “Corporation”), by providing them with opportunities to purchase stock in the Corporation pursuant to stock options (“Options”). Options may qualify as “incentive stock options”, or ISOs, under Section 422(b) of the United States Internal Revenue Code of 1986, as amended (the “Code”). Options that are not ISOs are “non-qualified stock options” or NQOs.

2. ADMINISTRATION OF THE PLAN

A.     The Plan shall be administered by the Human Resources & Compensation Committee (the “Committee”) of the Board of Directors of the Corporation (the “Board”).

B.     Subject to the terms of the Plan, the Committee shall have the authority to (a) determine the employees of the Corporation and any Subsidiary (from among the class of employees eligible under paragraph 3) to whom Options may be granted; (b) determine the time or times at which Options may be granted; (c) determine (subject to paragraph 6) the option price of shares subject to each Option; (d) determine the limitations, restrictions, and conditions of any grant of Options, including whether any Option granted is an ISO or a NQO; (e) determine (subject to paragraph 8) the time or times when each Option shall become exercisable and the duration of the exercise period; and (f) interpret the Plan and prescribe and rescind rules and regulations relating to it. The interpretation and construction by the Committee of any provisions of the Plan or of any Option granted under it is final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may consider appropriate. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it.

C.     The date of grant of an Option under the Plan will be the date specified by the Committee at the time it awards the Option.

D.     The Board in its discretion may take such action as may be necessary to ensure that Options granted under the Plan qualify as “qualified performance-based compensation” within the meaning of Section 162(m) of the Code and applicable regulations promulgated thereunder (“Performance-Based Compensation”). Options may be subject to such other terms and conditions as are necessary to constitute compensation arising from their exercise or disposition (or the disposition of any shares acquired thereunder) as Performance-Based Compensation.

3. PARTICIPATION

A.     Options may be granted to any employee of the Corporation or any Subsidiary (each recipient of an award a “Participant”). Non-employee directors of the Corporation shall not be eligible to receive Options pursuant to the Plan.

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B.     Participation in the Plan is voluntary and is not a condition of employment. No employee of the Corporation shall have any claim or right to be granted Options pursuant to the Plan.

C.     Neither the Corporation nor any Subsidiary assumes any liability for the income or other tax consequences arising from participation in the Plan. Participants should consult their own tax advisors in that respect.

4. STOCK

A.     All stock issued under the Plan shall be authorized but unissued common shares of capital stock of the Corporation without par value (the “Common Shares”).

B.     The aggregate number of Common Shares which may be issued under the Plan is 5,360,000, subject to adjustment as provided in paragraph 14. The foregoing number of shares is anticipated to be sufficient for the Corporation’s requirements for the period ending July 1, 2006. Subject to prior applicable regulatory approval, it is intended that additional shares will be issued under the Plan but only after the issuance of such shares is approved at a duly convened meeting of shareholders.

C.     If any Option expires or terminates for any reason without having been exercised in full or ceases for any reason to be exercisable in whole or in part, the unpurchased Common Shares subject to that Option shall again be available for grants of Options.

D.     The following restrictions will apply to all grants of Options under the Plan:
(a)     the number of Shares reserved for issuance under Options granted to Insiders (having the meaning given to the term “insiders” in the rules of the Toronto Stock Exchange Company Manual relating to changes in capital structure of listed companies in connection with employee stock option and stock purchase plans, options for services, and related matters, as amended (the “TSX Rules”)) or under any other option to purchase shares from treasury granted to Insiders under any other Share Compensation Arrangement (having the meaning given to the term “share compensation arrangement” in the TSX Rules), may not exceed 10% of the number of Common Shares outstanding on a non-diluted basis at such time (“outstanding issue”);
(b)     Insiders may not, within a 12 month period, be issued a number of Common Shares under the Plan and/or under any other Share Compensation Arrangement of the Corporation exceeding 10% of the outstanding issue;
(c)    any one Insider and that Insider’s Associates (as that term is defined in the Securities Act (Ontario)) may not, within a 12 month period, be issued a number of Common Shares under the Plan and/or under any other Share Compensation Arrangement of the Corporation exceeding 5% of the outstanding issue; and
(d)     the number of Common Shares reserved for issuance to any one Participant under Options granted under the Plan or under any other option to purchase shares from treasury granted under any Share Compensation Arrangement of the Corporation must not exceed 5% of the outstanding issue, or 4,400,000 shares.

E.     The foregoing limits under this paragraph 4 will be adjusted to reflect any adjustments in the capital of the Corporation as contemplated in paragraph 14.

5. TERM & EFFECTIVE DATE

A.     This Plan was adopted by the Board on May 1, 2003. No Option may be awarded prior to shareholder approval of this Plan.

B.     If the approval of shareholders is not obtained prior to July 1, 2003, this Plan will expire on that date. Otherwise, this Plan shall expire on July 1, 2008 (except as to Options outstanding on that date).

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6.     MINIMUM OPTION PRICE

A.     The price per Common Share specified in the agreement relating to each Option granted under the Plan shall not be lower than 100% of the fair market value of Common Shares on the date of grant, subject to adjustment in accordance with the provisions of paragraph 15 and paragraph 19.

B.     In the case of an ISO to be granted to an employee owning stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation or any Subsidiary, the price per Common Share specified in the agreement relating to each ISO shall not be less than one hundred and ten percent (110%) of the fair market value of Common Shares on the date of grant. For purposes of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply.

C.     Each eligible employee may be granted Options treated as ISOs only to the extent that, in the aggregate under this Plan and all incentive stock option plans of the Corporation and any Subsidiary, ISOs do not become exercisable for the first time by such employee during any calendar year with respect to stock having a fair market value (determined at the time the ISOs were granted) in excess of US$100,000. The Corporation intends to designate any Options granted in excess of such limitation as NQOs. (To make this calculation the conversion rate used shall be the noon purchase rate for U.S. dollars on the date of grant as published by the Bank of Canada). The foregoing shall be applied by taking Options into account in the order in which they were granted. If the Committee determines to issue an NQO, it shall take whatever actions it deems necessary, under Section 422 of the Code and the regulations promulgated thereunder, to ensure that such Option is not treated as an ISO.

D.     For the purposes of the Plan, “fair market value” on any particular day shall be determined at the close of business on the last trading day preceding the date an Option is granted and shall mean, (a) the closing price of the Common Shares on the Toronto Stock Exchange, or if none is available then (b) the average of the closing bid and asked prices on the NASDAQ Stock Market. If the Common Shares are not publicly traded at the time an Option is granted, “fair market value” shall be deemed to be the fair value of the Common Shares as determined by the Board after taking into consideration all factors which it deems appropriate, including, without limitation, recent sale and offer prices of the Common Shares in private transactions negotiated at arm’s length.

7. OPTION DURATION

Each Option shall expire on the date specified by the Committee, but not more than five (5) years from the date of grant. The term of each Option shall be set out in the instrument granting the Option (“Option Agreement”).

8. WHEN OPTION BECOMES EXERCISABLE

Each Option shall be exercisable as follows:

A.     The Option shall either be fully exercisable on the date of grant or shall become exercisable thereafter in such installments as the Committee may specify. Any reference to an Option in this Plan includes any installment of that Option.

B.     Once an installment becomes exercisable it shall remain exercisable until expiration or termination of the Option.

C.     Subject to such trading restrictions as may be imposed by the Corporation from time to time, each Option may be exercised at any time or from time to time for up to the total number of Common Shares with respect to which it is then exercisable.

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D.     In addition to specific instances provided in the Plan, the Committee shall have the right to accelerate the date of exercise of any Option or installment thereof. The date of exercise of any ISO (which has not previously been converted to an NQO pursuant to paragraph 19) may be accelerated only if that acceleration does not violate the annual vesting limitation set out in paragraph 6(C).

9. TERMINATION OF EMPLOYMENT

A.     If a Participant ceases to be employed by the Corporation or any Subsidiary, other than by reason of “retirement” as defined in paragraph 10, death or for “cause” as defined in this paragraph 9, then, effective on the date that termination becomes effective (“Without Cause Termination Date”), no further installments of an Option will become exercisable, and the Participant may exercise the Option to the extent the Participant could have exercised, except to the extent the Committee accelerates the right of the Participant to exercise an Option (in its sole and absolute discretion) on the Without Cause Termination Date, at any time on or before the earlier of: thirty (30) days from the Without Cause Termination Date or on the specified expiration date of the Option.

B.     Employment shall be considered as continuing uninterrupted during (a) any bona fide leave of absence (such as governmental service) or period of long term disability, on the condition that the period of such leave of absence does not exceed ninety (90) days, or (b) any period of long-term disability or, (c) any period during which a Participant’s right to re-employment is guaranteed by statute or contract. A bona fide leave of absence in excess of ninety (90) days, taken with the written approval of the Committee shall not be considered an interruption of employment under the Plan, provided that such written approval contractually obligates the Corporation or any Subsidiary to continue the employment of the Participant after the approved period of absence.

C.     Nothing in the Plan shall give any Participant the right to be retained in employment by the Corporation for any period of time, nor shall it interfere with the right of the Corporation to terminate the employment of any Participant, with or without cause. Options granted under the Plan shall not be affected by any change of employment within or among the Corporation, so long as the Participant continues to be an employee of the Corporation.

D.     If the employment of a Participant is terminated for “cause”, any Option or installment thereof shall terminate the last day of employment with the Corporation and shall thereafter not be exercisable, except to the extent the Committee accelerates the right of the Participant to exercise an Option (in its sole and absolute discretion). “Cause” shall mean conduct recognized by the laws applicable to the Participant as constituting just or proper cause for dismissal without compensation. In granting any Option (including any NQO), the Committee may specify that the Option shall be subject to the restrictions set forth herein, or to such other termination or cancellation provisions as it may determine.

10. RETIREMENT

If a Participant whose age and aggregate number of years of service with the Corporation totals 75 or greater, ceases to be employed by the Corporation without cause and with the intent of ceasing full-time employment with any party (the combination of the foregoing factors and such additional factors as the Committee in its sole discretion may from time to time determine constituting “Retirement” for purposes of this Plan), except to the extent the Committee accelerates the right of the Participant to exercise an Option (in its sole and absolute discretion), no further installments of an Option will become exercisable, and the Participant may exercise the Option to the extent the Participant could have exercised it on the date employment ceases, at any time on or before the earlier of: (i) the second (2^nd) anniversary of that date, and (ii) the date that the Option expires pursuant to Paragraph 7. If the Participant dies or is incapacitated during that period, then the personal representatives of the Participant may exercise the foregoing rights.

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11. DEATH

If a Participant ceases to be employed by the Corporation or any Subsidiary by reason of death, (i) all Options granted to the Participant shall become exercisable immediately prior to the death of the Participant, and (ii) the estate, personal representative or beneficiary of the Participant who has acquired the Options by will or by the laws of the descent and distribution, may exercise the Options to the extent the Participant could have exercised them, at any time on or before the earlier of: (a) the first (1^st) anniversary of the date of the Participant’s death if the Participant is an executive officer, (b) the second (2^nd) anniversary of the date of the Participant’s death for all other Participants or (c) the specified expiration date of the Option.

12. ASSIGNABILITY

No Option shall be assignable or transferable by the Participant except by will or by the laws of descent and distribution, and Options shall be exercisable during the lifetime of the Participant only by the Participant.

13. TERMS AND CONDITIONS OF OPTIONS

A.     Options shall be evidenced by instruments (which need not be identical) in such forms as the Committee may from time to time approve. Such instruments shall conform to the terms and conditions set forth in paragraphs 6 through 12 and may contain such other provisions, as the Committee deems advisable, which are not inconsistent with the Plan, including restrictions applicable to Common Shares issuable upon exercise of Options.

B.     The Committee may from time to time confer authority and responsibility on one or more of its members or one or more officers of the Corporation to execute and deliver such instruments. The proper officers of the Corporation are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such instruments.

14. ADJUSTMENTS

Upon the happening of any of the following described events, a Participant’s rights with respect to Options granted hereunder shall be adjusted as follows:

A.     If there is any subdivision or subdivisions of the Common Shares into a greater number of shares at any time, or in the case of the issue of shares of the Corporation to the holders of its outstanding Common Shares by way of stock dividend or stock dividends (other than an issue of shares to shareholders pursuant to their exercise of a right to receive dividends in the form of shares of the Corporation in lieu of cash dividends declared payable in the ordinary course by the Corporation on its Common Shares), the number of Common Shares deliverable upon the exercise of Options shall be increased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such subdivision or stock dividend.

B.     If there is any consolidation or consolidations of the Common Shares into a lesser number of shares at any time, the number of Common Shares deliverable upon the exercise of Options shall be decreased proportionately, and appropriate adjustments shall be made in the purchase price per share to reflect such consolidation.

C.     If there is any reclassification of the Common Shares, at any time a Participant shall accept, at the time of purchase of shares pursuant to the exercise of an Option, in lieu of the number of Common Shares in respect of which the Option to purchase is being exercised, the number of shares of the Corporation of the appropriate class or classes as the Participant would have been entitled as a result of such reclassification or reclassifications had the Option been exercised before such reclassification or reclassifications.

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D.     If the Corporation is to be amalgamated or consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Corporation’s assets or otherwise (an “Acquisition”), the Committee or the board of directors of any entity assuming the obligations of the Corporation under the Plan (the “Successor Board”), shall, as to outstanding Options, either (a) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the shares then subject to such Options the consideration payable with respect to the outstanding Common Shares in connection with the Acquisition; or (b) upon written notice to participants, provide that all Options must be exercised, to the extent then exercisable, within a specified number of days of the date of such notice, at the end of which period the Options shall terminate; or (c) terminate all Options in exchange for a cash payment equal to the excess of the fair market value of the shares subject to such Options (to the extent then exercisable) over the exercise price thereof.

E.     Despite the foregoing, any adjustments made pursuant to subparagraphs A, B, C or D with respect to ISOs shall be made only after the Committee, after consulting with counsel for the Corporation, determines whether such adjustments would constitute a “modification” of those ISOs (as that term is defined in Section 424 of the Code) or would cause any adverse tax consequences for their holders. If the Committee determines that those adjustments would constitute a “modification” of those ISOs, it may, subject to prior applicable regulatory approval, refrain from making such adjustments.

F.     If there is any proposed winding up, dissolution or liquidation of the Corporation, each Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee.

G.     Except as expressly provided herein, no issuance by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. No adjustments shall be made for dividends paid in cash or in property other than securities of the Corporation.

H.     No fractional shares shall be issued under the Plan. A Participant will receive cash in lieu of fractional shares.

I.     Upon the happening of any of the foregoing events described in subparagraphs A, B, C or D above, the class and aggregate number of shares set forth in paragraph 4 hereof that are subject to Options which previously have been or subsequently may be granted under the Plan shall also be appropriately adjusted to reflect the events described in such subparagraphs. The Committee or the Successor Board shall determine the specific adjustments to be made under this paragraph 14 and, subject to paragraph 2, its determination shall be conclusive.

15. EXERCISE OF OPTIONS

A.     An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal office address, or to such transfer agent as the Company shall designate. The notice shall identify the Option being exercised, specify the number of shares as to which such Option is being exercised, and be accompanied by full payment of the purchase price therefor either (a) in Canadian dollars in cash or by certified cheque, (b) at the discretion of the Committee and consistent with applicable law, through the delivery of an assignment to the Company of a sufficient amount of the proceeds from the sale of the Common Shares acquired upon exercise of the Option and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be at the Participant’s direction at the time of exercise, or (c) at the discretion of the Committee, by such other method as it deems appropriate, subject to such regulatory approval as may be required. If the Committee exercises its discretion to permit payment of the exercise price of an Option by means of the methods set forth in clauses (b) or (c) above, that discretion shall be exercised in writing at the time of the grant of the Option in question.

B.     The holder of an Option shall not have the rights of a shareholder with respect to the Common Shares subject to Option until the date of issuance of a stock certificate to the Participant for such Common Shares. Except as expressly provided above in paragraph 14 with respect to changes in capitalization and stock dividends, no adjustment shall be made for dividends or similar rights for which the record date is before the date such stock certificate is issued.

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16. CONDITIONS OF EXERCISE

Each Option shall be subject to the requirement that, if at any time the Committee or counsel for the Corporation shall determine, in its reasonable discretion, that the listing, registration or qualification of the Common Shares subject to such Option upon any stock exchange or under any applicable law, or the consent or approval of any governmental body, is necessary or desirable, as a condition of, or in connection with, the granting of such Option or the issue or purchase of shares thereunder, no such Option may be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee and counsel for the Corporation.

17. TERM & AMENDMENT OF THE PLAN

The Board may terminate or amend the Plan in any respect at any time, in accordance with applicable legislation and subject to regulatory approval, if any is required, except that the approval of shareholders is required: (a) to approve the amendment to any material term of an Option, including, without limit, any change to the price of an Option, or (b) to approve the adoption of any option exchange scheme involving Options, or (c) if such approval is required by applicable law or the rules or policies of any stock exchange or inter-dealer quotation system on which the Common Shares are then listed, or (d) if such approval is required for Option awards to qualify for favorable treatment under Sections 162(m) or 422 of the Code, or any successor provisions. No action of the Committee, Board or shareholders shall alter or impair the rights of a Participant, without the consent of that Participant, under any Option previously granted to him.

18. CONVERSION OF ISOs INTO NQOs

The Committee, at the written request of any Participant, may, in its discretion and subject to such regulatory approval as may be required, take such actions as may be necessary to convert that Participant’s ISOs that have not been exercised on the date of conversion into NQOs at any time prior to the expiration of such ISOs, regardless of whether the Participant is an employee of the Corporation or a Subsidiary at the time of such conversion. Such actions may include, but are not limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such ISO. At the time of conversion, the Committee (with the consent of the Participant) may impose such conditions on the exercise of the resulting NQOs as the Committee in its discretion may determine, on the condition that those conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any Participant the right to have ISOs converted into NQOs, and no conversion shall occur until and unless the Committee takes appropriate action.

19. APPLICATION OF FUNDS

The proceeds received by the Corporation from the sale of Common Shares pursuant to Options granted under the Plan shall be used for general corporate purposes.

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20. GOVERNMENTAL REGULATION

A.     The Corporation’s obligations to sell and deliver Common Shares under this Plan are subject to the approval of any governmental or regulatory authority required in connection with the authorization, issuance or sale of such shares.

B.     Government regulations may impose reporting or other obligations on the Corporation with respect to the Plan. For example, the Corporation may be required to send tax information statements to employees and former employees that exercise Options, and the Corporation may be required to file tax information returns reporting the income received by participants in connection with the Plan.

21. WITHHOLDING OF ADDITIONAL INCOME TAXES

Upon the exercise of an Option, the making of a Disqualifying Disposition (as defined in paragraph 22) or the vesting or transfer of restricted Common Shares acquired on the exercise of an Option, or the making of a distribution or other payment with respect to such Common Shares, the Corporation may withhold taxes in respect of amounts that constitute compensation included in gross income. The Committee in its discretion may condition (a) the exercise of an Option or (b) the vesting of restricted Common Shares acquired by exercising an Option, on the Participant’s making satisfactory arrangement for withholding. Such arrangement may include payment by the Participant in cash or by cheque (certified in its discretion) of the amount of the withholding taxes or, at the discretion of the Committee, by the Participant’s delivery of previously held Common Shares or the withholding of Common Shares otherwise deliverable upon exercise of an Option having an aggregate fair market value equal to the amount of such withholding taxes.

22. DISQUALIFYING DISPOSITION BY PARTICIPANT

By accepting an ISO granted under the Plan, each Participant agrees to notify the Corporation in writing immediately after the Participant makes a disqualifying disposition of any Common Shares received pursuant to the exercise of an ISO (a “Disqualifying Disposition”). Disqualifying Disposition means any disposition (including any sale) of such stock on or before the later of (a) two years from the date the employee was granted the ISO under which he acquired such stock, or (b) one year after the employee acquired such stock by exercising such ISO. If the employee has died before such stock is sold, these holding period requirements do not apply and no Disqualifying Disposition will thereafter occur.

23. GOVERNING LAW

The validity and construction of the Plan and the instruments evidencing Options shall be governed by the laws of the Province of Ontario, Canada.

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EX-10.31

Exhibit 10.31

COGNOS INCORPORATED

2002-2015 RESTRICTED SHARE UNIT PLAN
(Adopted by the Cognos Board of Directors on September 25, 2002. Amendment approved by Cognos Board of Directors on
April 7, 2005 and Shareholders on June 23, 2005.)

1. PURPOSE

The purpose of this 2002-2015 Restricted Share Unit Plan (the “Plan”) of Cognos Incorporated (the “Corporation”) and any present or future wholly owned subsidiary of the Corporation wherever located (each a “Subsidiary”) is to provide grants (each an “Award”) of Restricted Share Units (as defined below) to officers, directors and employees of the Corporation and its Subsidiaries. Any person to whom an Award has been granted under this plan is called a “Participant”. A “Restricted Share Unit” means a right to receive, on the basis set out in the Plan, one (1) common share in the capital stock of the Corporation (a “Common Share”).

For greater certainty, the Plan together with any trust established pursuant hereto shall be constituted as an “employee benefit plan” for the purposes of the Income Tax Act (Canada) (the “Tax Act”). No provision of the Plan shall be applied, interpreted or administered in a manner contrary to the requirements of the Tax Act for qualification of the Plan as such. For greater certainty, the grant of an Award represents a contingent entitlement of the Participant to whom it has been granted and the exchange of a Restricted Share Unit which is the subject of an Award for a Common Share shall be the payment of such share out of or under an employee benefit plan.

2. ADMINISTRATION OF THE PLAN

A.     The Plan shall be administered by the Human Resources & Compensation Committee (the “Committee”) of the Board of Directors of the Corporation (the “Board”).

B.     Subject to the terms of the Plan, the Committee shall have the authority to (a) determine the Participants of the Corporation and any Subsidiary (from among the class of individuals eligible under paragraph 1) to whom Awards may be granted; (b) determine the time or times at which Awards may be granted; (c) determine the limitations, restrictions, and conditions of any grant of Awards; (d) determine the time or times when each Restricted Share Unit which is the subject of an Award shall become exchangeable or exercisable for a Common Share and the duration of the exchange or exercise period; (e) interpret the Plan and prescribe and rescind rules and regulations relating to it; and (f) select on or more trustees (each a “Trustee” and collectively the “Trustees”) and establish one or more agreements between the Corporation and each Trustee (each a “Trust Agreement”) to provide for the purchase of Common Shares on the open market for exchange or exercise under the Plan and the administration of the policies and procedures governing such purchases. The interpretation and construction by the Committee of any provisions of the Plan or of any Awards granted under it is final unless otherwise determined by the Board. The Committee may from time to time adopt such rules and regulations for carrying out the Plan as it may consider appropriate. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted under it.

C.     The date of grant of an Award under the Plan will be the date specified by the Committee at the time it grants the Award. If no date is specified, the date will be the date of the grant.

D.     Awards may be granted to members of the Board, including members of the Committee. All grants of Awards to members of the Board shall be made in accordance with the provisions of this Plan applicable to other eligible persons. Members of the Board who either (a) are eligible to receive grants of Awards pursuant to the Plan or (b) have been granted Awards may vote on any matters affecting the administration of the Plan or the grant of any Awards pursuant to the Plan, except that no such member shall act upon the granting to himself of Awards, but any such member may be counted in determining the existence of a quorum at any meeting of the Board during which such action is taken with respect to the granting of Awards to such member.

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3. AWARDS

Subject to the requirements in this Plan, the Committee shall determine the number of Restricted Share Units which are granted pursuant to an Award and the terms and conditions of each Award. After the expiration and/or satisfaction of the applicable restrictions and conditions set forth in an Award Agreement (as defined below), a Participant may elect to exchange each Restricted Share Unit for one (1) Common Share. The delivery to the Participant of such Common Share shall be subject to (i) such trading restrictions as may be imposed by the Corporation from time to time and (ii) the delivery of such evidence as the Corporation’s registrar and transfer agent may reasonably require confirming the eligibility of such Participant to own Common Shares under the ownership constraints applicable to shareholders of the Corporation.

4. STOCK

All stock delivered to the Participants under the Plan shall be authorized, issued and outstanding Common Shares, which shall be purchased by the Trustees. The aggregate number of Common Shares which may be purchased by the Trustees is 3,000,000, subject to adjustment as provided in paragraph 8 below. The Corporation shall provide the Trustees with the funds necessary to purchase the Common Shares. The obligations of (i) the Trustees regarding the purchase and delivery of Common Shares and (ii) the Corporation regarding the delivery to the Trustees of such funds, shall in each case be more fully set forth in one or more Trust Agreements. All dividends paid on Common Shares which are held by the Trustees shall be retained by the Trustees and shall be distributed to the Participant at the time the Common Shares on which the dividends were declared are distributed to the Participant.

5. TERM & EFFECTIVE DATE

This Plan was adopted by the Board on September 25, 2002 and its term extended by the Board on April 7, 2005, subject to shareholder approval, which was received on June 23, 2005 at the Corporation’s 2005 Annual and Special Meeting. Accordingly, the Plan shall expire on September 30, 2015 (except as to Awards outstanding on that date).

6. DURATION OF AWARD

Subject to the terms of the Plan, each Award shall expire on the date specified by the Committee.

7. TERMS AND CONDITIONS OF AWARDS

A.     The term of each Award shall be set out in an Award agreement (each, an “Award Agreement”) which may contain such restrictions, conditions and other provisions as the Committee deems advisable. The Committee may provide for the acceleration of any restrictions, either in the initial Award agreement or otherwise in writing, upon the satisfaction of Performance Targets to be to be achieved after the date of grant. “Performance Target” means those targets that may be established by the Committee from time to time that relate to corporate, group, unit or individual performance and are established in terms, measures or standards determined by the Committee. Whether any particular Performance Target has been achieved by a Participant in any given period shall be determined in good faith by the Committee in its sole discretion.

B.     The Committee may from time to time confer authority and responsibility on one or more of its members or one or more officers of the Corporation to execute and deliver Award agreements. The proper officers of the Corporation are authorized and directed to take any and all action necessary or advisable from time to time to carry out the terms of such Award agreements.

8. ADJUSTMENTS

Upon the happening of any of the following described events, a Participant’s rights with respect to Restricted Share Units granted hereunder shall be adjusted as follows:

A.     If there is any subdivision or subdivisions of the Common Shares into a greater number of shares at any time, or in the case of the issue of shares of the Corporation to the holders of its outstanding Common Shares by way of stock dividend or stock dividends (other than an issue of shares to shareholders pursuant to their exercise of a right to receive dividends in the form of shares of the Corporation in lieu of cash dividends declared payable in the ordinary course by the Corporation on its Common Shares), the number of Common Shares deliverable upon the exchange or exercise of a Restricted Share Unit shall be increased proportionately.

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B.     If there is any consolidation or consolidations of the Common Shares into a lesser number of shares at any time, the number of Common Shares deliverable upon the exchange or exercise of a Restricted Share Unit shall be decreased proportionately.

C.     If there is any reclassification of the Common Shares at any time, a Participant shall accept, at the time of acquisition of shares pursuant to the exchange of a Restricted Share Unit, in lieu of the number of Common Shares in respect of which the Restricted Share Unit is being exchanged, the number of shares of the Corporation of the appropriate class or classes as the Participant would have been entitled as a result of such reclassification or reclassifications had the Restricted Share Unit been exchanged before such reclassification or reclassifications.

D.     If the Corporation is to be amalgamated or consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Corporation’s assets or otherwise, in each case as determined by the Board (an “Acquisition”), the Committee or the board of directors of any entity assuming the obligations of the Corporation under the Plan (the “Successor Board”), shall, as to outstanding Awards, make appropriate provision for the continuation of such Awards by substituting on an equitable basis for the shares then subject to such Awards the consideration payable with respect to the outstanding Common Shares in connection with the Acquisition. In addition to or in lieu of the foregoing, with respect to outstanding Awards, the Committee or Successor Board may, upon written notice to participants: (i) provide that all Awards must be exchanged or exercised, to the extent then exchangeable or exercisable, within a specified number of days of the date of such notice, at the end of which period the Awards and the underlying Restricted Share Units shall terminate; or (ii) terminate all Awards in exchange for a cash payment equal to the fair market value of the shares underlying such Restricted Share Units (to the extent then exchangeable or exercisable) taking into account any exercise price.

E.     If there is any proposed winding up, dissolution or liquidation of the Corporation, each Restricted Share Unit will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Committee.

F.     Except as expressly provided herein, no issuance by the Corporation of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the Restricted Share Units. No adjustments to the Restricted Share Units shall be made for dividends paid in cash or in property other than securities of the Corporation.

G.     No fractional shares shall be delivered pursuant to an exchange or exercise under the Plan. A Participant will receive cash in lieu of fractional shares.

9. REGULATION

A.     Each Restricted Share Unit shall be subject to the requirement that, if at any time the Committee or counsel for the Corporation shall determine, in its reasonable discretion, that the listing, registration or qualification of the Restricted Share Unit or shares thereunder upon any stock exchange, inter-dealer quotation system or under any applicable law, or the consent or approval of any governmental body, is necessary or desirable, as a condition of, or in connection with, the granting of such Restricted Share Unit or the delivery or acquisition of shares thereunder, no such Restricted Share Unit may be exchanged unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee and counsel for the Corporation.

B.     Government regulations may impose reporting or other obligations on the Corporation with respect to the Plan. For example, the Corporation may be required to send tax information statements to employees and former employees that exchange Awards and the Corporation may be required to file tax information returns reporting the income received by Participants in connection with the Plan.

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10. TERM AND AMENDMENT OF THE PLAN

The Board may terminate or amend the Plan in any respect at any time, in accordance with applicable legislation and subject to regulatory approval, if required, except that the approval of shareholders is required if such approval is required by applicable law or the rules or policies of any stock exchange or inter-dealer quotation system on which the Common Shares are then listed. No action of the Committee, Board or shareholders shall adversely affect the rights of a Participant, without the consent of that Participant, under any Award previously granted to the Participant.

11. WITHHOLDING OF ADDITIONAL INCOME TAXES

Upon the grant of an Award, the vesting or transfer of Restricted Share Units or Common Shares acquired on the exchange or exercise of a Restricted Share Unit, or the making of a distribution or other payment with respect to such Award or Common Shares, the Corporation may withhold taxes required by law. The Committee in its discretion may condition (a) the grant of an Award or exchange or exercise of a Restricted Share Unit or (b) the vesting of an Award or Common Shares acquired by exchanging or exercising a Restricted Share Unit, on the Participant’s making satisfactory arrangement for withholding.

12. MISCELLANEOUS

A.     Participation in the Plan is voluntary and is not a condition of employment. No employee of the Corporation shall have any claim or right to be granted Awards pursuant to the Plan.

B.     None of the Corporation, any Subsidiary or the Trustees (which for the purposes of this section includes their respective directors, officers and employees) shall have any liability for: (i) the income or other tax consequences to participants arising from participation in the Plan; (ii) any change in the value of the Common Shares; or (iii) any delays or errors in the administration of the Plan, except where such person has acted with willful misconduct. Participants should consult their own tax and business advisors as none of the Corporation, any Subsidiary or the Trustees is providing any such advice to any Participant.

13. GOVERNING LAW

The validity and construction of the Plan and Award agreements shall be governed by the laws of the Province of Ontario, Canada.

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EX-10.32

Exhibit 10.32

COGNOS
EMPLOYEE STOCK PURCHASE PLAN
TERMS AND CONDITIONS

(Amendment approved by Cognos Board of Directors on May 10, 2002 approved by its Shareholders on July 2, 2002, and
approved by the TSX on September 4, 2002. Amendment approved by Cognos Board of Directors on April 7, 2005 and approved by its Shareholders on June 23, 2005 and by the TSX)

1. PURPOSE

Participation  in the Cognos Employee Stock Purchase Plan (the “Plan”) is being extended to all full-time and part-time permanent employees of the Cognos group of companies (the “Corporation”). An employee can enroll in the Plan at any time between December 1, 1993 and November 30, 2008. The Plan is intended to provide a further incentive for employees to promote the best interests of the Corporation and an additional opportunity to participate in its economic progress. The stock subject to this Plan shall be shares of the Corporation’s authorized but unissued common stock, no par value. The aggregate number of shares which may be issued pursuant to the Plan is 3,000,000 (1,500,000 pre-split common shares).

2. PAYROLL DEDUCTION

Under the Plan each participating employee (the “Employee”) can elect to have the Corporation deduct an amount per pay period not to exceed 5% of his/her annual target salary divided by the number of pay periods per year provided such amount is greater than $10.00 per month. Commencing on December 1, 1993, the Corporation shall accumulate in its general fund on behalf of each Employee the deductions made in each of the Corporation’s fiscal quarters (a “Purchase Period”). An Employee may elect to change the amount deducted at any time to become effective at the beginning of the next Purchase Period.

3. DATE OF ACQUISITION

On the first trading day after the end of each Purchase Period (the “Date of Acquisition”) (i.e., March 1, 1994, June 1, 1994, September 1, 1994 and December 1, 1994 etc. through to November 30, 2008) each Employee’s cumulative deductions shall be applied towards the purchase of common shares of Cognos Incorporated (the “Common Shares”).

4. PRICE OF ACQUISITION

The purchase price per share shall be at a 10% discount from the lesser of the simple average of the average of the high and low prices of the Common Shares on The Toronto Stock Exchange (T.S.E.) on each of (a) the first five trading days of the Purchase Period or (b) the last five trading days of the Purchase Period.

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5. RECORD OF ACQUISITION

Within one month after each Date of Acquisition, each Employee shall be furnished with a record of the shares purchased, the purchase price per share, and the balance remaining in his/her account along with the stock certificate covering the shares purchased. No partial shares shall be issued. Amounts remaining in an Employee’s account which are insufficient to purchase a whole share shall form the opening balance for the subsequent Purchase Period.

6. TAX CONSEQUENCES

Because the Plan is available to employees of all of the Cognos group of companies worldwide, no attempt has been made to determine the many special provisions which could be applicable to a particular situation. Employees should consult their own tax advisors to determine the specific tax consequences to them.

7. TRANSFERABILITY OF SHARES

The Common Shares issued will be freely transferable on the T.S.E. and in the over-the-counter market in the United States, subject to the requirement that any resales by “affiliates” of the Corporation must be made pursuant to Rule 144 of the United States Securities Act.

8. WITHDRAWAL AND TERMINATION

An employee may withdraw from the Plan at any time by providing written notice to the attention of:

The Corporate Secretary
Cognos Incorporated
P.O. Box 9707
3755 Riverside Drive
Ottawa, Ontario
K1G 4K9

Upon withdrawal all deducted amounts which have not been applied to the purchase of shares shall be returned to the Employee. No interest will be payable to any Employee in respect of deductions made under the Plan.

Termination of employment for whatever cause shall constitute withdrawal from the Plan. On termination all outstanding deductions which have not been applied to the purchase of shares shall be immediately returned to the Employee.

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9. ADMINISTRATION

Rights under the Plan are not transferable by an Employee to any other person. All funds received by the Corporation under the Plan shall be included in the general fund of the Corporation. This Plan will be administered by the Corporate Secretary whose decisions with regard thereto shall be final and conclusive. The Plan shall be governed by the laws of the Province of Ontario.

10. ELECTION TO PARTICIPATE

In order to participate in the Plan an employee must complete the attached Election to Participate form by filling in the date deductions are to commence and the amount of money per pay period which he/she desires to have withheld. The form must then be dated, signed and returned to the Corporate Secretary.

If you have any questions, please contact the Coordinator Shareholder Relations at the Ottawa-Riverside office (738-1338 ext. 3392).

11. RESTRICTION ON PURCHASES

No employee of the Corporation may purchase Common Shares under the Plan that, together with all of the Corporation’s previously established or proposed share compensation arrangements, could result, at any time, in:
(a)    the number of Common Shares purchased or reserved for issuance to such persons exceeding ten per cent (10%) of the number of Common Shares outstanding on a non-diluted basis at such time (“outstanding issue”);
(b)    the purchase or issue to such persons, within a one-year period, of more than ten per cent (10%) of the outstanding issue of Common Shares; or
(c)    the purchase or issue to any one of such persons, within a one-year period, of more than five per cent of the outstanding issue of Common Shares.
The foregoing limits will be adjusted to reflect any adjustments in the capital of the Corporation.

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ELECTION TO PARTICIPATE

TO: COGNOS INCORPORATED and its subsidiaries and affiliates (the “Corporation”)

I, the undersigned, acknowledge having received and read the Cognos Employee Stock Purchase Plan (the “Plan”) and agree to the terms contained therein. I hereby authorize the Corporation in accordance with the terms of the Plan commencing                                        , 200        to withhold by way of payroll deduction:                                         per pay period.

(NOTE:    The amount indicated may not exceed 5% of your target salary divided by the number of pay periods per year).

Unless given notice of any withdrawal from the Plan, I further authorize and direct the Corporation on my behalf to apply the proceeds from such deductions towards purchase of Common Shares of Cognos Incorporated on the first trading day after the end of each Purchase Period.

I recognize and agree that purchase of such shares is conditional upon my being a full-time employee of the Corporation at the time of purchase. I acknowledge and agree that termination of employment for whatever cause shall render my participation in the Plan null and void and all deductions made on my behalf since the end of the fiscal quarter which preceded my termination shall be returned to me in full.

Signature:	_________________________________
Name:	_________________________________
(Please Print)
Date:	_________________________________
Home Address:	_________________________________
	_________________________________

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EX-10.33

Exhibit 10.33

Rob Ashe

President and Chief Executive Officer
FY06 Compensation Plan

Effective Date: March 1, 2005 to February 28, 2006

Compensation Elements (All In US $)

Annual Base Salary	$   500,000
Annual Incentive @ 100%	$   500,000
Annual Total Target Income @ 100%	$1,000,000

General Terms

This package contains the details of your compensation plan for FY06. All compensation amounts are in US dollars.

1) The Human Resources Committee of the Cognos Board of Directors approved these terms on June 22, 2005.

2) For payroll purposes your approved new annual base salary will be converted to Canadian dollars using the month-end foreign exchange rate for February 2005. This rate is US $1 = CDN $ 1.2314. Therefore, your payroll rate will be CDN $615,700 for FY06.

3) Your actual FY06 incentive award will be determined by multiplying your annual incentive amount by the final FY06 approved corporate factor as determined by the Share in Success (SIS) company performance results. A copy of the FY06 approved SIS executive grid is attached.

4) Your FY06 incentive award will be calculated in US dollars and, for payment purposes, converted to Canadian dollars using the same standard foreign exchange rate used for your FY06 annual base salary conversion.

5) To be eligible to receive an FY06 incentive award you must remain employed by the company on February 28, 2006.

FY06 Executive Incentive Grid (Share in Success Plan)

The grid is designed to reward achievement of plan on both metrics (Operating margin and Revenue), and to discourage the achievement of one metric at the expense of the other. If threshold performance is not achieved on either metric, the payout is nil. There is a cap of 400% on the overall level of payout.

PAYOUT AS PERCENTAGE OF TARGET INCENTIVE

EXECUTIVE INCENTIVE GRID (DESCRIBED ABOVE) INTENTIONALLY DELETED

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EX-10.34

Exhibit 10.34

Tom Manley

Senior Vice President, Finance and Administration and Chief Financial Officer
FY06 Compensation Plan

Effective Date: March 1, 2005 to February 28, 2006

Compensation Elements (All In US $)

Annual Base Salary	$350,000
Annual Incentive @ 100%	$250,000
Annual Total Target Income @ 100%	$600,000

General Terms

This package contains the details of your compensation plan for FY06. All compensation amounts are in US dollars.

1) The Human Resources Committee of the Cognos Board of Directors approved these terms on June 22, 2005.

2) Your actual FY06 incentive award will be determined by multiplying your annual incentive amount by the final FY06 approved corporate factor as determined by the Share in Success (SIS) company performance results. A copy of the FY06 approved SIS executive grid is attached.

3) For payroll purposes your approved annual base salary will be converted to Canadian dollars using the month-end foreign exchange rate for February 2005. This rate is US $1 = CDN $ 1.2314. Therefore, your payroll rate will be CDN $430,990 for FY06.

4) Your FY06 incentive award will be calculated in US dollars and, for payment purposes, converted to Canadian dollars using the same standard foreign exchange rate used for your annual base salary conversion.

5) To be eligible to receive an FY06 incentive award you must remain employed by the company on February 28, 2006.

FY06 Executive Incentive Grid (Share in Success Plan)

The grid is designed to reward achievement of plan on both metrics (Operating Margin and Revenue), and to discourage the achievement of one metric at the expense of the other. If threshold performance is not achieved on either metric, the payout is nil. There is a cap of 400% on the overall level of payout.

PAYOUT AS PERCENTAGE OF TARGET INCENTIVE

EXECUTIVE INCENTIVE GRID (DESCRIBED ABOVE) INTENTIONALLY DELETED

78

EX-10.35

Exhibit 10.35

Tony Sirianni

Senior Vice President, Worldwide Field Operations
FY06 Compensation Plan

Effective Date: March 1, 2005 to February 28, 2006

Compensation Elements (All In US $)

Annual Base Salary	$275,000
Base Target Bonus @ 100%	$285,000
Annual Total Target Income @ 100%	$560,000

General Terms

This package contains the details of your compensation plan for FY06. All compensation amounts are in US dollars.

1) Your actual FY06 bonus will be determined by multiplying your Base Target Bonus amount noted above by the final FY06 approved corporate factor as determined by the Share in Success (SIS) company performance results. A copy of the FY06 approved SIS executive grid is attached.

2) To be eligible to receive an FY06 bonus you must remain employed by the company on February 28, 2006.

FY06 Executive Incentive Grid (Share in Success Plan)

The grid is designed to reward achievement of plan on both metrics (Operating Margin and Revenue), and to discourage the achievement of one metric at the expense of the other. If threshold performance is not achieved on either metric, the payout is nil. There is a cap of 400% on the overall level of payout.

PAYOUT AS PERCENTAGE OF BASE TARGET BONUS

EXECUTIVE INCENTIVE GRID (DESCRIBED ABOVE) INTENTIONALLY DELETED

79

EX-10.36

Exhibit 10.36

Peter Griffiths

Senior Vice President, Products
FY06 Compensation Plan

Effective Date: March 1, 2005 to February 28, 2006

Compensation Elements (All In US $)

Annual Base Salary	$330,000
Base Target Bonus @ 100%	$220,000
Annual Total Target Income @ 100%	$550,000

General Terms

This package contains the details of your compensation plan for FY06. All compensation amounts are in US dollars.

1) Your actual FY06 bonus will be determined by multiplying your Base Target Bonus amount noted above by the final FY06 approved corporate factor as determined by the Share in Success (SIS) company performance results. A copy of the FY06 approved SIS executive grid is attached.

2) For payroll purposes your approved annual base salary will be converted to British Pounds using the month-end foreign exchange rate for February 2005. This rate is US $1 = BPS £ 0.51958. You will also be provided with a cost of living adjustment (COLA) to adjust your pay for the higher living costs in London compared with Canada. A COLA premium of 1.4 will be applied. Therefore, your payroll rate will be BPS £240,046 for FY06. ** ($330,000*0.51958*1.4)

3) Your actual FY06 bonus amount will be calculated in US dollars and, for payment purposes, converted to British Pounds Sterling using the same standard foreign exchange rate used for your annual base salary conversion.

4) To be eligible to receive an FY06 bonus you must remain employed by the company on February 28, 2006.

FY06 Executive Incentive Grid (Share in Success Plan)

The grid is designed to reward achievement of plan on both metrics (Operating Margin and Revenue), and to discourage the achievement of one metric at the expense of the other. If threshold performance is not achieved on either metric, the payout is nil. There is a cap of 400% on the overall level of payout.

PAYOUT AS PERCENTAGE OF BASE TARGET BONUS

EXECUTIVE INCENTIVE GRID (DESCRIBED ABOVE) INTENTIONALLY DELETED

80

EX-10.37

Exhibit 10.37

David Laverty

Senior Vice President, Global Marketing
FY06 Compensation Plan

Effective Date: March 1, 2005 to February 28, 2006

Compensation Elements (All In US $)

Annual Base Salary	$270,000
Base Target Bonus @ 100%	$165,000
Annual Total Target Income @ 100%	$435,000

General Terms

This package contains the details of your compensation plan for FY06. All compensation amounts are in US dollars.

1) Your actual FY06 bonus will be determined by multiplying your Base Target Bonus amount noted above by the final FY06 approved corporate factor as determined by the Share in Success (SIS) company performance results. A copy of the FY06 approved SIS executive grid is attached.

2) To be eligible to receive an FY06 bonus you must remain employed by the company on February 28, 2006.

FY06 Executive Incentive Grid (Share in Success Plan)

The grid is designed to reward achievement of plan on both metrics (Operating Margin and Revenue), and to discourage the achievement of one metric at the expense of the other. If threshold performance is not achieved on either metric, the payout is nil. There is a cap of 400% on the overall level of payout.

PAYOUT AS PERCENTAGE OF BASE TARGET BONUS

EXECUTIVE INCENTIVE GRID (DESCRIBED ABOVE) INTENTIONALLY DELETED

81

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Robert G. Ashe, President and Chief Executive Officer certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cognos Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

October 4, 2005	/s/ Robert G. Ashe
Date	Robert G. Ashe, President and Chief Executive Officer

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EX-31.2

Exhibit 31.2

CERTIFICATION

I, Tom Manley, Senior Vice President, Finance & Administration and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cognos Incorporated;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

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

83

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Cognos Incorporated (the “Company”) on Form 10-Q for the period ended August 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Robert G. Ashe, President and Chief Executive Officer of the Company, and Tom Manley, Senior Vice President, Finance & Administration and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

    (1)        The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

    (2)        The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

October 4, 2005	/s/ Robert G. Ashe
Date	Robert G. Ashe, President and Chief Executive Officer

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

This certification is being submitted solely for the purpose of complying with Section 1350 of Chapter 63 of Title 18 of the United States Code. This certification is not to be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor will the certification be deemed incorporated by reference in to any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.

84

EX-99.1

Exhibit 99.1

COGNOS INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-CANADIAN SUPPLEMENT
(in U.S. dollars, unless otherwise indicated, and in accordance with CDN GAAP)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations-Canadian Supplement (“Canadian Supplement”) should be read in conjunction with our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) included in Item 2 of this quarterly report. The Canadian Supplement should also be read in conjunction with the unaudited Consolidated Financial Statements and Notes prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) (included in Item 1), and the audited Consolidated Financial Statements and Notes included in our Annual Information Form for the fiscal year ended February 28, 2005.

The following contains forward-looking statements and should be read in conjunction with the factors set forth in the “Certain Factors That May Affect Future Results” section and the Forward-looking Statements/Safe Harbor section of the MD&A in Item 2 of this quarterly report. All dollar amounts in this Canadian Supplement are in thousands of United States dollars unless otherwise stated. The Canadian Supplement has been prepared by management to provide an analysis of the material differences between Canadian GAAP and U.S. GAAP on our financial condition and results of operations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

In addition to the critical accounting estimates listed in the MD&A, we also use the following for Canadian GAAP purposes:

Accounting for Stock Option, Stock Purchase, and Restricted Share Unit Plans

We apply CICA Handbook section 3870, Stock-based Compensation and Other Stock-based payments, in accounting for our stock option, stock purchase, and restricted share unit plans. Compensation expense for options granted and shares issued under our stock option and restricted share unit plans is recognized over their vesting period using the fair value method of accounting for stock-based compensation. For purposes of computing the stock-based compensation, the fair value of the options granted during the three and six month periods ended August 31, 2005 was estimated at the date of grant using a binomial lattice option-pricing model. Prior to March 1, 2005, we used the Black-Scholes option-pricing model to estimate the fair value of options at the grant date. Any consideration paid by employees on the exercise of stock options is credited to capital stock. The discount from market price offered to employees who purchase stock through our stock purchase plan is also recognized as a compensation expense in the period when the shares are purchased.

85

Exhibit 99.1

COGNOS INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-CANADIAN SUPPLEMENT
(in U.S. dollars, unless otherwise indicated, and in accordance with CDN GAAP)

RESULTS OF OPERATIONS

	Three months ended August 31,		Six months ended August 31,
	2005	2004	2005	2004
Income before taxes – U.S. GAAP	$35,972	$34,935	$63,109	$60,410
Income before taxes – Canadian GAAP	$35,594	$35,630	$64,067	$60,218
Income tax provision – U.S. GAAP	$  7,253	$  7,336	$10,565	$12,686
Income tax provision – Canadian GAAP	$10,844	$11,389	$19,095	$19,226
Net income per share diluted – U.S. GAAP	$0.31	$0.30	$0.56	$0.51
Net income per share diluted – Canadian GAAP	$0.27	$0.26	$0.48	$0.44

Acquired in-process technology
Canadian GAAP requires capitalization of the value assigned to acquired in-process technology and amortization of this value over its estimated useful life. Under U.S. GAAP, this value is written off immediately. The impact of this difference was to decrease income before taxes by $0.2 million for both the three months ended August 31, 2005 and August 31, 2004, respectively, as compared to U.S. GAAP. For the six-month periods ending August 31, 2005 and August 31, 2004, the impact of this difference was to decrease income before taxes by $0.5 million, as compared to U.S. GAAP.

Stock-based compensation
Under U.S. GAAP, companies may choose between the intrinsic value method and fair value method of accounting for stock-based compensation. We have elected to account for stock-based compensation using the intrinsic value method in accordance with APB 25 and to disclose the pro forma effect of recording compensation expense under the fair value method. This disclosure can be found in Note 3 to the unaudited consolidated financial statements. For Canadian GAAP purposes, companies are required to use the fair value method of accounting for stock-based compensation. The impact of this difference for the three months ended August 31, 2005 and August 31, 2004 was to decrease income before taxes by $4.4 million and $3.6 million respectively. For the six month periods ending August 31, 2005 and August 31, 2004, the impact of this difference was to decrease income before taxes by $8.3 million and $7.3 million, respectively, as compared to U.S. GAAP.

86

Exhibit 99.1

COGNOS INCORPORATED
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS-CANADIAN SUPPLEMENT
(in U.S. dollars, unless otherwise indicated, and in accordance with CDN GAAP)

Investment tax credits
Canadian GAAP requires that investment tax credits be deducted from operating expense. Under U.S. GAAP, these amounts are deducted from the income tax provision. The impact of this difference was to increase income before taxes and the income tax provision by $4.3 million and $4.6 million for the three months ended August 31, 2005 and August 31, 2004, respectively, as compared to U.S. GAAP. For the six-month periods ended August 31, 2005 and August 31, 2004, the impact of this difference was to increase income before taxes and the income tax provision by $9.8 million and $7.6 million, respectively, as compared to U.S. GAAP.

Deferred income taxes
The capitalization of in-process technology created an additional deferred income tax liability on the Canadian GAAP balance sheet as the capitalization of the in-process technology created a temporary difference. The amortization of this balance decreased the Canadian GAAP income tax provision by $0.1 million for both the quarters ended August 31, 2005 and August 31, 2004, respectively, as compared to U.S. GAAP. For the six-month periods ended August 31, 2005 and August 31, 2004, the amortization of this balance decreased the Canadian GAAP income tax provision by $0.2 million, as compared to U.S. GAAP.

The expensing of stock-based compensation creates a deferred tax asset for Canadian GAAP purposes as this expense is deductible in certain jurisdictions when the options are exercised. Under U.S. GAAP, the reduction in the tax liability is treated as part of the purchase price component of the stock options and added to paid-in capital. The expensing of stock-based compensation reduced the Canadian GAAP tax provision by $0.6 million and $0.4 million in the three month periods ended August 31, 2005 and August 31, 2004, respectively, as compared to U.S. GAAP. For the six months ended August 31, 2005 and August 31, 2004, the reduction in the tax provision was $1.0 million and $0.9 million, respectively.

Derivative financial instruments
Under Canadian GAAP, derivative financial instruments that qualify for hedge accounting treatment may be recognized on the balance sheet only to the extent that cash has been paid and or received together with adjustments necessary to offset recognized gains or losses arising on the hedged items. Under U.S. GAAP, such derivative financial instruments are recognized on the balance sheet at fair value with a corresponding charge or credit recorded in other comprehensive income (“OCI”) for any portion not recognized in income. At August 31, 2005 and February 28, 2005, there was $1.2 million and $0.3 million, respectively, included in OCI related to the net unrealized loss on the Corporation’s cash flow hedges. For Canadian GAAP, this amount was removed and applied against the accrued liability related to the hedge.

87