UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________

FORM 10-Q

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

For the Quarterly Period Ended May 31, 2004

[ ] 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

The number of shares outstanding of the registrant’s only class of Common Stock as of June 15, 2004, was 90,291,925.

COGNOS INCORPORATED

INDEX

PAGE
PART I - FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited)
	Consolidated Statements of Income for the three months ended May 31, 2004 and May 31, 2003	3
	Consolidated Balance Sheets as of May 31, 2004 and February 29, 2004	4
	Consolidated Statements of Cash Flows for the three months ended May 31, 2004 and May 31, 2003	5
	Condensed Notes to the Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	41
Item 4.	Controls and Procedures	42
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	43
Item 4.	Submission of Matters to a Vote of Security Holders	44
Item 6.	Exhibits and Reports on Form 8-K	45
Signature		46

PART I — FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements

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

	Three months ended May 31,
	2004		2003

Revenue
Product license	$ 66,070		$ 57,801
Product support	74,787		64,127
Services	32,762		28,635

Total revenue	173,619		150,563

Cost of revenue
Cost of product license	621		1,111
Cost of product support	7,175		6,855
Cost of services	25,475		20,859

Total cost of revenue	33,271		28,825

Gross margin	140,348		121,738

Operating expenses
Selling, general, and administrative	90,509		80,238
Research and development	24,325		23,294
Amortization of intangible assets	1,372		2,105

Total operating expenses	116,206		105,637

Operating income	24,142		16,101
Interest expense	(71	)	(171	)
Interest income	1,404		1,044

Income before taxes	25,475		16,974
Income tax provision	5,350		4,583

Net income	$ 20,125		$ 12,391

Net income per share
Basic	$0.22		$0.14

Diluted	$0.22		$0.14

Weighted average number of shares (000s)
Basic	90,091		88,527

Diluted	92,692		90,924

(See accompanying notes)

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

	May 31, 2004		February 29, 2004

Assets	(Unaudited	)	(Note 1)
Current assets
Cash and cash equivalents	$327,441		$224,830
Short-term investments	88,921		163,411
Accounts receivable	106,431		152,859
Prepaid expenses and other current assets	15,601		16,668
Deferred tax assets	2,032		2,445

	540,426		560,213
Fixed assets	68,171		71,292
Intangible assets	22,341		23,643
Goodwill	172,323		172,323

	$803,261		$827,471

Liabilities
Current liabilities
Accounts payable	$ 23,573		$ 30,698
Accrued charges	22,087		25,483
Salaries, commissions, and related items	43,360		59,903
Income taxes payable	3,550		5,875
Deferred revenue	164,620		178,752

	257,190		300,711
Deferred income taxes	18,514		18,098

	275,704		318,809

Stockholders’ Equity
Capital stock
Common shares and additional paid-in capital
(May 31, 2004 - 90,238,463; February 29, 2004 - 89,902,895)	216,146		206,499
Treasury shares
(May 31, 2004 - 40,375; February 29, 2004 - 43,500)	(980	)	(1,065	)
Deferred stock-based compensation	(650	)	(730	)
Retained earnings	316,197		305,399
Accumulated other comprehensive loss	(3,156	)	(1,441	)

	527,557		508,662

	$803,261		$827,471

(See accompanying notes)

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

	Three months ended May 31,

	2004		2003

Cash flows from operating activities
Net income	$ 20,125		$ 12,391
Non-cash items
Depreciation and amortization	6,498		7,148
Amortization of deferred stock-based compensation	185		169
Amortization of other deferred compensation	7		62
Deferred income taxes	1,016		(2,954	)
Loss on disposal of fixed assets	1		454

	27,832		17,270
Change in non-cash working capital
Decrease in accounts receivable	44,933		37,006
Decrease (increase) in prepaid expenses and other current assets	870		(3,088	)
Decrease in accounts payable	(6,967	)	(8,625	)
Decrease in accrued charges	(3,195	)	(5,809	)
Decrease in salaries, commissions, and related items	(15,743	)	(15,793	)
Decrease in income taxes payable	(2,092	)	(138	)
Decrease in deferred revenue	(12,549	)	(10,282	)

Net cash provided by operating activities	33,089		10,541

Cash flows from investing activities
Maturity of short-term investments	145,593		63,752
Purchase of short-term investments	(71,395	)	(44,700	)
Additions to fixed assets	(3,073	)	(6,409	)
Additions to intangible assets	(69	)	(321	)
Business acquisitions	--		(108	)

Net cash provided by investing activities	71,056		12,214

Cash flows from financing activities
Issue of common shares	10,289		12,466
Purchase of treasury shares	--		(564	)
Repurchase of shares	(9,989	)	--
Decrease in long-term debt and long-term liabilities	--		(1,697	)

Net cash provided by financing activities	300		10,205

Effect of exchange rate changes on cash	(1,834	)	5,122

Net increase in cash and cash equivalents	102,611		38,082
Cash and cash equivalents, beginning of period	224,830		162,588

Cash and cash equivalents, end of period	327,441		200,670
Short-term investments, end of period	88,921		63,226

Cash, cash equivalents, and short-term investments, end of period	$416,362		$263,896

(See accompanying notes)

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)

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 29, 2004 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 29, 2004.

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

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

Revenue Recognition

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

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

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

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)

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.

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

Stock-Based Compensation

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

COGNOS INCORPORATED

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

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

	Three months ended May 31,

	2004		2003

Net income:
As reported	$ 20,125		$ 12,391
Add: Stock-based employee compensation
included above	185		169
Less: Stock-based employee compensation using
fair value based method	(3,409	)	(6,249	)

Pro forma	$ 16,901		$ 6,311

Basic net income per share:
As reported	$0.22		$0.14
Add: Stock-based employee compensation
included above	--		--
Less: Stock-based employee compensation using
fair value based method	(0.03	)	(0.07	)

Pro forma	$0.19		$0.07

Diluted net income per share:
As reported	$0.22		$0.14
Add: Stock-based employee compensation included
above	--		--
Less: Stock-based employee compensation using
fair value based method	(0.04	)	(0.07	)

Pro forma	$0.18		$0.07

Weighted average number of shares:
Basic	90,091		88,527

Diluted	92,692		90,924

COGNOS INCORPORATED

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

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

	Three months ended May 31,

	2004		2003

Risk-free interest rates	3.6	%	N/A*
Expected volatility	52	%	N/A*
Dividend yield	0	%	N/A*
Expected life of options (years)	4.3		N/A*

* During the three months ended May 31, 2003, no options were granted.

Goodwill

During the three months ended May 31, 2004 and May 31, 2003, there were additions to goodwill of nil and $108,000, respectively. The additions in the prior fiscal period 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 as per the terms of the original purchase agreement. The Corporation has designated the beginning of its fiscal year as the date for the annual impairment test, and performed the required test as of March 1, 2004. Based on this test, goodwill is not considered to be impaired.

	Three months ended May 31,

	2004	2003

	($000s)
Beginning balance	$172,323	$169,991
Additions	--	108

Closing balance	$172,323	$170,099

COGNOS INCORPORATED

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

5.	Intangible Assets

	As at May 31, 2004			As at February 29, 2004

	Cost		Accumulated Amortization	Cost		Accumulated Amortization	Amortization Rate

	($000s)			($000s)

Acquired technology	$ 33,381		$19,146	$ 33,381		$18,161	20	%
							Compensation
Deferred compensation	8,945		8,945	8,945		8,938	Period
Contractual relationships	7,800		1,353	7,800		1,109	12.5	%
Trademarks and patents	3,690		2,031	3,620		1,895	20	%

	53,816		$31,475	53,746		$30,103

	(31,475	)		(30,103	)

Net book value	$ 22,341			$ 23,643

Amortization of intangible assets was $1,372,000 and $2,105,000 in the quarters ended May 31, 2004 and May 31, 2003, respectively. The estimated amortization expense related to intangible assets is as follows ($000s):

2005 (Q2 to Q4)		$4,076
2006		5,385
2007		5,278
2008		4,628
2009		1,107
2010		1,027
2011 and thereafter		840