<PAGE>

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

(Mark One)

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

     FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

                                       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 000-27913

                                  FREEMARKETS, INC.
               (Exact Name of Registrant as Specified in its Charter)

<Table>
<S>                                                            <C>
                          DELAWARE                                          04-3265483
      (State or Other Jurisdiction of Incorporation or         (I.R.S. Employer Identification No.)
                       Organization)

                     FREEMARKETS CENTER
                      210 SIXTH AVENUE
                       PITTSBURGH, PA                                         15222
          (Address of Principal Executive Offices)                          (Zip Code)
</Table>

                                 (412) 434-0500
              (Registrant's Telephone Number, Including Area Code)

                              WWW.FREEMARKETS.COM
                               (Registrant's URL)

     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 Exchange Act Rule 12b-2.  YES [X]  NO [ ]

     The number of shares of the registrant's common stock outstanding as of the
close of business on October 1, 2003 was 42,440,099.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                               FREEMARKETS, INC.

                                   FORM 10-Q
               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

                                     INDEX

<Table>
<Caption>
                                                                PAGE
                                                                ----
<S>                                                             <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
            Condensed Consolidated Balance Sheets as of
            September 30, 2003 (unaudited) and December 31,
            2002............................................      3
            Condensed Consolidated Statements of Operations
            for the three and nine months ended September
            30, 2003 and 2002 (unaudited)...................      4
            Condensed Consolidated Statements of Cash Flows
            for the nine months ended September 30, 2003 and
            2002 (unaudited)................................      5
            Notes to Condensed Consolidated Financial
            Statements......................................      6

Item 2. Management's Discussion and Analysis of Financial
  Condition and Results of Operations.......................     11

Item 3. Quantitative and Qualitative Disclosures About
  Market Risk...............................................     19

Item 4. Controls and Procedures.............................     19

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings...................................     20

Item 6. Exhibits and Reports on Form 8-K....................     20

Signature...................................................     21
</Table>
<PAGE>

                        PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                       FREEMARKETS, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                ($ IN THOUSANDS)

<Table>
<Caption>
                                                              SEPTEMBER 30,    DECEMBER 31,
                                                                  2003            2002*
                                                              -------------    ------------
                                                               (UNAUDITED)
<S>                                                           <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................    $  91,634       $  94,593
  Short-term marketable investments.........................       14,764          25,323
  Accounts receivable, net..................................       27,746          25,673
  Other current assets......................................        6,652           8,457
                                                                ---------       ---------
     Total current assets...................................      140,796         154,046
Long-term marketable investments............................       24,998          15,107
Property and equipment, net.................................       12,877          20,159
Goodwill and other assets, net..............................        4,453           4,355
                                                                ---------       ---------
     Total assets...........................................    $ 183,124       $ 193,667
                                                                =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $   3,544       $   4,063
  Accrued incentive compensation............................        5,301           7,536
  Accrued restructuring charges.............................        2,726             119
  Other current liabilities.................................       18,707          21,608
  Current portion of long-term debt.........................        1,151           1,502
                                                                ---------       ---------
     Total current liabilities..............................       31,429          34,828
Accrued restructuring charges, net of current portion.......        2,375              --
Long-term debt..............................................          358           1,328
                                                                ---------       ---------
     Total liabilities......................................       34,162          36,156
                                                                ---------       ---------

Commitments and contingencies
Stockholders' equity:
  Common stock..............................................          424             424
  Additional capital........................................      588,827         575,043
  Unearned stock-based compensation.........................          (37)           (104)
  Stock purchase warrants...................................       76,388          76,388
  Accumulated other comprehensive loss......................          (85)             (1)
  Accumulated deficit.......................................     (516,555)       (494,239)
                                                                ---------       ---------
     Total stockholders' equity.............................      148,962         157,511
                                                                ---------       ---------
     Total liabilities and stockholders' equity.............    $ 183,124       $ 193,667
                                                                =========       =========
</Table>

---------------
* Summarized from audited December 31, 2002 balance sheet.

   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.
                                        3
<PAGE>

                       FREEMARKETS, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
                                                             THREE MONTHS ENDED      NINE MONTHS ENDED
                                                               SEPTEMBER 30,           SEPTEMBER 30,
                                                             ------------------    ----------------------
                                                              2003       2002        2003         2002
                                                             -------    -------    ---------    ---------
<S>                                                          <C>        <C>        <C>          <C>
Revenues...................................................  $36,022    $40,388    $ 105,175    $ 128,165
                                                             -------    -------    ---------    ---------
Operating costs and expenses:
  Cost of revenues.........................................   16,633     18,701       52,781       56,883
  Research and development.................................    6,100      6,953       18,801       19,011
  Sales and marketing......................................    7,952     10,677       27,297       34,589
  General and administrative...............................    4,935      5,429       16,506       18,003
  Stock compensation and warrant costs.....................    1,974      1,989        5,952        6,008
  Investment write-down....................................       --        371           --        5,111
  Restructuring charges....................................    3,207       (278)       7,926         (278)
                                                             -------    -------    ---------    ---------
Total operating costs and expenses.........................   40,801     43,842      129,263      139,327
                                                             -------    -------    ---------    ---------
    Operating loss.........................................   (4,779)    (3,454)     (24,088)     (11,162)
Interest and other income, net.............................      559        611        2,613        2,387
                                                             -------    -------    ---------    ---------
    Loss before taxes and change in accounting.............   (4,220)    (2,843)     (21,475)      (8,775)
Provision for income taxes.................................      334        181          841          527
                                                             -------    -------    ---------    ---------
    Loss before change in accounting.......................   (4,554)    (3,024)     (22,316)      (9,302)
Cumulative effect of accounting change for goodwill........       --         --           --       (5,327)
                                                             -------    -------    ---------    ---------
    Net loss...............................................  $(4,554)   $(3,024)     (22,316)   $ (14,629)
                                                             =======    =======    =========    =========
Basic and diluted earnings per share before accounting
  change...................................................  $ (0.11)   $ (0.07)   $   (0.53)   $   (0.22)
                                                             =======    =======    =========    =========
Basic and diluted earnings per share after accounting
  change...................................................  $ (0.11)   $ (0.07)   $   (0.53)   $   (0.35)
                                                             =======    =======    =========    =========
Shares used in computing basic and diluted earnings per
  share....................................................   42,055     41,798       41,920       41,364
                                                             =======    =======    =========    =========
</Table>

   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.
                                        4
<PAGE>

                       FREEMARKETS, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (UNAUDITED; $ IN THOUSANDS)

<Table>
<Caption>
                                                               NINE MONTHS ENDED
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Cash flows from operating activities:
  Net loss..................................................  $(22,316)  $(14,629)
  Adjustments to reconcile net loss to net cash from
     operating activities:
  Depreciation and amortization.............................    10,162     14,809
  Provision for bad debts...................................     1,435      1,125
  Stock compensation and warrant costs......................     5,952      6,008
  Investment write-down.....................................        --      5,111
  Cumulative effect of accounting change for goodwill.......        --      5,327
  Non-cash restructuring costs..............................        89         --
Cash from changes in:
  Accounts receivable.......................................    (2,571)     3,681
  Other assets..............................................     1,696     (1,063)
  Accounts payable..........................................      (519)    (1,123)
  Other liabilities.........................................      (131)    (4,918)
                                                              --------   --------
       Net cash from operating activities...................    (6,203)    14,328
                                                              --------   --------
Cash flows from investing activities:
  Purchases of marketable investments.......................   (46,853)   (18,614)
  Maturities of marketable investments......................    47,414     11,221
  Capital expenditures, net.................................    (2,958)    (5,032)
                                                              --------   --------
       Net cash from investing activities...................    (2,397)   (12,425)
                                                              --------   --------
Cash flows from financing activities:
  Repayment of debt.........................................    (1,821)    (1,171)
  Proceeds from debt........................................       500         --
  Proceeds from customer fees applied to warrant............     7,500     10,313
  Proceeds from issuance of common stock....................     1,040      2,202
  Payments to acquire and retire stock......................    (3,581)        --
  Options exercised.........................................     2,003      3,521
                                                              --------   --------
       Net cash from financing activities...................     5,641     14,865
                                                              --------   --------
Net change in cash and cash equivalents.....................    (2,959)    16,768
Cash and cash equivalents at beginning of period............    94,593     80,482
                                                              --------   --------
Cash and cash equivalents at end of period..................  $ 91,634   $ 97,250
                                                              ========   ========
Supplemental non-cash disclosure:
  Amounts due from customer characterized as payment for
     warrant................................................  $  3,750   $  1,875
                                                              ========   ========
</Table>

   The accompanying notes are an integral part of the condensed consolidated
                             financial statements.
                                        5
<PAGE>

                       FREEMARKETS, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 1.  BASIS OF PRESENTATION

     The unaudited condensed consolidated financial statements have been
prepared by FreeMarkets, Inc. and Subsidiaries (the "Company") and reflect all
adjustments (all of which are normal and recurring in nature) that, in the
opinion of management, are necessary for a fair presentation of the interim
periods presented. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for any subsequent
quarter or for the entire year ending December 31, 2003. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in accordance with the rules and regulations of the Securities and
Exchange Commission (the "SEC"). The unaudited condensed consolidated financial
statements and notes included herein should be read in conjunction with the
Company's audited consolidated financial statements and notes for the year ended
December 31, 2002, included in the Company's Annual Report on Form 10-K filed
with the SEC on March 14, 2003.

NOTE 2.  EARNINGS PER SHARE

     The following potentially dilutive common shares were excluded from basic
and diluted earnings per share because their effect was antidilutive due to the
Company's net loss in the periods presented:

<Table>
<Caption>
                                               THREE MONTHS      NINE MONTHS
                                                  ENDED             ENDED
                                              SEPTEMBER 30,     SEPTEMBER 30,
                                              --------------    --------------
                                              2003     2002     2003     2002
                                              -----    -----    -----    -----
<S>                                           <C>      <C>      <C>      <C>
Stock options (treasury method).............  3,804    2,319    3,166    3,706
</Table>

     Options and warrants to purchase 8.8 million and 9.6 million shares of
common stock were outstanding as of September 30, 2003 and 2002, respectively,
but were not included in the computation of diluted EPS because the exercise
price was greater than the average market price of the common shares.

     The following table illustrates the effect on earnings per share if the
Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure":

<Table>
<Caption>
                                    THREE MONTHS ENDED      NINE MONTHS ENDED
                                      SEPTEMBER 30,           SEPTEMBER 30,
                                   --------------------    --------------------
                                     2003        2002        2003        2002
                                   --------    --------    --------    --------
<S>                                <C>         <C>         <C>         <C>
Net loss, as reported............  $ (4,554)   $ (3,024)   $(22,316)   $(14,629)
Add: Stock-based employee
  compensation expense included
  in reported net income.........        12          28          67         123
Less: Total stock-based employee
  compensation expense determined
  under fair value method for all
  awards.........................    (9,636)    (13,283)    (28,389)    (39,851)
                                   --------    --------    --------    --------
Pro forma net loss...............  $(14,178)   $(16,279)   $(50,638)   $(54,357)
                                   ========    ========    ========    ========
Earnings per share:
As reported......................  $  (0.11)   $  (0.07)   $  (0.53)   $  (0.35)
Pro forma........................  $  (0.34)   $  (0.39)   $  (1.21)   $  (1.31)
</Table>

                                        6
<PAGE>
                       FREEMARKETS, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
              (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 3.  STOCKHOLDERS' EQUITY

COMMON STOCK REPURCHASE PROGRAM

     In January 2003, the Board of Directors of the Company authorized the
repurchase of up to 15% of the Company's outstanding common stock from time to
time on the open market or in one or more negotiated transactions. As of
September 30, 2003, the Company had purchased 853,500 shares at a weighted
average cost of $4.23 per share.

COMPREHENSIVE LOSS

     The components of comprehensive loss were as follows:

<Table>
<Caption>
                                  THREE MONTHS ENDED        NINE MONTHS ENDED
                                     SEPTEMBER 30,            SEPTEMBER 30,
                                  -------------------     ---------------------
                                   2003        2002         2003         2002
                                  -------     -------     --------     --------
<S>                               <C>         <C>         <C>          <C>
Net loss........................  $(4,554)    $(3,024)    $(22,316)    $(14,629)
Change in unrealized value on
  investments, net..............       56         (48)        (107)          (8)
Translation adjustment, net.....       59        (243)          23         (693)
                                  -------     -------     --------     --------
                                  $(4,439)    $(3,315)    $(22,400)    $(15,330)
                                  =======     =======     ========     ========
</Table>

     The components of accumulated comprehensive income (loss) were as follows:

<Table>
<Caption>
                                                   SEPTEMBER 30,     DECEMBER 31,
                                                       2003              2002
                                                   -------------     ------------
                                                           (IN THOUSANDS)
<S>                                                <C>               <C>
Unrealized (losses) gains on investments,
  net.........................................         $(59)             $ 48
Cumulative translation adjustments............          (26)              (49)
                                                       ----              ----
                                                       $(85)             $ (1)
                                                       ====              ====
</Table>

NOTE 4.  INVESTMENT WRITE-DOWN

     During Q1 2002, the Company recorded a $4.7 million loss on its investment
in Adexa, Inc. ("Adexa") based on Adexa's financial condition. During Q3 2002,
the Company recorded a $371,000 loss on its investment in Adexa based on a
valuation determined by a financing completed by Adexa in July 2002. The Company
concluded after each of these reviews that there was an other than temporary
decline in the value of its investment in Adexa. As of September 30, 2003, the
remaining book value of the original $6.0 million investment in Adexa was
$889,000.

NOTE 5.  RESTRUCTURING CHARGES

     Throughout 2003, the Company has initiated three restructuring programs.
These programs were focused on eliminating certain positions throughout its
global workforce, re-assessing the Company's facility needs and consolidating
European operations to create a more profitable and efficient business. The
following is a summary of these programs:

WORKFORCE REDUCTION PLAN

     In the first quarter of 2003, in response to the continued economic
slowdown, the Company executed a restructuring plan resulting in the elimination
of 79 positions in its global workforce. This represented

                                        7
<PAGE>
                       FREEMARKETS, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
              (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

approximately 7% of total employees. The Company recorded a restructuring charge
of $1.8 million in the first quarter of 2003 covering these severance costs, the
majority of which will be paid by the end of 2003.

FACILITY REDUCTION PLAN

     In the first quarter of 2003, the Company re-assessed its global
headquarters office space in Pittsburgh, Pennsylvania, and ceased using one of
the floors it leases through May 2010. The Company recorded a restructuring
charge of $3.0 million in the first quarter of 2003 covering these lease costs.

EUROPEAN RESTRUCTURING PLAN

     In the third quarter of 2003, in order to better serve the Company's
customers and enable it to create a more leveraged, profitable and efficient
business across Europe, the Company initiated a restructuring plan resulting in
the elimination of 74 positions in its European business. The Company recorded a
restructuring charge of $3.2 million in the third quarter of 2003 covering these
severance and implementation costs.

     The restructuring reserve activity under these plans for the period ended
September 30, 2003 was:

<Table>
<Caption>
                                                                          BALANCE AT
                                INITIAL CHARGE    AMOUNTS UTILIZED    SEPTEMBER 30, 2003
                                --------------    ----------------    ------------------
<S>                             <C>               <C>                 <C>
WORKFORCE REDUCTION PLAN:
Employee severance and
  termination benefit costs...      $1,754             $1,692               $   62
FACILITY REDUCTION PLAN:
Lease costs...................       2,876                169                2,707
Asset write-offs..............          89                 89                   --
EUROPEAN RESTRUCTURING PLAN:
Employee severance and
  termination benefit costs...       3,132                875                2,257
Implementation costs..........          75                 --                   75
                                    ------             ------               ------
Total.........................      $7,926             $2,825                5,101
                                    ======             ======
Less current portion..........                                               2,726
                                                                            ------
Restructuring accrual, net of
  current portion.............                                              $2,375
                                                                            ======
</Table>

     In addition, in the third quarter of 2002, the Company recognized a benefit
of $278,000 as a result of a change in an estimate related to lease costs from a
previous restructuring program.

NOTE 6.  CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR GOODWILL

     The Company adopted the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets", on January 1, 2002, and no longer records goodwill
amortization. In connection with adopting this standard, the Company completed
step one of the test for impairment, which indicated that the carrying value of
Surplus Record, which was acquired by the Company in March 2000 for $18.0
million in cash, exceeded its estimated fair value, as determined utilizing
various valuation techniques including discounted cash flow and comparative
market analysis. Thereafter, given the indication of a potential impairment, the
Company completed step two of the test. Based on that analysis, a transitional
impairment loss of $5.3 million was recognized in the first quarter of 2002 as a
cumulative effect of an accounting change. The Company completed its annual
impairment test for 2003 in the first quarter of 2003. There was no indication
of impairment as a result of this test.

                                        8
<PAGE>
                       FREEMARKETS, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
              (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE 7.  STOCK COMPENSATION AND WARRANT COSTS

     Stock compensation and warrant costs include charges resulting from stock
options and warrants granted at exercise prices less than fair value. The
following table shows the amounts of stock compensation and warrant costs by
category had stock compensation and warrant costs been separately stated on the
condensed consolidated statements of operations:

<Table>
<Caption>
                                       THREE MONTHS ENDED      NINE MONTHS ENDED
                                          SEPTEMBER 30,          SEPTEMBER 30,
                                       -------------------     -----------------
                                        2003        2002        2003       2002
                                       -------     -------     ------     ------
<S>                                    <C>         <C>         <C>        <C>
Research and development.............  $    2      $   17      $   12     $   77
Sales and marketing..................   1,972       1,972       5,940      5,931
                                       ------      ------      ------     ------
                                       $1,974      $1,989      $5,952     $6,008
                                       ======      ======      ======     ======
</Table>

NOTE 8.  RECENT ACCOUNTING PRONOUNCEMENTS

     In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN 45 clarifies the requirements of FASB Statement No. 5, "Accounting
for Contingencies" relating to a guarantor's accounting for, and disclosure of,
the issuance of certain types of guarantees. FIN 45 requires that upon issuance
of a guarantee, the guarantor must recognize a liability for the fair value of
the obligation it assumes under that guarantee. FIN 45 also requires enhanced
disclosures in a company's interim and annual filings. FIN 45 is effective for
guarantees issued or modified after December 31, 2002. The disclosure
requirements were effective for financial statements of both interim and fiscal
years ending after December 15, 2002. The adoption of this standard did not have
a material impact on the Company's consolidated financial statements.

     In January 2003, the EITF released Issue No. 00-21 ("EITF 00-21"), "Revenue
Arrangements with Multiple Deliverables," which addresses certain aspects of the
accounting by a vendor for arrangements under which it will perform multiple
revenue-generating activities. Specifically, EITF 00-21 addresses whether an
arrangement contains more than one unit of accounting and the measurement and
allocation to the separate units of accounting in the arrangement. EITF 00-21 is
effective for revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The Company adopted this standard effective January 1,
2003, and it did not have a material impact on its consolidated financial
statements.

NOTE 9.  SECURITIES CLASS ACTION COMPLAINTS

     Since April 27, 2001, eleven securities fraud class action complaints have
been filed against the Company and two executive officers in federal court in
Pittsburgh, Pennsylvania. The complaints, all of which assert the same claims,
stem from the Company's announcement on April 23, 2001 that, as a result of
discussions with the SEC, the Company was considering amending its 2000
financial statements for the purpose of reclassifying fees earned by the Company
under a service contract with Visteon. All of the cases have been consolidated
into a single proceeding. On October 30, 2001, the Company filed a motion
seeking to dismiss all of the cases in their entirety. On January 17, 2003, the
Court denied the motion to dismiss. The plaintiffs have filed a motion for class
certification which is still pending before the Court. Discovery is in the early
stages. In addition, on September 24, 2001, an individual claiming to be a
FreeMarkets shareholder filed a shareholder's derivative action, nominally on
behalf of FreeMarkets, against all of the Company's directors and certain of its
executive officers. FreeMarkets is also named as a nominal defendant. The suit
is based on the same facts alleged in the

                                        9
<PAGE>
                       FREEMARKETS, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
              (UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

foregoing securities fraud class actions. The Company believes that the
plaintiffs' allegations are without merit and it intends to defend these claims
vigorously.

     Since July 31, 2001, several securities fraud class action complaints have
been filed in the United States District Court for the Southern District of New
York alleging violations of the securities laws in connection with the Company's
December 1999 initial public offering ("IPO"). In four of the complaints, the
Company and certain of its officers are named as defendants, together with the
underwriters that are the subject of the plaintiffs' allegations. Each of these
cases has been consolidated for pretrial purposes into an earlier lawsuit
against the underwriters of the Company's IPO. In addition, the cases have been
consolidated for pretrial purposes with approximately 1,000 other lawsuits filed
against other issuers, their officers, and underwriters of their initial public
offerings. On April 19, 2002, a consolidated amended class action complaint (the
"Consolidated Complaint") was filed. The Consolidated Complaint alleges claims
against the Company and seven of its officers and/or directors, as well as seven
investment banking firms who either served as underwriters or are successors in
interest to underwriters of the Company's IPO. The Consolidated Complaint
alleges that the prospectus used in the Company's IPO contained material
misstatements or omissions regarding the underwriters' allocation practices and
compensation in connection with the IPO, and also alleges that the underwriters
manipulated the aftermarket for the Company's stock. Damages in an unspecified
amount are sought, together with interest, costs and attorney's fees. The
defendants filed a motion to dismiss the Consolidated Complaint. By stipulation
and order dated October 9, 2002, the individual defendants were dismissed
without prejudice from the Consolidated Complaint. On February 19, 2003, the
court denied the Company's motion to dismiss. On June 25, 2003, a Special
Committee of the Board of Directors of the Company approved a proposed
settlement of the litigation under terms set forth in a Memorandum of
Understanding and authorized the Company to enter into a definitive settlement
agreement to be prepared in accordance with the Memorandum of Understanding. The
anticipated settlement will be subject to court approval following notice to
class members and a fairness hearing. Based on the memorandum of understanding,
the Company believes that the anticipated settlement will have no material
effect on the Company.

                                        10
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our condensed
consolidated financial statements and related notes contained in this Quarterly
Report on Form 10-Q ("Form 10-Q").

     Certain statements contained in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different than any expressed or implied by
these forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue," or the negative of these terms or other comparable
terminology. Furthermore, in addition to the risks described in this Form 10-Q,
we are subject to specific risks and uncertainties related to our business
model, strategies, markets and legal and regulatory environment. For a detailed
discussion of some of these risks, please see the risk factors included in our
Annual Report on Form 10-K for the year ended December 31, 2002, as filed with
the SEC on March 14, 2003.

OVERVIEW

     FreeMarkets provides software, services and information to help companies
improve their sourcing and supply management processes and enhance the
capabilities of their supply management organization. Our customers are buyers
of industrial parts, raw materials, commodities and services. Our team members
provide service to customers in more than 35 languages from 19 locations in 15
countries on five continents.

     Since our inception, FreeMarkets has provided software and services to help
companies identify savings, enhance their sourcing efficiency and achieve their
strategic sourcing goals by enabling them to source goods and services in our
online markets. In providing these services we work with our customers to
identify and screen suppliers and to assemble a request for quotation that
provides detailed, clear and consistent information for suppliers to use in our
online markets. Our web-based technology enables suppliers from around the world
to submit bids for a customers' purchase orders in real-time interactive
competition featuring "downward price" dynamic bidding. While we have provided
this technology-enhanced service to buyers since 1995, we began to describe it
using the "FullSource" name in 2001. In 2001, we also introduced our QS
solution, which enables customers to conduct their own sourcing projects,
including running their own online markets. During the second half of 2002, we
introduced a number of new product offerings to expand our solutions beyond
sourcing to address a broader set of supply management activities. Our
development of a broader set of solutions in 2002 is part of a strategic
transition from a company that offers a single technology-enhanced service to
one with multiple software and service solutions. These activities include
supply analysis and strategy, spend requirements management, sourcing, supplier
development and supplier relationship management. We refer to these activities
as Global Supply Management, or GSM.

     Our solutions combine software, services and information to address the GSM
market. These solutions are ultimately designed to help companies lower costs
and reduce their supply risks.

CRITICAL ACCOUNTING POLICIES

     The accompanying 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 generally accepted accounting
principles in the United States of America ("US GAAP"). 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. These estimates form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. We base our estimates and judgments
on historical experience and all available information. However, future events
are subject to change, and the best estimates and judgments routinely require
adjustment. US GAAP requires us to make estimates and judgments in several
areas, including those related to recording various accruals (such as incentive
compensation and restructuring costs), income taxes, the useful lives of
long-lived assets such as property and equipment and potential losses from
contingencies and litigation. We believe the
                                        11
<PAGE>

policies discussed below are the most critical to our financial statements
because they are affected significantly by management's judgments, assumptions
and estimates.

REVENUE RECOGNITION

     We generate revenues under service and access agreements with our
customers. While the vast majority of our agreements contain standard business
terms and conditions, there are many agreements that contain complex terms and
conditions. We assess whether the fees are fixed or determinable based on the
payment terms associated with the transactions and whether the sales price is
subject to refund or adjustment. We assess collectibility based primarily on the
creditworthiness of the customer as determined by credit checks and analysis, as
well as the customer's payment history.

     Our FullSource service agreements typically provide revenues from fixed
monthly fees, and may also include performance incentive payments based on
volume and/or savings. The structure in a particular service agreement may vary,
depending upon the needs of our customer and the conventional practices in the
supply market where our customer obtains its materials, commodities or services.
The fees that we receive are for the use of our technology, supplier and supply
market information, sourcing operations staff and facilities. Negotiated fees
vary by customer, and reflect both the anticipated volume and the staffing,
expertise and technology we anticipate committing to complete the services
requested by our customers. We recognize revenues from our fixed monthly
FullSource fees ratably as we provide access to our services over the related
contract period. Our agreements range in length from a few months to as many as
five years. At any given time, we have agreements of varying lengths with
staggered expirations. Some of our agreements permit early termination by our
customers without cause and without penalty.

     Many of the service agreements for our FullSource offering include
performance incentive payments that are contingent upon our customer achieving
specific volumes and/or savings, as set forth in the respective agreements. We
recognize these revenues as the thresholds are achieved. If our FullSource
market volume grows, the revenues attributable to these incentive payments may
also grow in terms of absolute dollars, but not necessarily as a percentage of
revenues.

     The agreements for our QS offering provide for revenues from fixed monthly
access fees. The fees that we receive are for providing access to our technology
and for add-on services. Negotiated access fees for our QS offering vary by
customer, and reflect the anticipated number of customer users and add-on
services. We recognize revenues from our QS offering as we provide access or
add-on services.

     The agreements for our new offerings, such as ES, Spend Visibility and
Supplier Implementation provide for revenues from fixed monthly access fees. The
fees that we receive are for providing access to our technology and for certain
services. We recognize revenues from these new offerings as we provide access or
services.

     Reimbursements, including those related to travel and other out-of-pocket
expenses, are included in revenues, and an equivalent amount of reimbursable
expenses are included in cost of revenues.

     Some customer agreements include multiple product and/or service offerings.
In determining the appropriate amount of revenue to be recognized for each
offering, the Company evaluates whether the offerings have stand alone value to
the customer, whether the fair value of the undelivered elements is reliably
determinable, and whether delivery of the remaining offerings is probable and
within the Company's control. In instances where all of these conditions are
satisfied, the Company recognizes revenue for the offerings that have been
delivered to the customer based on their relative fair values.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

     We evaluate the collectibility of our accounts receivable based on a
combination of factors. In cases where we are aware of circumstances that may
impair a specific customer's ability to meet its financial obligations to us, we
record a specific allowance against amounts due to us. For all customers, we
recognize allowance for doubtful accounts based on the length of time the
receivables are past due, the current business environment and our historical
experience. If the financial condition of our customers deteriorates or if the
economic conditions worsen, additional allowances may be required in the future.
                                        12
<PAGE>

STOCK COMPENSATION

     SFAS No. 123, "Accounting for Stock-Based Compensation", as amended by SFAS
No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure",
gives companies the option to adopt the fair value method for expense
recognition of employee stock options or to continue to account for employee
stock options using the intrinsic value method, as outlined under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees". We have elected to continue to apply the intrinsic value method to
account for employee stock options and disclose the pro forma effect as if the
fair value method had been applied in the Notes to our consolidated financial
statements.

TREATMENT OF VISTEON FEES

     In April 2000, we entered into a five-year agreement with Visteon that
provides for fixed monthly fees in return for our FullSource software and
services. We exclude from revenues the amounts that we earn under this contract;
however, cost of revenues includes the costs we incur in serving Visteon. At the
time we executed this service contract, we granted a warrant for 1.75 million
shares to Visteon with an exercise price of $.01 per share, and we continue to
receive ongoing marketing and public relations benefits as a result of our
relationship with Visteon. The warrant was valued at $95.5 million using the
Black-Scholes pricing model at the date of the grant in April 2000. As a result
of a review by the Securities and Exchange Commission ("SEC"), we exclude from
our revenues the fees we earn from this contract, and instead allocate those
fees as payment for the warrant. However, we view our relationship with Visteon
as a typical customer relationship. We provide Visteon with access to software,
services and information to help them improve their sourcing and supply
management processes and enhance the capabilities of their supply management
organization. For all business and operational purposes in which revenue is a
factor in the decision, including budgets, forecasts, allocation of resources,
sales compensation, bonus decisions and other performance indicators (such as
DSO), we treat the fees we earn from this contract in the same manner as
revenues from other customers. Accordingly, we have referred, where applicable,
to "revenues and fees" throughout Management's Discussion and Analysis of
Financial Condition and Results of Operations in order to accurately describe
our analysis of our operations.

     Below is a reconciliation of revenues under generally accepted accounting
principles with revenues plus the fees we earn under our service contract with
Visteon:

<Table>
<Caption>
                                 THREE MONTHS ENDED        NINE MONTHS ENDED
                                    SEPTEMBER 30,            SEPTEMBER 30,
                                 -------------------     ---------------------
                                  2003        2002         2003         2002
                                 -------     -------     --------     --------
<S>                              <C>         <C>         <C>          <C>
Revenues and fees..............  $38,835     $43,201     $113,613     $136,603
Less fees characterized as
  payment for warrant..........   (2,813)     (2,813)      (8,438)      (8,438)
                                 -------     -------     --------     --------
Revenues.......................  $36,022     $40,388     $105,175     $128,165
                                 =======     =======     ========     ========
</Table>

     Our relationship with Visteon is a standard customer relationship (except
for the warrant). We do not expect to recognize revenues under this Visteon
service contract from the fees we earn during the term of the contract, which
expires in 2005, because we have determined, as a result of a review by the SEC,
that we must allocate those fees as payment for the warrant that we granted to
Visteon.

                                        13
<PAGE>

RESULTS OF OPERATIONS

     The following table sets forth condensed consolidated statements of
operations data as a percentage of revenues for the periods indicated:

<Table>
<Caption>
                                      THREE MONTHS ENDED      NINE MONTHS ENDED
                                         SEPTEMBER 30,          SEPTEMBER 30,
                                      -------------------     -----------------
                                       2003        2002        2003       2002
                                      -------     -------     ------     ------
<S>                                   <C>         <C>         <C>        <C>
Revenues............................     100%        100%       100%       100%
Operating costs and expenses:
  Cost of revenues..................      46          46         50         44
  Research and development..........      17          17         18         15
  Sales and marketing...............      22          27         26         27
  General and administrative........      14          14         16         14
  Stock compensation and warrant
     costs..........................       5           5          5          5
  Investment write-down.............      --           1         --          4
  Restructuring charges.............       9          (1)         8         (0)
                                       -----       -----      -----      -----
     Operating loss.................     (13)         (9)       (23)        (9)
Interest and other income, net......       1           2          3          2
                                       -----       -----      -----      -----
     Loss before taxes and change in
       accounting...................     (12)         (7)       (20)        (7)
Provision for income taxes..........       1           0          1          0
                                       -----       -----      -----      -----
     Loss before change in
       accounting...................     (13)         (7)       (21)        (7)
Cumulative effect of accounting
  change for goodwill...............      --          --         --         (4)
                                       -----       -----      -----      -----
     Net loss.......................     (13%)        (7%)      (21%)      (11%)
                                       =====       =====      =====      =====
</Table>

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

     All references to "Q3 2003" and "Q3 2002" are for the three months ended
September 30, 2003 and 2002, respectively. All references to "Nine Months 2003"
and "Nine Months 2002" are for the nine months ended September 30, 2003 and
2002, respectively.

  REVENUES

     Revenues decreased 11% from $40.4 million in Q3 2002 to $36.0 million in Q3
2003, and decreased 18% from $128.2 million in Nine Months 2002 to $105.2
million in Nine Months 2003. As discussed earlier in "Treatment of Visteon
Fees", we exclude from revenues the fees earned from our contract with Visteon,
which were $2.8 million in each of Q3 2002 and Q3 2003, and $8.4 million in each
of Nine Months 2002 and Nine Months 2003. Revenues and fees decreased 10% from
$43.2 million in Q3 2002 to $38.8 million in Q3 2003 and decreased 17% from
$136.6 million in Nine Months 2002 to $113.6 million in Nine Months 2003. The
decrease in revenues is due to a combination of factors, including a change in
the mix of products and services deployed by our customers, as well as the
continued weak economic environment which we believe has caused our customers to
defer their purchasing decisions. In 2002 and the first nine months of 2003,
several large customers renewed their FullSource access and service agreements
at lower market volumes than the volumes provided in previously existing
agreements, resulting in lower revenues from our FullSource offering in 2003. In
addition, with the introduction of QS in early 2001, several FullSource-only
customers have expanded their use of our products to include a broader mix of
FullSource, QS and related services. As customers gain experience with our
sourcing solutions, certain entities have migrated a portion of their sourcing
requirements to our self-service

                                        14
<PAGE>

technologies. In some cases, increased sales of additional products and services
to existing customers have resulted in lower total revenues due to this
migration. We do not believe that sales of new products in 2003 will compensate
for the reduction in revenue from our FullSource offering, and anticipate that
total revenues in 2003 will be less than 2002. We do expect that the continued
introduction of new products and services will drive customer acquisition,
market share expansion and overall revenue gains over the long term.

     The following is a breakdown of revenues by product (in thousands):

<Table>
<Caption>
                        THREE MONTHS ENDED     THREE MONTHS ENDED      NINE MONTHS ENDED       NINE MONTHS ENDED
                        SEPTEMBER 30, 2003     SEPTEMBER 30, 2002     SEPTEMBER 30, 2003      SEPTEMBER 30, 2002
                       --------------------   --------------------   ---------------------   ---------------------
                          $      % OF TOTAL      $      % OF TOTAL      $       % OF TOTAL      $       % OF TOTAL
                       -------   ----------   -------   ----------   --------   ----------   --------   ----------
<S>                    <C>       <C>          <C>       <C>          <C>        <C>          <C>        <C>
FullSource...........  $24,009       67%      $32,113       80%      $ 73,410       70%      $104,907       82%
All other............   12,013       33         8,275       20         31,765       30         23,258       18
                       -------      ---       -------      ---       --------      ---       --------      ---
Total revenues.......  $36,022      100%      $40,388      100%      $105,175      100%      $128,165      100%
                       =======      ===       =======      ===       ========      ===       ========      ===
</Table>

     The following is a breakdown of revenues and fees by product (in
thousands):

<Table>
<Caption>
                        THREE MONTHS ENDED     THREE MONTHS ENDED      NINE MONTHS ENDED       NINE MONTHS ENDED
                        SEPTEMBER 30, 2003     SEPTEMBER 30, 2002     SEPTEMBER 30, 2003      SEPTEMBER 30, 2002
                       --------------------   --------------------   ---------------------   ---------------------
                          $      % OF TOTAL      $      % OF TOTAL      $       % OF TOTAL      $       % OF TOTAL
                       -------   ----------   -------   ----------   --------   ----------   --------   ----------
<S>                    <C>       <C>          <C>       <C>          <C>        <C>          <C>        <C>
FullSource...........  $26,822       69%      $34,926       81%      $ 81,848       72%      $113,345       83%
All other............   12,013       31         8,275       19         31,765       28         23,258       17
                       -------      ---       -------      ---       --------      ---       --------      ---
Total revenues and
  fees...............  $38,835      100%      $43,201      100%      $113,613      100%      $136,603      100%
                       =======      ===       =======      ===       ========      ===       ========      ===
</Table>

  OPERATING COSTS AND EXPENSES

     COST OF REVENUES.  Cost of revenues decreased from $18.7 million, or 46% of
revenues in Q3 2002 to $16.6 million, or 46% of revenues in Q3 2003, and
decreased from $56.9 million, or 44% of revenues in Nine Months 2002 to $52.8
million, or 50% of revenues in Nine Months 2003. The increase in cost of
revenues as a percentage of revenues from Nine Months 2002 to Nine Months 2003
was primarily the result of the 18% decrease in revenues, partially offset by 7%
overall decrease in cost of revenues. The decrease in terms of absolute dollars
is attributable to lower customer out-of-pocket costs in Q3 2003 and Nine Months
2003 in the amount of $363,000 and $1.1 million, respectively, and reduced
overhead, primarily comprised of depreciation expense, of $1.4 million and $2.7
million in Q3 2003 and Nine Months 2003, respectively. Cost of revenues includes
the costs we incur in performing our obligations under the Visteon service
contract, even though the fees we earn under that contract are excluded from
revenues. We expect our cost of revenues in fiscal year 2003 will be lower in
absolute dollars compared to 2002, but higher as a percentage of revenues due
primarily to a reduction in revenues.

     RESEARCH AND DEVELOPMENT.  Research and development costs decreased from
$7.0 million, or 17% of revenues in Q3 2002 to $6.1 million, or 17% of revenues
in Q3 2003, and decreased slightly from $19.0 million, or 15% in Nine Months
2002 to $18.8 million, or 18% in Nine Months 2003. The decrease in absolute
dollars in both periods is primarily attributable to reduced consulting costs in
the amount of $1.2 million and $2.4 million in Q3 2003 and Nine Months 2003,
respectively, associated with the investments in our product development
pipeline in 2002, partially offset by a 20% and 28% increase in average research
and development staff in Q3 2003 and Nine Months 2003, respectively. We expect
that research and development costs as a percentage of revenues in fiscal year
2003 will be higher than 2002.

     SALES AND MARKETING.  Sales and marketing costs decreased from $10.7
million, or 27% of revenues in Q3 2002 to $8.0 million, or 22% of revenues in Q3
2003, and from $34.6 million, or 27% in Nine Months 2002 to $27.3 million, or
26% in Nine Months 2003. The decrease in absolute dollars in both periods is
primarily attributable to a 17% and 15% decrease in the average number of sales
and marketing staff in Q3 2003 and Nine Months 2003, respectively. The decrease
is also attributable to reduced overhead, primarily comprised of depreciation
expense of $701,000 and $2.3 million in Q3 2003 and Nine Months 2003,
respectively, and cost cutting measures in discretionary spending such as
marketing and advertising, recruiting and relocation costs. We

                                        15
<PAGE>

expect that our sales and marketing costs in fiscal 2003 will be lower in
absolute dollars and as a percentage of revenues compared to 2002.

     GENERAL AND ADMINISTRATIVE.  General and administrative costs decreased
from $5.4 million, or 14% of revenues in Q3 2002 to $4.9 million, or 14% of
revenues in Q3 2003, and from $18.0 million, or 14% of revenues in Nine Months
2002 to $16.5 million, or 16% in Nine Months 2003. The decrease in absolute
dollars in both periods is primarily attributable to a 11% and 6% decrease in
the average number of personnel in the areas of human resources, finance and
facilities management in Q3 2003 and Nine Months 2003, respectively, as well as
reduced overhead, primarily comprised of depreciation expense, of $293,000 and
$1.3 million in Q3 2003 and Nine Months 2003, respectively. The increase in
general and administrative costs as a percentage of revenues from Nine Months
2002 to Nine Months 2003 was primarily the result of the 18% decrease in
revenues from Nine Months 2002 and Nine Months 2003. We expect that general and
administrative costs in fiscal 2003 will be lower in absolute dollars compared
to 2002, but higher as a percentage of revenues due primarily to a reduction in
revenues.

     STOCK COMPENSATION AND WARRANT COSTS.  In April 2000, we recorded $95.5
million of unearned warrant costs related to a warrant granted to Visteon. This
value was calculated using the Black-Scholes pricing model at the date of grant
and is being amortized over a five-year period ending April 2005. In each of Q3
2002 and Q3 2003, $4.8 million was amortized related to this warrant, with $2.8
million reflected as a reduction to our revenues (reducing the revenues under
the Visteon service contract to zero) and $2.0 million as stock compensation and
warrant costs. In each of Nine Months 2002 and Nine Months 2003, $14.3 million
was amortized related to this warrant, with $8.4 million reflected as a
reduction to our revenues (reducing the revenues under the Visteon service
contract to zero) and $5.9 million as stock compensation and warrant costs.

     INVESTMENT WRITE-DOWN.  In Q3 2002, we recorded a $371,000 loss on our
investment in Adexa. The loss was based on a valuation determined by a financing
completed by Adexa in July 2002. Also, in Q1 2002, we recorded a $4.7 million
loss on our investment in Adexa based on Adexa's financial condition. In each
instance, we concluded that there was an other than temporary decline in the
value of our investment in Adexa. As of September 30, 2003, the remaining book
value of our original $6.0 million investment in Adexa was $889,000.

     RESTRUCTURING CHARGES.  Throughout 2003, we have initiated three
restructuring programs. These programs were focused on eliminating certain
positions throughout our global workforce, re-assessing our facility needs and
consolidating European operations to create a more profitable and efficient
business. We expect to generate annual savings of approximately $13.0 million as
a result of these programs of which $7.2 million will be reflected in 2003
results. The following is a summary of these programs:

        WORKFORCE REDUCTION PLAN.  In Q1 2003, in response to the continued
economic slowdown, we executed a restructuring plan resulting in the elimination
of 79 positions in its global workforce. This represented approximately 7% of
total employees. We recorded a restructuring charge of $1.8 million in Q1 2003
covering these severance costs. The majority of the liability for employee
severance and termination benefit costs will be paid by the end of 2003.

        FACILITY REDUCTION PLAN.  Also in Q1 2003, we re-assessed our global
headquarters office space in Pittsburgh, Pennsylvania, and ceased using one of
the floors we lease through May 2010. We recorded a restructuring charge of $3.0
million in Q1 2003, covering these lease costs. We are continuing to evaluate
our office space requirements at our headquarters. As a result of an evaluation
completed in the fourth quarter of 2003, we ceased using one of the floors we
lease through May 2010, and expect to record a restructuring charge of $1.9
million in the fourth quarter of 2003.

        EUROPEAN RESTRUCTURING PLAN.  In Q3 2003, in order to better serve our
customers and enable us to create a more leveraged, profitable and efficient
business across Europe, we initiated a restructuring plan resulting in the
elimination of 74 positions in its European business. We recorded a
restructuring charge of $3.2 million in Q3 2003 covering these severance and
implementation costs. The majority of the liability for employee severance and
implementation costs will be paid by the end of 2003. We expect to close its
Belgium office in Q4 2003, which will result in an additional charge of $3.0
million to $4.0 million to cover lease termination costs, non-cash write-off of
assets related to the Brussels office and additional severance costs.

                                        16
<PAGE>

        In Q3 2002, we re-evaluated our office space in one of our foreign
offices and made an adjustment to the restructuring reserve in the amount of
$278,000.

  INTEREST AND OTHER INCOME, NET

     Interest and other income decreased from $611,000 in Q3 2002 to $559,000 in
Q3 2003, and increased from $2.4 million in Nine Months 2002 to $2.6 million in
Nine Months 2003. The decrease from Q3 2002 to Q3 2003 is primarily the result
of reduced interest income, partially offset by cash collections of $300,000
from the settlement of patent infringement lawsuits. The increase from Nine
Months 2002 to Nine Months 2003 in Nine Months 2003 is primarily attributable to
cash collections of $850,000 in Nine Months 2003 from the settlement of patent
infringement lawsuits, partially offset by reduced interest income. In Q3 2002,
we earned $758,000 at a weighted-average rate of return of 2.4%, compared to
$324,000 at a weighted-average rate of return of 1.0% in Q3 2003. In Nine Months
2002, we earned $2.3 million at a weighted-average rate of return of 2.7%,
compared to $1.8 million at a weighted-average rate of return of 1.8% in Nine
Months 2003.

  PROVISION FOR INCOME TAXES

     Provision for income taxes was $181,000 in Q3 2002 and $334,000 in Q3 2003,
and $527,000 in Nine Months 2002 and $841,000 in Nine Months 2003. The increase
in both periods is attributable to an increase in foreign income taxes.

  CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR GOODWILL

     In Q1 2002, in connection with the implementation of SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets", we tested goodwill for impairment, and based on estimated future cash
flows, recorded an impairment charge of $5.3 million. For further discussion,
see Note 6 to the Condensed Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

<Table>
<Caption>
                                            SEPTEMBER 30,   DECEMBER 31,
                                                2003            2002       CHANGE
                                            -------------   ------------   -------
                                                       ($ IN THOUSANDS)
<S>                                         <C>             <C>            <C>
Cash and cash equivalents.................    $ 91,634        $ 94,593     $(2,959)
Marketable investments....................      39,762          40,430        (668)
                                              --------        --------     -------
  Total cash and investments..............    $131,396        $135,023     $(3,627)
                                              ========        ========     =======
  Percentage of total assets..............          72%             70%     2 pts.
Working capital...........................    $109,367        $119,218     $(9,851)
Current ratio.............................    4.5 to 1        4.4 to 1
Days sales outstanding (DSO)..............          58              51
</Table>

<Table>
<Caption>
                                                 NINE MONTHS ENDED
                                                   SEPTEMBER 30,
                                                 ------------------
                                                  2003       2002      CHANGE
                                                 -------   --------   --------
                                                       ($ IN THOUSANDS)
<S>                                              <C>       <C>        <C>
Cash flows from operating activities...........  $(6,203)  $ 14,328   $(20,531)
Cash flows from investing activities...........   (2,397)   (12,425)    10,028
Cash flows from financing activities...........    5,641     14,865     (9,224)
</Table>

     Net cash provided by operating activities totaled $14.3 million in Nine
Months 2002, compared to net cash used in operating activities of $6.2 million
in Nine Months 2003. Cash provided by operating activities in Nine Months 2002
is primarily due to improvements in DSO and cash collections on record revenues
in Q4 2001, partially offset by the payment of our annual incentive-based
compensation of $9.4 million. Cash used in operations in Nine Months 2003 is
primarily due to operating losses incurred in Nine Months 2003 primarily due to
the 18% decrease in revenues from Nine Months 2002 to Nine Months 2003, an
increase in DSO's and the

                                        17
<PAGE>

payment of our annual incentive-based compensation of $6.6 million. Net cash
from operating activities in Nine Months 2002 and Nine Months 2003 does not
reflect $10.3 million and $7.5 million, respectively, received under our service
contract with Visteon.

     Net cash used in investing activities totaled $12.4 million in Nine Months
2002, compared to $2.4 million in Nine Months 2003. In Nine Months 2002 and Nine
Months 2003, we incurred $5.0 million and $3.0 million, respectively, of capital
expenditures primarily related to our continued expansion of information
technology hardware. We expect our capital expenditures in fiscal 2003 will be
lower than 2002. Our investing activities also reflect the investment of funds
in the normal course of our treasury management activities, which includes the
movement of funds in and out of cash and cash equivalents and marketable
investments to fund operations and maximize our rate of return. The net cash
outflow of these funds in Nine Months 2002 was $7.4 million, compared to net
cash inflow of $561,000 in Nine Months 2003.

     Net cash provided by financing activities totaled $14.9 million in Nine
Months 2002 and $5.6 million in Nine Months 2003. The positive financing cash
flows in Nine Months 2002 reflect proceeds of $5.7 million from the issuance of
common stock through the employee stock purchase plan and option exercises and
$10.3 million received in Nine Months 2002 under our service contract with
Visteon, partially offset by repayment of debt of $1.2 million. We have
determined, based on a review by the SEC in 2001, that we are required to
classify these receipts as payment for the warrant that we granted in April
2000. The positive financing cash flows in Nine Months 2003 reflect proceeds of
$3.0 million from the issuance of common stock through the employee stock
purchase plan and option exercises and $7.5 million received under our service
agreement with Visteon, partially offset by $3.6 million used to repurchase
common stock and repayment of debt of $1.8 million.

     In October 2001, we amended our bank credit facility to consist of a
revolving credit facility with a maximum principal amount of $20.0 million and a
$4.0 million term loan to be paid in 36 monthly installments, $3.7 million of
which was used to retire borrowings under the previous revolving credit
facility. Borrowings under the revolving credit facility and the term loan bear
interest at the lender's prime rate and prime rate +0.50%, respectively. In
February 2003, we again amended the revolving credit facility to reduce the
availability from $20.0 million to $15.0 million and extend the maturity date
through February 2004. As of September 30, 2003, $1.1 million was outstanding
under the term loan and the interest rate was 4.5%. At September 30, 2003, $14.3
million was available under the revolving credit facility based on eligible
accounts receivable.

     Our current bank credit facility contains restrictive covenants, including
a limitation on incurring additional indebtedness and paying dividends. Our bank
credit facility also includes financial covenants as to maximum capital
expenditures, minimum tangible net worth, minimum earnings and minimum quick
ratio. We have pledged substantially all of our tangible assets as collateral
for the current credit facility. As of September 30, 2003, we are in compliance
with all covenants.

     In January 2003, the Board of Directors authorized the purchase of up to
15% of our outstanding common stock from time to time on the open market or in
one or more negotiated transactions. As of September 30, 2003, we had purchased
853,500 shares at a weighted average cost of $4.23 per share, all of which have
been retired.

     In September 2003, an arbitrator in Portugal ruled in our favor in
proceedings against a former Brazilian customer for amounts earned in 2000,
which we wrote-off in 2001. The amount of the arbitration award was $1.7
million, which includes accrued interest from the date the invoices were due. We
will record this award as a reduction to bad debt expense in cost of revenues on
the cash basis of accounting due to the uncertainty of collection.

     We will continue to invest in the growth of our business. We expect that
our cash, cash equivalents and marketable investments will increase in Q4 2003.
However, we may decide to use resources to fund the purchase of common shares or
acquisitions of complementary businesses and technologies and, if we do so, our
cash, cash equivalents and investments may decrease. Our allocation between cash
and cash equivalents and marketable investments reflects our anticipated cash
flow requirements in the future and current market interest rates. As of
September 30, 2003 and December 31, 2002, our marketable investment allocation
represents 30% of total cash and investments. We believe that our current
resources will be sufficient to meet our working capital and capital
expenditures for at least the next 18 to 24 months. If we are unable to continue
to control costs or if we decide to

                                        18
<PAGE>

use cash resources to fund the purchase of common shares or acquisitions of
complementary businesses or technologies, our resources may be depleted more
quickly than we currently anticipate. In the event that additional financing is
required, we may not be able to raise it on terms acceptable to us, if at all.

     There have been no material changes in our contractual obligations and
commercial commitments during the quarter ended September 30, 2003 from those
presented in our Annual Report on Form 10-K, as filed with the SEC on March 14,
2003.

RECENTLY ADOPTED ACCOUNTING STANDARDS

     As discussed in Note 8 to the Condensed Consolidated Financial Statements,
we implemented new accounting standards related to accounting for, and
disclosure of, guarantees and the accounting for arrangements under which we
will perform multiple revenue-generating activities beginning January 1, 2003.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     There have been no material changes in our market risk exposure during the
quarter ended September 30, 2003 that would require an update to the disclosure
in our Annual Report on Form 10-K, as filed with the SEC on March 14, 2003.

ITEM 4.  CONTROLS AND PROCEDURES

     As of the end of the period covered by this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the Company's disclosure controls and
procedures. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures as of the end of the period covered by this report have been designed
and are functioning effectively to provide reasonable assurance that the
information required to be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms. A controls
system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the controls systems are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected.

     No change in the Company's internal control over financial reporting
occurred during the Company's most recent fiscal quarter that has materially
affected or is reasonable likely to materially affect, the Company's internal
control over financial reporting.

                                        19
<PAGE>

                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     See Note 9 to the Condensed Consolidated Financial Statements

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

<Table>
<Caption>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<C>       <S>
 99.1     Certification of Chief Executive Officer pursuant to Section
          302 of the Sarbanes-Oxley Act of 2002.
 99.2     Certification of Chief Financial Officer pursuant to Section
          302 of the Sarbanes-Oxley Act of 2002.
 99.3     Certification by the Chief Executive Officer and Chief
          Financial Officer Relating to a Periodic Report Containing
          Financial Statements
</Table>

     (b) Reports on Form 8-K.

     Form 8-K furnished on July 24, 2003 under Item 9, "Regulation FD
Disclosure" but intended to be furnished under Item 12, "Results of Operations
and Financial Condition" (with respect to a press release relating to the
Company's performance in the second quarter of 2003).

                                  * * * * * *

                                        20
<PAGE>

                                   SIGNATURE

     Pursuant to the requirements of Section 13 or 15(d) 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 in the City of
Pittsburgh, Commonwealth of Pennsylvania on October 29, 2003.

                                         FREEMARKETS, INC.

                                         By: /s/ JOAN S. HOOPER
                                            ------------------------------------
                                            JOAN S. HOOPER
                                            Executive Vice President, Chief
                                             Financial Officer, Secretary and
                                             Treasurer
                                            (Principal Financial and Accounting
                                             Officer)

                                        21
<PAGE>

                                 EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
NUMBER                           DESCRIPTION
-------                          -----------
<C>      <S>
  31.1   Certification of Chief Executive Officer pursuant to Section
         302 of the Sarbanes-Oxley Act of 2002.
  31.2   Certification of Chief Financial Officer pursuant to Section
         302 of the Sarbanes-Oxley Act of 2002
  32     Certification by the Chief Executive Officer and Chief
         Financial Office Relating to a Periodic Report Containing
         Financial Statements
</Table>

                                        22