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FORM 10-Q

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

For the Quarterly Period Ended August 31, 2002

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)

(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        

COGNOS INCORPORATED

INDEX

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

(See accompanying notes)

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

(See accompanying notes)

4

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

(See accompanying notes)

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

1.     Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Corporation in United States (US) dollars and in accordance with generally accepted accounting principles (GAAP) in the US with respect to interim financial statements, applied on a consistent basis. Accordingly, they do not include all of the information and footnotes required for compliance with GAAP in the US for annual financial statements. These unaudited condensed notes to the consolidated financial statements should be read in conjunction with the audited financial statements and notes included in the Corporation's Annual Report for the fiscal year ended February 28, 2002.

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

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

2.     Revenue Recognition

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

Substantially all of the Corporation's product license revenue is earned from licenses of off-the-shelf software requiring no customization. Revenue from these licenses is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable. If a license includes the right to return the product for refund or credit, revenue is recognized net of an allowance for estimated returns provided all the requirements of SOP 97-2 have been met.

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

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

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

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

3.     Goodwill

During the three and six months ended August 31, 2002 there were additions to goodwill of $138,000 and $178,000, respectively, related to additional consideration paid to the former shareholders of Teijin Cognos Incorporated (TCI). This additional consideration was based on the net revenue of TCI during each quarter.

Under SFAS 142 Goodwill and Other Intangible Assets, which the Corporation implemented March 1, 2002, goodwill will no longer be amortized but will be subject to an annual impairment test. The Corporation performed the required impairment tests of goodwill and indefinite-lived intangible assets as of March 1, 2002. The effect of these tests was not material on the earnings and financial position of the Corporation.

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

If the non-amortization provision of SFAS Nos. 142 had been in effect beginning March 1, 2001 the effect would have been as follows (000's except per share amounts):

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

4.     Intangible Assets

Amortization of intangible assets was $722,000 and $1,351,000 in the quarters ended August 31, 2002 and August 31, 2001, respectively, and was $1,599,000 and $2,702,000 in the six months ended August 31, 2002 and August 31, 2001, respectively. The estimated amortization expense related to intangible assets is as follows ($000s):

5.     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.

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

6.     Net Income per Share

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

For the six months ended August 31, 2001, the effect of converting stock options was antidilutive as a result of a net loss.

7.     Comprehensive Income

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

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

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

8.     Segmented Information

The Corporation has one reportable segment-computer software products.

9.      Secondary Offering

On July 16, 2002 the Corporation filed a final registration statement with the United States Securities and Exchange Commission and a Canadian prospectus with Canadian securities regulators for a secondary offering of 3,600,000 common shares at a price to the public of $17.50 per share. All of the common shares in the offering were sold by certain entities affiliated with Michael U. Potter. The Corporation did not receive any proceeds from the sale of the shares. The Corporation incurred costs related to the filing of this secondary offering and those costs were expensed during the quarter. Under this secondary offering, the Corporation repurchased 180,000 of its own shares at an aggregate purchase price of $3,150,000.

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Item 2.

COGNOS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in United States dollars, unless otherwise indicated, and in accordance with U.S. GAAP)

The following information should be read in conjunction with the unaudited Consolidated Financial Statements and Notes included in Item 1 of this Quarterly Report and can also be read in conjunction with the audited Consolidated Financial Statements and Notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report for the fiscal year ended February 28, 2002 (fiscal 2002).

OVERVIEW

Cognos is a leading global provider of business intelligence software. Our solution helps improve business performance by enabling effective decision-making at all levels of the organization through the consistent reporting and analysis of data derived from various sources. Using our software, customers can gain valuable insights that can be used to improve operational effectiveness, enhance customer satisfaction, accelerate corporate response times and, ultimately, increase revenues and profits. Our integrated solution consists of our suite of business intelligence components, analytical applications and performance management applications.

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

RESULTS OF OPERATIONS

Revenue for the quarter ended August 31, 2002 was $129.1 million, an 11% increase from revenue of $116.3 million for the same quarter last year. Pretax income for the quarter ended August  31, 2002 was $20.2 million compared to pretax income of $10.1 million in the same quarter last year. Net income for the current quarter was $13.7 million compared to net income of $7.1 million for the same quarter last year. Diluted net income per share was $0.15 for the current quarter, compared to diluted net income per share of $0.08 for the same quarter last year. Basic net income per share was $0.16 and $0.08 for the quarters ending August 31, 2002 and August 31,  2001, respectively.

Revenue for the six months ended August 31, 2002 was $249.2 million, an 11% increase from revenue of $224.3 million for the same period last year. Pretax income for the six months ended August 31, 2002 was $34.8 million compared to pretax loss of $5.7 million in the same period last year. Net income for the current six months was $23.7 million compared to net loss of $4.0 million for the same period last year. Diluted net income per share was $0.26 for the current six months, compared to diluted net loss per share of $0.05 for the same period last year. Basic net

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income per share was $0.27 for the six-month period ending August 31, 2002 compared to basic net loss per share of $0.05 for the six-month period ending August 31, 2001. The results for the six months ended August 31, 2001 included a special charge of $12.8 million. During the quarter ended May 31, 2001 uncertain economic conditions affected our customers' information technology spending in our principal markets and therefore we undertook a restructuring plan to align our cost structure and operations to the economic environment prevalent at that time. Excluding the effect of this special charge, net income and diluted net income per share for the six months ended August 31, 2001 would have been $5.0 million and $0.06, respectively. This pro-forma information is provided f or comparability regarding our on-going operating performance and is unlikely to be comparable to any similar measures in the financial information filed by other issuers. The improvement in operating performance in the six months ended August 31, 2002 as compared to the same period in the previous year reflects the strength of our business model which is designed to fully engage the enterprise customer, the strength of our product offerings in the business intelligence ("BI") market, and changes in our internal costs attributable to the prior year's restructuring plan.

Total operating expenses for the quarter ended August 31, 2002 were $110.3 million, a 2% increase from operating expenses of $108.6 million for the same quarter last year. Operating margins for the quarter ended August 31, 2002 were 15%, compared to 7% for the same quarter last year.

Total operating expenses for the six months ended August 31, 2002 were $217.4 million, a 7% decrease from operating expenses of $235.1 million for the same period last year. Operating margins for the six months ended August 31, 2002 were 13%, compared to -5% for the same period last year. Excluding the effect related to the special charge discussed above, operating expenses in the six-month period ended August 31, 2001 would have been $222.3 million and operating margins would have been 1%. These special charges primarily related to involuntary employee separations. This pro-forma information is provided for greater comparability regarding our on-going operating performance and is unlikely to be comparable to any similar measures in the financial information filed by other issuers.

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