##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31,
    2002                                             
|          
|or        
|          
|o          |  | 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 0-15325



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Ascential Software Corporation

(formerly Informix Corporation)


(Exact name of registrant as specified in its
charter)


|                                                                                     |  |                                         
|------------------------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                                             |  | 94-3011736                              
|(State or other jurisdiction of
    incorporation or organization)                   |  | (I.R.S. Employer
    Identification No.)
|                                                                                    
|50 Washington Street,
    Westborough, MA(Address of principal executive
    office) |  | 01581(Zip Code)                         

(Registrants telephone number, including
area code)

508-366-3888


Securities registered pursuant to
Section 12(b) of the Act: None

Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $0.01 par value




---

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 þ         No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.    þ

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2).    Yes þ         No o

The aggregate market value of the voting stock
held by non-affiliates of the registrant as of June 30,
2002 based on the closing sales price of the Companys
common stock, as reported on The NASDAQ Stock Market, was $691.9
million. Shares of common stock held by each executive officer
and director have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status
is not intended as a conclusive determination for any other
purpose.

As of February 28, 2003, the registrant had
231,522,363 shares of Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive
proxy statement for its annual meeting of stockholders for the
fiscal year ended December 31, 2002, which will be filed
with the Securities and Exchange Commission within 120 days
after the end of the registrants fiscal year, are
incorporated by reference into Part III hereof.



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TABLE OF CONTENTS



|                                       |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                
|                                       | Item 1. Business                                                                             
|                                       | Item 2. Properties                                                                           
|                                       | Item 3. Legal Proceedings                                                                    
|                                       | Item 4. Submission of Matters to a Vote of Security Holders.                                 
|PART II                               
|                                       | Item 5. Market for Registrants Common Equity and Related Stockholder Matters.               
|                                       | Item 6. Selected Financial Data                                                              
|                                       | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                       | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                       | Item 8. Financial Statements and Supplementary Data                                          
|                                       | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
|PART III                              
|                                       | Item 10. Directors and Executive Officers of the Registrant                                  
|                                       | Item 11. Executive Compensation                                                              
|                                       | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                       | Item 13. Certain Relationships and Related Transactions                                      
|                                       | Item 14. Controls and Procedures                                                             
|PART IV                               
|                                       | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                            
|Ex-3.2 Amended and Restated Bylaws    
|Ex-10.5 Form of Indemnity Agreement   
|Ex-10.29 Stock Option Agreement       
|Ex-10.30 A/R 1998 Option Plan         
|Ex-21.1 Subsidiaries of the Registrant
|Ex-23.1 Consent of KPMG LLP           
|Ex-99.1 Certifications                



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

|           |  |                                                                                           |    |      |    | 
|---------- |  | ----------------------------------------------------------------------------------------- | -- | ---- | -- | 
|           |  |                                                                                           |    | Page
|           |  |                                                                                           |    |     
|           |  | PART I                                                                                    |    |      |    | 
|Item 1.    |  | Business                                                                                  |    |      | 2  | 
|Item 2.    |  | Properties                                                                                |    |      | 11 | 
|Item 3.    |  | Legal Proceedings                                                                         |    |      | 11 | 
|Item 4.    |  | Submission of Matters to a Vote of Security
    Holders                                   |    |      | 14 | 
|           |  | PART II                                                                                   |    |      |    | 
|Item 5.    |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |    |      | 14 | 
|Item 6.    |  | Selected Financial Data                                                                   |    |      | 15 | 
|Item 7.    |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |    |      | 16 | 
|Item 7A.   |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |    |      | 54 | 
|Item 8.    |  | Financial Statements and Supplementary Data                                               |    |      | 55 | 
|Item 9.    |  | Changes in and Disagreements with Accountants On
    Accounting and Financial Disclosure  |    |      | 55 | 
|           |  | PART III                                                                                  |    |      |    | 
|Item 10.   |  | Directors and Executive Officers of the Registrant                                        |    |      | 55 | 
|Item 11.   |  | Executive Compensation                                                                    |    |      | 55 | 
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
    and Management                        |    |      | 55 | 
|Item 13.   |  | Certain Relationships and Related Transactions                                            |    |      | 55 | 
|Item 14.   |  | Controls and Procedures                                                                   |    |      | 55 | 
|           |  | PART IV                                                                                   |    |      |    | 
|Item 15.   |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |    |      | 56 | 
|Signatures |  |                                                                                           | 59 |     

Ascential, DataStage, INTEGRITY and MetaRecon
are trademarks of Ascential Software Corporation or its
affiliates and may be registered in the United States or other
jurisdictions. Other marks are the property of the owners of
those marks.

1



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##### Table of Contents






PART I

This report contains forward-looking
statements that are subject to certain risks and uncertainties
that could cause actual results to differ materially from
historical results or anticipated results. These risks and
uncertainties include, but are not limited to, those set forth
under Managements Discussion and Analysis of
Financial Condition and Results of Operations 
Factors That May Affect Future Results and elsewhere in,
or incorporated by reference into, this report. Readers of this
report should review carefully these factors as well as the
description of risks and uncertainties, which, together with
other detailed information about us, is contained in other
documents and periodic reports that we file from time to time
with the Securities and Exchange Commission. These
forward-looking statements reflect managements opinions
only and only as of the date of this report and we disclaim any
obligation to update or revise these statements.




Item 1.Business

Business Overview

Overview.Headquartered in Westborough,
Massachusetts since July 2001, Ascential Software Corporation is
a leading supplier of enterprise integration solutions to the
Global 2000 and other large organizations. We believe that our
Enterprise Integration Suite, built upon a highly scalable
platform, is the industrys only solution that addresses
the full data integration life cycle, and turns data into
Intelligent Information  information that
is reliable, relevant, and complete  so organizations
can make better-informed business decisions and drive their
strategic application initiatives.

We were incorporated in Delaware in 1986 and,
until the third quarter of 2001, operated under the name
Informix Corporation. Effective January 1,
2001, we consolidated our business units into two operating
segments: (i) Informix Software, which operated our
database software systems business, and (ii) Ascential
Software, which operated our extract, transform and load
(ETL) and digital asset management software and
solutions business. During the third quarter of 2001, we
completed the sale of our database business assets, including
the name Informix, to IBM for $1.0 billion in
cash, which we refer to as the IBM Transaction (see
Note 14 to the Notes to Consolidated Financial Statements).
In connection with the IBM Transaction, we changed our name to
Ascential Software Corporation and changed the
symbol under which our stock is traded on the NASDAQ National
Market to ASCL. These changes became effective in
July 2001. During 2002, after the sale of the assets related to
our database business, our sole operating segment has been our
Ascential Software business.

Our revenues for 2002, 2001 and 2000 attributable
to all operations were $113.0 million, $481.3 million
and $929.3 million, respectively. Net loss in 2002 was
$63.6 million, net profit in 2001 was $624.9 million
and net loss in 2000 was $98.5 million. Total assets were
$910.7 million, $1,079.7 million and
$655.9 million, respectively, in 2002, 2001 and 2000.
Revenues and profit or loss in 2001 and 2000 include amounts
attributable to the Informix Software assets that were sold to
IBM in July 2001.

Industry Background.Data integration is the means by which
organizations understand the data scattered throughout or
external to their organization, access it and deliver it,
adapted for its intended use, to enterprise applications and
data warehouses. Historically, many organizations accomplished
this through internal hand-coded programs that would extract
data from one or more sources and deliver it to a target system.
By the mid-1990s companies such as Ascential began developing
packaged applications that would efficiently accomplish this
basic ETL function. By accessing data from various disparate
sources and delivering it to the applications that require it,
business users can leverage those applications to make
mission-critical decisions.

Data integration has evolved from earlier ETL
functionality to today encompass additional functionality, such
as expanded connectivity, data profiling, data quality,
bi-directional metadata (data about data) management and highly
scalable parallel processing technology. Key factors and trends
driving demand for packaged data integration solutions include:



| |   |                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Substantial investments in enterprise
    applications are failing to realize expected return on
    investment due to inadequately addressed data issues.

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| |   |                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Data volume and data complexity are both
    expanding at a rapid pace, straining the ability of in-house
    coding to keep up.                                                                                                                                                 
|
| |  | Real time functionality is becoming a
    much more prevalent requirement, which in-house coding may be
    ill-equipped to address.                                                                                                                                           
|
| |  | Many in-house programming organizations do not
    have adequate time or resources to devote to the creation of
    additional functionality such as data profiling, data quality,
    bi-directional metadata management and highly scalable parallel
    processing technology.

Solution.Our
products for automated data profiling, data quality management
and cleansing, and data transformation address the needs of
organizations that have invested in enterprise applications such
as customer relationship management (CRM),
enterprise resource planning (ERP), supply chain
management (SCM), analytic applications, or data
stores such as data warehouses and data marts.

We have combined the functionality of all of our
core integration services onto a single enterprise integration
platform that provides end-to-end metadata management. Our
integration platform provides definition and history of the data
used to drive strategic enterprise applications. It also
provides connectivity between virtually any standard data source
and target application, and virtually unlimited scalability of
operations through parallel processing. This complete offering
is called our Enterprise Integration Suite.

We also offer a full range of consulting,
educational and support services to assist our clients through
all phases of a project. Based on proven methodologies, these
services represent years of accumulated capital in terms of
knowledge and experience, gained through many successful
engagements across a range of industries and enterprise
application requirements.

We support more than 2,200 customers in such
industries as insurance, financial services, healthcare/life
sciences, manufacturing, consumer goods, retail,
telecommunications and government, in all major markets around
the world. One of our reseller partners, IBM, accounted for more
than 10% of our revenues in 2002. Termination of our
relationship with IBM, if it were to occur, could have a
material impact on our financial results if the related revenue
is not replaced.

Products.Our
products are designed to operate as part of our Enterprise
Integration Suite, or as stand-alone integration components. Our
product functionality includes: automated data profiling to
analyze and manage source data content and structure; data
quality and cleansing to identify, correct and reconcile
inaccurate or redundant data; and data transformation to obtain
data from a source, format it as required for its intended
purpose, and deliver it to a specified target system. Our
products are supported by a comprehensive platform of
integration services that delivers end-to-end metadata
management, connectivity between virtually any standard data
source and application, and virtually unlimited scalability by
virtue of massively parallel processing technology. This
combination of integration products built on a platform of
integration services forms our Enterprise Integration Suite.

Our Enterprise Integration Suite offers a
comprehensive, modular solution that can expand with business
needs or as customer budgets dictate. We believe our customers
benefit from the ability to deploy the complete Enterprise
Integration Suite to address the entire enterprise integration
life cycle, or use individual integration products and add other
components as needed. This approach allows customers to achieve
complete integration through purchase of the entire Enterprise
Integration Suite, or to realize targeted benefits through
purchase of one or more components of the Enterprise Integration
Suite, with the ability to later add the other components to
create a single, integrated solution.



| |                                  
| | ---------------------------------
| | MetaRecon Source System Discovery

Our MetaRecon product, acquired from Metagenix,
Inc. (Metagenix) on March 31, 2002, is one of
the core data profiling products in our Enterprise Integration
Suite. MetaRecon facilitates understanding of data sources by
profiling source data, analyzing column values and structures,
and providing target database recommendations, such as primary
keys, foreign keys, and table normalizations. Based on this
information,

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MetaRecon builds a model of the data to
facilitate source-to-target mapping and automatically generates
integration jobs.




| |                                             
| | --------------------------------------------
| | INTEGRITY Data Preparation and
    Cleansing

Our INTEGRITY product, acquired through the
acquisition of Vality Technology Incorporated
(Vality) on April 3, 2002, is the core data
quality component of our Enterprise Integration Suite. INTEGRITY
is designed to ensure that strategic systems deliver accurate,
complete information to business users seeking a single view of
customers, suppliers, and products from across their enterprise.
Through a user-friendly graphical interface, INTEGRITY provides
quality control mechanisms over structured data
elements  international names and addresses, phone
numbers, birth dates, part numbers and descriptions, suppliers,
email addresses and other data  and seeks to
determine relationships among them. Based on rigorous
statistical principles, INTEGRITYs matching capabilities
are designed to detect duplications (despite anomalous,
inconsistent, and missing data values) and reconcile or discard
records as appropriate.



| |                                                  
| | -------------------------------------------------
| | DataStage Data Transformation and
    Integration

DataStage, our data transformation and
integration solution, is designed to integrate enterprise
information across various sources and targets within specified
timeframes. DataStage features a powerful architecture designed
to give developers increased speed and flexibility in building,
deploying and managing their data integration infrastructure.
With features such as a graphical user interface driven
work as you think design metaphor, a library of over
300 pre-built transformations, support for job reuse, versioning
and sharing, and event-based job scheduling, DataStage is
designed to enable companies to minimize internal resources
allocated to development of integration jobs. Additionally,
DataStage incorporates Packaged Application Connectivity Kits
(PACKs) for many popular enterprise applications,
including SAP, Siebel, Oracle and PeopleSoft.



| |                                
| | -------------------------------
| | Enterprise Integration Platform

Our enterprise integration platform is the
foundation of our Enterprise Integration Suite. The enterprise
integration platform supports our products with core services
and capabilities for extensive scalability by virtue of
technology gained through our November 2001 acquisition of
Torrent Systems Inc. (Torrent). Users can design
MetaRecon, INTEGRITY and DataStage solutions for simplistic
single CPU deployment, and then our patented parallel processing
technology will automatically reconfigure the solution to take
advantage of complex symmetric multiprocessing or massively
parallel processing CPU configurations to significantly increase
throughput. This may preserve the longevity of IT investments
and minimize the need for skilled personnel to modify jobs in
response to increasing volumes or hardware upgrades.
Additionally, the integration platform incorporates enterprise
metadata management providing cross-tool impact analysis and
data lineage reporting. The metadata visibility may increase
user understanding and confidence in integrated data while
enabling reuse and faster redeployment of preexisting
integration jobs.

Services.We believe that a highly skilled
customer service organization is a key factor in our success in
the enterprise integration software market. While services are
not necessary to benefit from our software products, our
professional services consultants offer customers the ability to
implement their integration projects faster and can often
structure implementation to optimize user-defined objectives. In
addition to professional service consulting fees, services
revenues consist primarily of software maintenance and support
fees and customer training fees.

We maintain both field-based and centralized
corporate technical staffs to provide a comprehensive range of
assistance to customers and partners. Services include
post-sales technical support, consulting, and product education.
Consultants and educators provide services to customers to
assist in their use of our products and their design and
development of applications that utilize our products.

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|  |              
|- | -------------
| | Customer Care

We also provide customer service via telephone,
e-mail exchange and web site access. All of our maintenance
customers have access to customer service resources, delivered
by service professionals focused on resolution of customer
issues.



|  |                    
|- | -------------------
| | Consulting Services

We offer a variety of consulting services to our
customers directly and through third-party systems integrators.
Consulting services include implementation assistance, project
planning and deployment, and software customization. Our
advanced consulting group is focused on helping customers
implement new technologies and product releases. We complement
our professional service offerings by working with leading
international and regional third-party consulting and systems
integration firms to provide customers with a full range of
service options.



|  |                                
|- | -------------------------------
| | Customer Education and Training

We offer comprehensive education and training
courses that provide a full selection of classroom,
computer-based certification, and custom education offerings
intended to assist customers and partners to optimally deploy
and use our products. Training is also available to value-added
resellers, systems integrators and embedded resellers.

Strategy.Our
business objective is to become the leading provider of
enterprise integration software solutions to the Global 2000 and
governmental entities. Key elements of the strategy to achieve
this business objective are as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We have engaged in a deliberate expansion of our
    original ETL product offering through internal development and
    through external acquisitions to encompass broader connectivity,
    data profiling, data quality, rich metadata management and
    parallel processing technology. Today we have a complete
    end-to-end data integration offering, which we believe is unique
    in the industry and provides us meaningful competitive
    differentiation.                                                                                                                     
|
| |  | We have expanded relationships with key strategic
    partners such as IBM, SAP, business intelligence vendors and
    systems integrators to broaden our market reach. By the end of
    2002, the proportion of our license revenue from, or strongly
    influenced by, partners was approximately 50%. Barring
    unforeseen circumstances, we expect partners to account for a
    comparable, or greater, proportion of license revenue in the
    future.                                                                                                                             
|
| |  | Our marketing and sales organization is
    increasing our visibility and brand awareness through a number
    of initiatives, including establishing a Customer Advisory
    Board, scheduling our first global user group meeting,
    conducting public relations activities, participating in major
    industry and partner events, actively maintaining industry
    analyst relations, conducting web-based seminars and direct
    email campaigns, communicating through our web site and
    continual direct sales and account management contact with
    customers and prospects.
|
| |  | We have dedicated substantial financial resources
    to broadening and deepening our enterprise data integration
    platform, and our plan is to utilize our resources in the future
    to continue building out a platform that can deliver the
    combined features of enterprise data, applications and business
    process integration.                                                                                                                                                                                                                                              

Sales and Marketing

We distribute products through four main
channels: direct sales end-user licensing, value-added
resellers, systems integrators and embedded resellers. We also
regularly receive customer referrals from enterprise
applications and business intelligence vendors whose customers
can benefit from the data integration functionality of our
products. We use a multiple channel distribution strategy to
maintain broad market coverage and competitiveness. Discount
policies and reseller licensing programs are intended to support
each

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distribution channel with a minimum of channel
conflict and are focused on maximizing our market reach and
meeting evolving customer purchasing requirements. The principal
geographic markets for our products are North America, Europe
and the Asia/ Pacific region. Our revenues for 2002, 2001 and
2000 attributable to operations within the United States were
$61.9 million, $248.5 million and $456.8 million,
or 55%, 52% and 49% of total revenues, respectively, while
revenues attributable to international operations during the
same periods were $51.1 million, $232.8 million and
$472.5 million, or 45%, 48% and 51% of total revenues,
respectively. Revenues in 2001 and 2000 include amounts
attributable to Informix Software, which was sold to IBM in July
2001. See Note 9 of Notes to Consolidated Financial Statements
attached to this report for summary information regarding
revenues derived from our geographic operating segments. See
also Managements Discussion and Analysis of
Financial Condition and Results of Operations 
Factors That May Affect Future Results regarding risks
related to our foreign operations.


Historically, our sales patterns have
demonstrated seasonality over the course of the year. Typically
the first quarter is weaker because many customers have just
completed their fourth quarter and used their budget allocations
for the prior year. The second quarter generally shows increases
in spending over the first quarter. The third quarter tends to
be weaker than the second quarter due to extensive vacation and
holiday schedules, primarily in Europe, which slows software
spending decision cycles. The fourth quarter has historically
been the strongest revenue quarter of the year, as customers
complete their capital spending for the year. Although these
patterns have been prevalent in the past, there is no guarantee
that these trends will continue, or that they will persist
despite factors that affect the economy or IT investment by
companies domestically and abroad. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Factors That May Affect Future
Results.

In support of our sales efforts, we conduct
comprehensive marketing programs, which include telemarketing,
direct mail and e-mail campaigns, public relations activities,
seminars, tradeshows and ongoing customer communications
programs. The sales cycle begins with the generation of a sales
lead, or often the receipt of a request for proposal or request
for information from a prospective customer, followed by a
qualification of the lead, analysis of the customers
needs, response to the request for proposal or request for
information (if solicited by the customer), one or more
presentations to the customer, proof of concept if required,
customer internal approval activities, contract negotiation and
shipment to the customer. While the sales cycle from customer to
customer can vary considerably, the sales cycle has in recent
years ranged from approximately three to twelve months.

Our sales and marketing strategy is based on
building and maintaining our position as category and thought
leader with our customers and key industry influencers and
forging strong relationships with organizations that can
positively influence the sale of our products. Our customers and
prospective customers often rely on third-party systems
integrators or other technology partners, such as analytic,
database, enterprise software and hardware vendors to structure,
develop, deploy and manage an overall solution that may include
our products. We have conducted several joint marketing and
sales programs with partners in each of these categories and
continue to invest in market development activities that include
market education, seminars, direct mail campaigns and conference
and exhibition participation.

Long-lived assets

We have recorded long-lived assets, such as
property and equipment, software costs, goodwill, intangible
assets and the receivable from the sale of the database
business. The total value of these long-lived assets was $205.5
million, $220.7 million and $186.2 million,
respectively, at December 31, 2002, 2001 and 2000. In the
United States, the value of these long-lived assets was
$202.7 million, $212.8 million and $165.7 million
at December 31, 2002, 2001 and 2000, respectively. The
value of these long-lived assets attributable to international
operations was $2.7 million, $8.0 million and
$20.5 million at December 31, 2002, 2001 and 2000,
respectively. The December 31, 2000 value for these assets
includes value attributable to the Informix database business
that year.

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Licensing



|  |                   
|- | ------------------
| | End-User Licensing

We license software to organizations worldwide
through a direct sales force. Our infrastructure solutions are
sold principally to Global 2000 and government agencies and
organizations seeking to convert their volumes of unrefined data
into reliable and reusable information assets. Our observation
has been that certain organizations have begun to standardize
their information solutions enterprise-wide and are entering
into more global enterprise agreements. This can result in
volume-based discounts for those organizations that deploy our
products on a large scale.



|  |                                                                              
|- | -----------------------------------------------------------------------------
| | Value-Added Reseller, Systems Integrators and
    Embedded Reseller Licensing

We license products to value-added resellers,
such as IBM, who in turn distribute our products as part of
their total solutions. A typical reseller sells our products to
handle the integration of data into or from their applications
(such as a data management solution or an analytic application
for risk management). We also work with many business
intelligence and applications vendors whose customers demand the
capabilities of our product. These vendors usually do not resell
our products to their customers directly, but rather refer these
customers to us.

We provide specialized programs to support our
reseller distribution channel. Under these programs, we have
provided a combination of marketing development services,
consulting and technical marketing support and discounts.

Systems integrators typically do not sell our
software. In most cases they include us in a project in which
one or more elements of our integration suite is required in
order to fulfill their clients needs.

We also conduct business through embedded
resellers who sell our technology as components of their
offerings, but the amount of revenue from this source is not
currently significant.



|  |                        
|- | -----------------------
| | Maintenance and Support

We offer our customers a variety of options with
respect to software maintenance and upgrade support. Enhanced
enterprise support offerings are also available for customers
seeking additional services and support. We currently offer four
progressive levels of maintenance offerings ranging from
web-based e.Support to Premier (8:005:00 local) to Premier
Anytime (24 X 7) to Enterprise Support, which incorporates
service level agreements. We also provide an e.Learning facility
that is a key component of our Premier, Premier Anytime and
Enterprise Support offerings.

Competition

The enterprise integration software market is
extremely competitive and subject to rapid technological change
and frequent new product introductions and enhancements. Our
competitors in the market include in-house hand coded solutions,
vendors that develop and market certain aspects of the data
integration requirement and certain business intelligence
vendors who have embedded limited data transformation and
loading capabilities into their offerings. Principal competitors
relative to our DataStage offering include ETI, Hummingbird,
Informatica and Sagent as well as enterprise software vendors
who have embedded ETL capabilities. Competitors for MetaRecon,
our data profiling offering, include Avellino and Evoke.
Competitors for INTEGRITY, our data quality offering, include
Firstlogic, Innovative Systems, Group One and Trillium. We
believe that there is no single competitor that competes across
the full range of our enterprise integration platform at
present. We believe that we are a strong competitor in the
market with each of our data integration component products, and
the industry leader in providing end-to-end data integration.

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Competitors in the enterprise integration market
compete primarily on the basis of product performance and
capabilities but also technical product support, services and
price. We believe that the following factors influence our
competitive position in the market:



| |   |                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Breadth and completeness of each product to meet
    or exceed the functional requirements of its specific market.                                                                                                 
|
| |  | The ability of products to interoperate
    synergistically together, providing an end-to-end solution for
    data integration tasks, accelerating time to market while
    reducing overall implementation costs.
|
| |  | The ability of each product to maximize
    investments in hardware and software, to achieve operational
    efficiencies, and scale with increasing and extremely large data
    volumes.                         
|
| |  | Reliability and serviceability of products.                                                                                                                                                                        
|
| |  | Total cost of ownership.                                                                                                                                                                                           
|
| |  | The desire of customers to reduce the number of
    vendors with whom they do business.                                                                                                                            
|
| |  | Availability of a comprehensive services offering.                                                                                                                                                                 
|
| |  | Vendor viability and commitment to the enterprise
    integration market.                                                                                                                                          
|
| |  | The ability to develop, introduce and support
    innovative products and the markets acceptance of such
    technical innovations.                                                                               

Product Development

Major product releases resulting from research
and development projects in 2002 included the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enterprise Integration Suite 6.0 combines
    our three core data integration products into a complete
    solution powered by our integration platform capable of scaling
    to process virtually unlimited data loads. The core capabilities
    of our integration platform include a sophisticated parallel
    processing engine enabling virtually unlimited scalability,
    enterprise meta data management, and PACKs for many of
    todays most popular enterprise applications. The following
    product sets are included in the suite:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | DataStage, DataStage XE, and DataStage 390, which
    are our products that provide the complex transformation
    functionality required for addressing both ETL and enterprise
    data integration market requirements. These products were
    significantly enhanced as part of the version 6.0 release,
    including: massive scalability through parallel processing,
    enhanced ease of use and improved user productivity, expanded
    connectivity and improved transformation functionality.
|
| |  | INTEGRITY Version 6.0, which is our data quality
    solution. Version 6.0 enhancements to INTEGRITY include: massive
    scalability through parallel processing, integration with the
    rest of our enterprise integration suite, improved reporting and
    real-time processing.                                                                                                                                                                                                                     
|
| |  | MetaRecon Version 6.0, which is our data
    profiling and data source system analysis product. MetaRecon
    accelerates the source data investigation phase of an
    integration project and improves the quality of completeness of
    this phase. The version 6.0 release of MetaRecon added
    scalability through integration with our parallel processing
    engine as well as support for todays most popular Unix
    platforms.                                                             
|
| |  | Database Adaptors and Connectivity PACKs to most
    of todays leading enterprise-class databases, including
    IBM, DB2, Oracle, Teradata, SYBASE, Microsoft SQL Server, as
    well as leading enterprise applications, including SAP, Siebel,
    Peoplesoft, Oracle Financials and J.D. Edwards.                                                                                                                                                                                                     

Our current product development efforts are
focused on:



| |   |                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------
| |  | Enhancing the capabilities of our product set to
    support existing and emerging standards, including XML, JMS, JCA
    and Web Services.

8



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##### Table of Contents





| |   |                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Further enhancing performance and scalability.                                                                                                                                                  
|
| |  | Extending the real-time capabilities of our data
    integration infrastructure as well as expanding connectivity to
    enterprise applications and messaging services.                        
|
| |  | Enhancing the usability of all of our
    infrastructure solutions.                                                                                                                             
|
| |  | Extending the functionality of our data
    integration infrastructure to address broader market
    requirements, including enhanced data quality and data-centric
    application integration.
|
| |  | Enhancing solutions to leverage new hardware
    platforms and emerging software industry standards, including
    Linux.                                                                       

Research and Development
Expenditures

Our research and development expenditures for
2002, 2001 and 2000 were $24.0 million, $87.0 million
and $166.1 million, respectively, representing
approximately 21%, 18% and 18%, respectively, of net revenues
for these periods. Amounts spent on research and development in
2001 and 2000 included expenditures for the Informix database
products, sold to IBM in the IBM Transaction, expenditures
attributable to product development activities relating to our
discontinued content management product line, which was
discontinued in the second quarter of 2002 and termination of
our i.Sell product that was discontinued in the first quarter of
2001. See Managements Discussion and Analysis of
Financial Condition and Results of Operations  Costs
and Expenses.

Intellectual Property

We regard certain aspects of our internal
operations, products and documentation as proprietary, and we
primarily rely on a combination of patent, copyright, trademark
and trade secret laws and other measures to protect our
proprietary rights. We also rely on contractual restrictions in
agreements with customers, employees and others to protect our
intellectual property rights. However, we cannot ensure that
these agreements will not be breached, that we would have
adequate remedies for any breach or that our trade secrets will
not otherwise become known.

We currently hold nine United States patents and
may continue to file patent applications in the future. We
cannot ensure that any patents will result from any such
applications or that, if issued, such patents will provide any
meaningful competitive advantage. We believe that, because of
the rapid pace of technological change in the computer software
industry, factors such as the expertise, ability and experience
of our employees, frequent software product enhancements and the
timeliness and quality of support services are key to our
success. This success is also dependent, in part, upon our
proprietary technology and other intellectual property rights.

Our products are typically licensed to end-users
on a right-to-use basis pursuant to a license that
restricts the use of the products for the customers
internal business purposes. In some regions of the world, we
also rely on click wrap licenses, which include a
notice informing the end-user that, by installing the product,
the end-user agrees to be bound by the license agreement
displayed on the customers computer screen. Despite such
precautions, it may be possible for unauthorized third parties
to copy aspects of, or the whole of, current or future products
or to obtain and use information regarded as proprietary. In
particular, we have licensed the source code of our products to
certain customers for restricted uses under certain
circumstances. We have also entered into source code escrow
agreements with a number of significant customers that generally
require the release of our source code to the customer in the
event of our bankruptcy, insolvency, or discontinuation of our
business or support of a product line, in each case where
support and maintenance of the product line is not assumed by a
third party. The source code for our products is protected both
as a trade secret and as a copyrighted work. We cannot ensure
that these protections will be adequate or that competitors will
not independently develop technologies that are substantially
equivalent or superior to our technology or to technology that
we may acquire or develop in the future.

9



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We believe that our products, trademarks or other
proprietary rights do not infringe the proprietary rights of
third parties. However, we cannot ensure that third parties will
not assert infringement claims against us with respect to
current or future products or that any such assertion will not
require us to enter into royalty arrangements or result in
costly and time consuming litigation.

Employees

As of December 31, 2002, we employed 639
employees, including 141 in services, 245 in sales and
marketing, 158 in research and development and 95 in general and
administrative functions. Of these employees, 421 were located
in the United States. None of our employees in the United States
are represented by a labor union or are subject to a collective
bargaining agreement. Certain of our international employees are
covered by the customary employment contracts and agreements of
the countries in which they are employed.

Executive Officers

The following table sets forth certain
information concerning our executive officers as of
December 31, 2002.

|               |  |     |    |          |  |                                                         
|-------------- |  | --- | -- | -------- |  | --------------------------------------------------------
|Name           |  | Age |    | Position
|               |  |     |    |         
|Peter Gyenes   |  |     | 57 |          |  | Chief Executive Officer and Chairman of the Board       
|Peter Fiore    |  |     | 45 |          |  | President                                               
|Robert McBride |  |     | 58 |          |  | Vice President and Chief Financial Officer              
|Scott Semel    |  |     | 46 |          |  | Vice President, Legal, General Counsel and
    Secretary

Peter Gyeneshas
served as the Chairman and Chief Executive Officer of Ascential
since July 2000. Mr. Gyenes has more than 30 years of
experience in sales, marketing and general management positions
within the computer systems and software industry. Prior to our
acquisition of Ardent Software, Inc. in March 2000, he was
chairman, president and Chief Executive Officer of Ardent, which
he joined in May 1996. Before joining Ardent, he was president
and Chief Executive Officer of Racal InterLan, Inc. Previously,
Mr. Gyenes served in executive sales, marketing, and
general management positions at Prime Computer Inc., Encore
Computer and Data General Corporation (now part of EMC
Corporation). Earlier in his career, Mr. Gyenes held
technical positions with Xerox Data Systems and IBM. He serves
on the boards of Applix Computer Systems, Concerto Software, the
Massachusetts Software and Internet Council and ViryaNet Ltd.
Mr. Gyenes received a Bachelor of Arts degree in
Mathematics and a Masters of Business Administration degree from
Columbia University.

Peter Fiorehas
served as the President of Ascential since July 2000. Previously
Mr. Fiore served as Senior Vice President of Informix
Corporation and President of Ascential Software, Inc., which was
a subsidiary of Informix Corporation that was later merged into
the Company, after serving as the head of the Informix Business
Solutions business unit. Prior to the acquisition by Informix of
Ardent Software, Inc. in March 2000, Mr. Fiore held the
position of vice president and general manager of the data
warehouse business unit of Ardent, which he joined in 1994.
Before joining Ardent, Mr. Fiore directed channel marketing
for CrossComm Corporation and held sales and marketing
management positions at Stratus Computer, Inc. Mr. Fiore
received a Bachelor of Arts degree in Engineering and Applied
Sciences from Harvard University.

Robert McBridehas
served as the Vice President and Chief Financial Officer of
Ascential since June 2001. Mr. McBride directs our
financial, operational and administrative business functions. He
brings more than 25 years of financial and administration
experience at Fortune 500 information systems companies to the
Company. During a 17-year tenure at Data General Corporation
(now part of EMC Corporation), spanning from September 1983 to
January 2000, Mr. McBride served as vice president, chief
administrative officer, corporate controller and corporate
treasurer, among other senior financial management positions. He
also held a variety of senior management positions in the
Information Systems and Finance areas of Burroughs

10



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##### Table of Contents



Corporation and prior to that served as an
Infantry Officer in the U.S. Army. Mr. McBride
received a Masters Degree in business administration from
Washington University and a Bachelors Degree from Ohio
Wesleyan University.


Scott Semelhas
served as the Vice President, Legal, General Counsel and
Secretary of Ascential since August 2001. Mr. Semel manages
our legal matters, and directs our worldwide legal department.
Mr. Semel has more than 20 years of extensive legal
experience, having previously served as general counsel and
corporate secretary to NaviSite, Inc. from June 2000 through
July 2001 and Designs, Inc. from December 1986 through February
2000. In addition to his corporate experience, Mr. Semel
was previously engaged in the private practice of law in Boston
from 1980 to 1986. He received a Bachelor of Arts degree, cum
laude, from Boston University and a Juris Doctor degree from New
England School of Law.

Access to SEC Filings

Our SEC filings are available through the SEC web
site at http://www.sec.gov, or through our web site at
http://www.ascential.com in the Investors section under SEC
filings. The annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (the Exchange Act) are available free of charge
through our Internet web site as soon as reasonably practicable
after they are electronically filed with the SEC.






|        |           
|------- | ----------
|Item 2. | Properties

Our corporate headquarters is in a 93,000 square
foot facility in Westborough, Massachusetts that was formerly
occupied by Ardent Software, Inc. This facility also contains a
significant portion of our marketing, finance, sales and
administration functions and a significant portion of our
customer service, manufacturing and research and development
operations. The lease for the Westborough facility expires on
December 31, 2008. In addition, significant parts of our
research and development organizations are housed in facilities
in Los Gatos, California (7,000 square feet) and Milton
Keynes, United Kingdom (7,000 square feet). These buildings
are under lease until December 2004 and September 2012,
respectively.

We also lease office space, principally for sales
and support offices, in a number of facilities in the United
States, Canada and outside North America. As of
December 31, 2002, we controlled approximately
438,000 square feet of office and/or manufacturing space
for these facilities. Approximately 46% of the facility square
footage is actively being utilized, 36% of the square footage
has been vacated and the remaining 18% of the square footage is
being sublet. Of all our leased property, approximately 68% is
located in the Americas (United States, Canada and Latin
America), 25% is located in Europe, the Middle East and Africa
and the remaining 7% is located in the Asia Pacific region.
Ascential maintains major sales and service offices in Paris,
France (21,000 square feet), which is under lease until
March 2005, London, England (19,000 square feet), which is
under lease until September 2018, and Sydney, Australia
(16,000 square feet), which is under lease until March 2004.

We believe that our existing facilities are
adequate to meet our business needs through the next twelve
months.

We have approximately 156,000 square feet of
vacant space that we are seeking to sublease to third parties or
surrender to landlords. Management believes that we have
adequately provided for the costs to dispose of this space.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

On May 26, 1999, the Company entered into a
memorandum of understanding regarding the settlement of pending
private securities and related litigation against the Company,
including a federal class action, a derivative action, and a
state class action. In November 1999, the settlement was
approved by the applicable federal and state courts. The
settlement resolved all material litigation arising out of the
restatement of the Companys financial statements that was
publicly announced in November 1997. In accordance with the

11



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terms of the memorandum of understanding, the
Company paid approximately $3.2 million in cash during the
second quarter of 1999, and an additional amount of
approximately $13.8 million of insurance proceeds was
contributed directly by certain of the Companys insurance
carriers on behalf of certain of the Companys current and
former officers and directors. As part of the settlement, the
Company also agreed to contribute a minimum of 9.0 million
shares of Common Stock, which was required to provide a
guaranteed value of $91.0 million for a maximum term of one
year from the date of the final approval of the settlement by
the courts. The first distributions of shares of Common Stock
occurred in November and December of 1999 when the Company
issued approximately 2.9 million shares to the
plaintiffs counsel. The stock price guarantee was
satisfied with respect to the first distributions of settlement
shares. In April 2001, the Company issued the remaining
6.1 million of the minimum 9.0 million shares to be
issued under the settlement. Pursuant to the terms of the
settlement, the Company paid an additional amount of
$26.2 million in cash in November 2001 to satisfy the stock
price guarantee with respect to the remaining 6.1 million
shares issued under the settlement. The Companys former
independent auditors, Ernst & Young LLP, paid
$34.0 million in cash. The total amount of the settlement
was $142.0 million.


In July 1997, the Securities and Exchange
Commission (the SEC) issued a formal order of
private investigation of the Company and certain unidentified
other entities and persons with respect to non-specified
accounting matters, public disclosures and trading activity in
the Companys securities. During the course of the
investigation, the Company learned that the investigation
concerned the events leading to the restatement of the
Companys financial statements, including fiscal years
1994, 1995 and 1996, that was publicly announced in November
1997. The Company has entered into a settlement with the SEC
regarding the investigation. Pursuant to the settlement, the
Company consented to the entry by the SEC of an Order
Instituting Public Administrative Proceedings Pursuant to
Section 8A of the Securities Act of 1933 and
Section 21C of the Securities Exchange Act of 1934, Making
Findings, and Imposing a Cease and Desist Order (the
Order). The Order was issued by the SEC on
January 11, 2000. Pursuant to the Order, the Company
neither admitted nor denied the findings, except as to
jurisdiction, contained in the Order. The Order directs the
Company to cease and desist from committing or causing any
violation, and any future violation, of Section 17(a) of
the Securities Act of 1933 (Securities Act),
Sections 10(b), 13(a) and 13(b) of the Exchange Act and
Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 under the
Exchange Act. Pursuant to the Order, the Company is also
required to cooperate in the SECs continuing investigation
of other entities and persons.

EXPO 2000 filed an action against Ascential
Software GmbH (the Companys German subsidiary) in the
Hanover, Germany district court in September 1998 seeking
recovery of approximately $6.0 million, plus interest, for
breach of a sponsorship contract signed in 1997. The Company
filed a counterclaim for breach of contract, seeking recovery of
approximately $3.1 million. In August 1999, the court
entered a judgment against the Company in the amount of
approximately $6.0 million, although approximately
$2.1 million of the judgment was conditioned upon the
return of certain software by EXPO 2000. The Company filed an
appeal and reserved approximately $3.1 million for the
expected outcome of the appeal. In April 2001, the German
appellate court set aside the lower courts judgment and
issued a judgment in favor of the Company in the amount of
approximately $2.5 million. On June 5, 2001 EXPO filed
an appeal to the German Federal High Court in Civil Matters. The
German Federal High Court decided on May 14, 2002 that the
appeal of EXPO would not be accepted. Therefore, the judgment of
the Higher Regional Court is final and EXPO was ordered to pay
Ascential Software GmbH the sum of approximately
$3.0 million including 5% interest from January 19,
1999. This amount was paid to Ascential Software GmbH during the
second quarter of fiscal 2002 and is recorded, net of
$0.3 million of associated tax, in Other income,
net for the year ended December 31, 2002. In
addition, the Company reversed its prior $3.1 million
accrual that was recorded in August 1999 and recorded a
$2.8 million decrease, adjusted for foreign currency
fluctuations, to General and administrative expense
for the year ended December 31, 2002.

The Company is a defendant in one action filed
against Unidata, Inc., a company that the Company merged with in
1998 (Unidata), in May 1996 in the U.S. District
Court for the Western District of Washington, and was previously
a defendant in another action filed in September 1996 in the
U.S. District Court for the District of Colorado. The plaintiff,
a company controlled by a former stockholder of Unidata and

12



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##### Table of Contents



a distributor of its products in certain parts of
Asia, alleged in both actions the improper distribution of
certain Unidata products in the plaintiffs exclusive
territory and asserted damages of approximately
$30.0 million (among other relief) under claims for fraud,
breach of contract, unfair competition, racketeering and
corruption, and trademark and copyright infringement. Unidata
denied the allegations against it in its answers to the
complaints. In the Colorado action, Unidata moved that the
matter be resolved by arbitration in accordance with its
distribution agreement with the plaintiff. In May 1999, the U.S.
District Court for the District of Colorado issued an order
compelling arbitration and in September 2000, the arbitrator
issued an award against the Company for $3.5 million plus
attorneys fees and expenses estimated to be approximately
$0.8 million.


The Company was also joined as a party in an
action in China filed against Unidata, its former distributor
and a customer, by the same plaintiff who filed the U.S. actions
against Unidata and a related company. This action, filed in the
Guangdong Provincial Peoples Superior Court in China,
arose out of the same facts at issue in the U.S. actions. The
Company entered into a settlement agreement with the plaintiff
pursuant to which, among other things, as each of the actions
was dismissed, the underlying license terminated, certain
intellectual property rights were assigned to the Company by the
plaintiff, and the Company was obligated to pay into escrow, and
then have released from escrow to the plaintiff, certain amounts
totaling approximately $16.0 million to settle all claims
in all pending litigation, with the exception of potential
claims for indemnity between the Company and other co-defendants
relating to attorneys fees and related amounts, if any,
paid in settlement. Subsequently, the China and Denver actions
were dismissed; the plaintiffs claims in the Washington
State action were dismissed; the license agreement was
terminated; and the intellectual property rights were assigned
to the Company as of the end of the second quarter of fiscal
2002 and the full amount escrowed was released to plaintiff.
During the year ended December 31, 2002, the Company paid
into escrow the entire amount of the settlement of approximately
$16.0 million.

At the end of October 2002, the Company
instituted an arbitration proceeding with the American
Arbitration Association in Kansas City against Sprint/ United
Management Company (Sprint) for non-payment of
$6.5 million (the Sprint Indebtedness) due and
owing under an agreement between Informix Software and Sprint
dated effective March 31, 2000 (the Sprint
Agreement). IBM had been providing services covered by the
Sprint Agreement to Sprint pursuant to an agreement between IBM
and the Company (the operating agreement) signed at
the time of the IBM Transaction. The Company instituted the
arbitration proceeding because Sprint declined to pay any part
of the Sprint Indebtedness. The Company and Sprint executed a
settlement agreement, dated as of December 24, 2002,
resulting in the termination of the Sprint Agreement, dismissal
of all claims, and payment by Sprint to the Company of
$4.0 million. Pursuant to the terms of the operating
agreement, the Company in turn remitted that $4.0 million
payment to IBM on December 30, 2002.

On May 30, 2002, Informatica Corporation
(Informatica) filed an action against a former
employee of the Company in the United States District Court for
the Northern District of California. The complaint alleged,
among other things, that the employee, previously employed by
Informatica as a district sales manager, misappropriated trade
secrets, principally contact information regarding potential
customers, and unlawfully used that information to benefit the
Company once he joined the Company as a regional sales manager
in January 2002. Informatica sought a temporary restraining
order, which the employee successfully opposed at a hearing held
on June 5, 2002. On June 24, 2002, the employee
answered the complaint, in which he denied all material
allegations. The employees employment by the Company ended
on July 5, 2002 after the Company discovered that the
employee had retained certain information from his prior
employment. On July 19, 2002, Informatica served an amended
complaint in which it named the Company as a defendant in the
action. The amended complaint alleged misappropriation of trade
secrets, unfair competition, intentional interference with
prospective economic advantage and violation of federal
copyright law, and sought injunctive relief, unspecified damages
and attorneys fees. On August 2, 2002, the Company
served its answer to the amended complaint, in which it denied
these claims. A motion by Informatica for a preliminary
injunction to enjoin the Company from, among other things, using
confidential information brought by the employee to the Company,
was heard on December 20, 2002. The court denied
Informaticas preliminary injunction motion. The Company
has produced information to Informatica which the Company
believes shows there is no merit

13



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##### Table of Contents



to Informaticas claims against the Company.
Among other things, the Company does not believe that the
information retained by the employee constitutes protectable
trade secrets or that any material harm to Informatica can be
demonstrated. In January 2003, Informatica amended its complaint
to add claims against a second Ascential employee previously
employed by Informatica, and against the Company with respect to
actions allegedly taken by such second employee. The second
employees employment by the Company ended on March 5,
2003. The Company filed an answer to the amended complaint,
denying all material allegations. The Company intends to defend
itself vigorously.


On August 8, 2001, eNet30, Inc.
(eNet30) filed suit against the Company in Nevada
state court based on a consulting agreement. eNet30 alleges
claims for breach of contract, breach of the covenant of good
faith and fair dealing, and rescission, and seeks the return of
approximately $0.6 million previously paid to the Company.
On September 11, 2001, the case was removed to the United
States District Court for the District of Nevada, and on
October 22, 2001, the Company filed its answer and
counterclaims against eNet30 for breach of contract, bad faith
and unfair dealing, and unjust enrichment. In May 2002, eNet30
modified its claims to allege that it is entitled to additional
damages based upon allegations of fraud and fraudulent
inducement. The Company believes that eNet30s claims are
without merit and intends to vigorously defend the suit. On
March 28, 2002, eNet30 declared bankruptcy and a trial date
has not been set.

From time to time, in the ordinary course of
business, the Company is involved in various other legal
proceedings and claims, including but not limited to those
related to the operations of the former database business and/or
asserted by former employees of the Company relating to their
employment or compensation by the Company. The Company does not
believe that any of these other proceedings and claims will have
a material adverse effect on the Companys business or
financial condition.






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

We did not submit any matters to a vote of
security holders during the fourth quarter of 2002.




PART II






|        |                                                                           
|------- | --------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters.

Our Common Stock is traded on the NASDAQ National
Market under the symbol ASCL. The following table
lists the high and low sales prices of our Common Stock for the
periods indicated.

|                                         |                |      |   |      |  |  |   |      | 
|---------------------------------------- | -------------- | ---- | - | ---- |  |  | - | ---- | 
|                                         |                | High |   | Low 
|                                         |                |      |   |     
|Fiscal Year ended December 31,
    2002: |                |      |   |      |  |  |   |     
|                                         | Fourth Quarter |      | $ | 3.40 |  |  | $ | 1.52 | 
|                                         | Third Quarter  |      |   | 3.10 |  |  |   | 1.81 | 
|                                         | Second Quarter |      |   | 4.09 |  |  |   | 2.50 | 
|                                         | First Quarter  |      |   | 5.12 |  |  |   | 3.78 | 
|Fiscal Year ended December 31,
    2001: |                |      |   |      |  |  |   |     
|                                         | Fourth Quarter |      | $ | 4.40 |  |  | $ | 2.70 | 
|                                         | Third Quarter  |      |   | 5.72 |  |  |   | 3.24 | 
|                                         | Second Quarter |      |   | 7.50 |  |  |   | 4.50 | 
|                                         | First Quarter  |      |   | 8.25 |  |  |   | 3.00 | 

At February 28, 2003, there were
approximately 10,974 stockholders of record of our Common Stock,
as shown in the records of our transfer agent. Because brokers
and other institutions hold many of such shares on behalf of
stockholders, we are unable to estimate the total number of
stockholders represented by these record holders.

14



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##### Table of Contents



Dividend Policy

We have never declared or paid cash dividends on
our Common Stock. We expect to retain future earnings, if any,
for use in the operation of our business and do not anticipate
paying any cash dividends on our Common Stock in the foreseeable
future.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

Financial Overview

The following selected consolidated financial
data should be read in conjunction with our consolidated
financial statements and the related notes, and with
Managements Discussion and Analysis of Financial
Condition and Results of Operations, included elsewhere in
this report. From 1998 through 2002, we have acquired five
companies and disposed of the assets of our database business.
In December 1998, we acquired Red Brick Systems, Inc.
(Redbrick). Ardent Software, Inc.
(Ardent) acquired Prism Solutions, Inc.
(Prism) in April 1999, and we acquired Cloudscape,
Inc. (Cloudscape) in October 1999. In March 2000, we
completed the acquisition of Ardent. We sold the assets of our
database business to IBM in July 2001, (see Note 14 to
Notes to Consolidated Financial Statements) and we acquired
Torrent in November 2001. In April 2002, we acquired Vality.



| |                  
| | -----------------
| | Five-Year Summary

|                                                        |         |                                       |         |         |   |         |           |         |  |         |          |       |   |   |           |       |   |   |          |      | 
|------------------------------------------------------- | ------- | ------------------------------------- | ------- | ------- | - | ------- | --------- | ------- |  | ------- | -------- | ----- | - | - | --------- | ----- | - | - | -------- | ---- | 
|                                                        |         |                                      
|                                                        |         | Year Ended December 31,              
|                                                        |         |                                      
|                                                        |         | 2002(1)                               |         | 2001(2) |   | 2000(3) |           | 1999(4) |  | 1998(5)
|                                                        |         |                                       |         |         |   |         |           |         |  |        
|                                                        |         |                                      
|                                                        |         | (In thousands, except per share data)
|Net revenues                                            |         | $                                     | 113,018 |         |   | $       | 481,332   |         |  | $       | 929,319  |       |   | $ | 1,039,111 |       |   | $ | 854,520  |     
|Net income (loss)                                       |         |                                       | (63,573 | )       |   |         | 624,948   |         |  |         | (98,315  | )     |   |   | (2,988    | )     |   |   | 52,452   |     
|Preferred stock dividend                                |         |                                       |        |         |   |         |          |         |  |         | (191     | )     |   |   | (995      | )     |   |   | (3,478   | )   
|Value assigned to warrants                              |         |                                       |        |         |   |         |          |         |  |         |         |       |   |   |          |       |   |   | (1,982   | )   
|Net income (loss) applicable to common
    stockholders |         |                                       | (63,573 | )       |   |         | 624,948   |         |  |         | (98,506  | )     |   |   | (3,983    | )     |   |   | 46,992   |     
|Net income (loss) per common share:                     |         |                                       |         |         |   |         |           |         |  |         |          |       |   |   |           |       |   |   |          |     
|                                                        | Basic   |                                       |         | (0.26   | ) |         |           | 2.25    |  |         |          | (0.34 | ) |   |           | (0.02 | ) |   |          | 0.21 | 
|                                                        | Diluted |                                       |         | (0.26   | ) |         |           | 2.20    |  |         |          | (0.34 | ) |   |           | (0.02 | ) |   |          | 0.19 | 
|Total assets                                            |         |                                       | 910,729 |         |   |         | 1,079,740 |         |  |         | 655,881  |       |   |   | 793,337   |       |   |   | 695,802  |     
|Long-term obligations                                   |         |                                       |        |         |   |         | 28,710    |         |  |         | 787      |       |   |   | 1,420     |       |   |   | 3,759    |     
|Retained earnings (accumulated deficit)                 |         |                                       | 202,243 |         |   |         | 265,816   |         |  |         | (359,132 | )     |   |   | (260,817  | )     |   |   | (259,849 | )   



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | During 2002, we recorded merger, realignment and
    other charges of $23.7 million. In June 2002, we ceased
    efforts to find a buyer for our content management product line
    and recorded a $4.5 million charge for the impairment of
    software costs previously capitalized (see Note 15 to Notes
    to Consolidated Financial Statements). During the fourth quarter
    of 2002, we recorded impairment losses on long-term, publicly
    traded equity investments of $2.2 million. In connection
    with the Vality acquisition, we recorded a charge of
    $1.2 million for in-process research and development that
    had not yet reached technological feasibility and had no
    alternative future use. During 2002, we recorded
    $3.0 million of adjustments to gain on sale of database
    business (see Note 14 to Notes to Consolidated Financial
    Statements). In 2002, we reversed accruals of $2.8 million
    and recorded $2.6 million of other income in connection
    with the favorable judgment rendered in the EXPO 2000 litigation
    (see Note 13 to Notes to Consolidated Financial
    Statements). Effective January 1, 2002, we completed our
    adoption of Statement of Financial Accounting Standard
    No. 142, which required that goodwill and intangible assets
    with indefinite lives no longer be amortized, but instead be
    tested for impairment at least annually (see Note 11 to
    Notes to Consolidated Financial Statements).

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | In July 2001, we sold the assets of our database
    business to IBM (see Note 14 to Notes to Consolidated
    Financial Statements) which resulted in a gain of
    $865.7 million that was recorded in 2001. In 2001, we also
    recorded merger, realignment and other charges of
    $54.4 million. In connection with the Torrent acquisition,
    we recorded a charge of $5.5 million for in-process
    research and development that had not yet reached technological
    feasibility and had no alternative future use. In addition,
    during 2001, we recorded impairment losses on long-term
    investments of $10.2 million, which relates to both
    publicly traded and non-marketable investments.     
|   
|(3) | In 2000, we recorded merger, realignment and
    other charges of $126.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(4) | In 1999, we recorded restructuring-related
    adjustments that increased operating income by $0.6 million
    and, in connection with our acquisition of Cloudscape in October
    1999, we recorded a charge of $2.8 million for merger
    related expenses. In addition, we recorded a charge of
    $97.0 million related to the settlement of private
    securities and related litigation against us. In connection with
    Ardents acquisition of Prism, we recorded a charge of
    $9.9 million for merger and restructuring charges as well
    as a $5.1 million charge for in-process research and
    development that had not yet reached technological feasibility
    and had no alternative future uses.
|   
|(5) | In 1998, we recorded restructuring-related
    adjustments that increased operating income by
    $10.3 million and, in connection with our acquisition of
    Red Brick in December 1998, we recorded a charge of
    $2.6 million for in-process research and development that
    had not yet reached technological feasibility and had no
    alternative future uses. In addition, we recorded a charge of
    $14.9 million for merger and restructuring charges related
    to Ardents merger with Unidata.                                                                                                                                                                                                          

Selected financial data should be reviewed with
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Factors That May
Affect Future Results found in Item 7.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following Managements Discussion and
Analysis of Financial Condition and Results of Operations
contains forward-looking statements relating to future events or
our future financial performance, which involve risks and
uncertainties. Such forward-looking statements address, for
example, the functionality, characteristics, quality and
performance capabilities of our products and technology; the
ability of organizations to make more informed decisions and
drive strategic application initiatives; expected transitional
costs and other transitional matters arising from the IBM
Transaction; industry trends; targeted ratio of license to
service revenue; net loss from our content management product
line; the timing of closing large license transactions and
quarter-to-quarter fluctuations; future growth of consulting,
maintenance and education revenue; decline of the content
management revenue stream; the impact of new license revenue on
consulting and education revenue; future amortization costs;
trends in services margins; costs associated with the content
management business; potential increases in sales headcount;
projected research and development expenses; expected decline in
bad debt expense; anticipated completion of research and
development projects and associated investments required; impact
of realignment activities including expense reduction; future
savings resulting from cost cutting initiatives; continued
investment in property and equipment; sufficiency of our liquid
assets and other resources for our business operations,
repurchases of common stock, facilities, obligations and
restructuring initiatives; and effect of changes in interest
rates and fluctuations of equity price of marketable securities.
Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of
certain factors, including those set forth under Factors
That May Affect Future Results, and elsewhere in this
annual report on Form 10-K. The following discussion and
analysis should be read in conjunction with our consolidated
financial statements and related notes appearing elsewhere in
this report.

Overview

Headquartered in Westborough, Massachusetts since
July 2001, Ascential Software Corporation is a leading supplier
of enterprise integration solutions to the Global 2000 and other
large organizations. We believe that our Enterprise Integration
Suite, built upon a highly scalable platform, is the
industrys only

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solution that is intended to address the full
data integration life cycle, and turns corporate data into
Intelligent Information  information that
is reliable, relevant, and complete  so organizations
can make better informed business decisions and drive their
strategic application initiatives.


Our products for automated data profiling, data
quality management and cleansing, and data extraction,
transformation, and loading are built on an enterprise
integration platform of core integration services that are
intended to provide end-to-end meta data management for a clear,
unambiguous definition and history of the data used to drive
strategic enterprise applications. We also provide connectivity
between virtually any data source and application and virtually
unlimited scalability to manage the massive volumes of corporate
data generated through high-performance processing through the
platform. This complete offering is called the Enterprise
Integration Suite and is currently, we believe, the only
platform of its type available from a single vendor.

We also offer a full range of consulting,
educational and support services to assist customers through all
phases of a project. Based on proven methodologies, these
services represent years of accumulated intellectual capital in
terms of knowledge and experience, gained through many
successful engagements across a range of industries and
enterprise application requirements.

We support more than 2,200 customers in such
industries as telecommunications, insurance, financial services,
healthcare/life sciences, manufacturing, consumer goods, and
retail. We had 639 employees as of December 31, 2002.

We were incorporated in Delaware in 1986 and,
until the third quarter of 2001, operated under the name
Informix Corporation. Effective January 1,
2001, we consolidated our business units into two operating
segments: (1) Informix Software, which operated our
database software systems business, and (2) Ascential
Software, which operated our extract, transform and load
(ETL) and digital asset management software and
solutions business. During the third quarter of 2001, we
completed the sale of the assets of our database business,
including the name Informix, to IBM for
$1.0 billion in cash, which we refer to as the IBM
Transaction (see Note 14 to the Notes to Consolidated
Financial Statements). In connection with the IBM Transaction,
we changed our name to Ascential Software
Corporation and changed the symbol under which our stock
is traded on the NASDAQ National Market to ASCL.
These changes became effective in July 2001. During 2002, after
the sale of the assets of our database business, our sole
operating segment has been our Ascential Software business;
however we continue to incur costs associated with the
termination of our database business. Barring unforeseen
circumstances, costs associated with the termination of our
database business are expected to decrease throughout the year
ended December 31, 2003 to a relatively insignificant
amount.

Enterprises are faced with managing the exploding
growth of data and gaining a more accurate view of the factors
that impact their performance. Enterprises are also coping with
the requirement to access data from an increasing number of
disparate sources of data which frequently contain incomplete,
inaccurate, inconsistent or duplicate information. We believe
these organizations want to be able to use the data efficiently
and effectively to increase their revenue and market share,
decrease operating costs and improve asset utilization. Our
overall business strategy is to establish Ascential Software
Corporation as the leader in the enterprise integration market
by delivering what we believe is the industrys most
comprehensive data integration product solution by continuing to
expand our product offerings through internal development and
strategic technology and business acquisitions. We are focused
on accelerating revenue growth by leveraging our large customer
base and the completeness of our enterprise data integration
offerings, and by expanding our worldwide distribution through
partnerships with recognized industry leaders. We also intend to
use our global professional services organization to accelerate
the adoption of our product offerings and provide a variety of
value-added services to our existing customers. We have targeted
a revenue mix of 55% to 60% from licenses with the balance from
services.

We use a number of key financial metrics
internally to track our progress against these objectives. We
measure our progress against achieving increased market
penetration by: (1) the number of new customers signed each
quarter, (2) the number of Fortune 500 companies that
are our customers, and (3) the amount of additional revenue
generated from our existing installed base. We monitor the
success of our strategic partners

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by reviewing the revenue generated from these
relationships and the number of license deals and revenue
generated or influenced by partners on a quarterly basis. In
order to ensure that spending is consistently monitored and
resources are used appropriately, we track headcount and
spending monthly. We regularly review all relevant margin
metrics, including license margins, maintenance margins,
professional service margins, total service margins and
operating margins. Lastly, in order to ensure that cash flow is
maximized and to identify customer payment issues on a timely
basis, we closely monitor cash collections and accounts
receivable days sales outstanding (DSO).


On January 22, 2002, our board of directors
endorsed the decision to divest our content management product
line because it did not align with our strategic goals. We
engaged an investment bank to assist in the divestiture process
and sought potential buyers for the product line during the six
months ended June 30, 2002. In June 2002, we ceased efforts
to find a buyer for the product line as no interested buyers
were identified and terminated the related operations, except
for the completion of previously committed consulting and
support contracts. As a result, in June 2002 we recorded a
charge totaling $7.3 million consisting of
$4.5 million charged to Cost of software for
the impairment of software costs previously capitalized and
$2.8 million charged to Merger, realignment and other
charges for severance costs, computer equipment impairment
costs and professional fees incurred in connection with efforts
to sell the product line. Barring unforeseen circumstances, we
expect to incur a relatively insignificant net loss from the
content management product line during the year ended
December 31, 2003, as we fulfill remaining contractual
customer support obligations.

On April 3, 2002, we acquired Vality
Technology Incorporated (Vality) for
$94.2 million, consisting of $91.4 million paid to
acquire outstanding stock and vested stock options net of
$7.0 million of cash acquired from Vality, and
$2.8 million for transaction costs. Vality, headquartered
in Boston, Massachusetts, was a privately held company that
specialized in enterprise data quality management. Concurrent
with the acquisition, we awarded 0.3 million shares of
restricted stock to Valitys former chief executive
officer. On May 1, 2002, Valitys former chief
executive officer left our company and his shares became fully
vested, resulting in a $0.9 million charge for non-cash
compensation recorded to Merger, realignment, and other
charges in the year ended December 31, 2002. In
connection with the acquisition of Vality, we also recorded a
charge of $1.2 million for the write off of in-process
research and development. Valitys products have been
integrated into our Enterprise Integration Suite.

Products and Services

Our products are designed to operate as part of
our Enterprise Integration Suite, or as stand-alone integration
components. Our product functionality includes: automated data
profiling to analyze and manage source data content and
structure; data quality and cleansing to identify, correct and
reconcile inaccurate or redundant data; and data extraction,
transformation and loading to obtain data from a source, format
it as required, and deliver it to a specified target. Our
products are supported by a comprehensive platform of
integration services that deliver end-to-end meta-data
management, connectivity between virtually any standard data
source and application, and virtually unlimited scalability and
performance. This combination of integration products built on a
platform of integration services forms our Enterprise
Integration Suite.

Our Enterprise Integration Suite offers a
comprehensive, modular solution that can expand with business
needs or as customer budgets dictate. Our customers can deploy
the complete Enterprise Integration Suite to address the entire
enterprise integration life cycle, or use individual integration
products as needed in support of more limited scope
implementation requirements.



| |                             
| | ----------------------------
| | Critical Accounting Policies

Managements Discussion and Analysis of
Financial Condition and Results of Operations discusses our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues
and expenses during the reporting period. On an on-going basis,
management evaluates

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its estimates and judgments, including those
relating to revenue recognition, allowance for doubtful
accounts, accounting for software development costs, goodwill
and intangible assets, income taxes and merger realignment and
other charges. Management bases its estimates and judgments on
historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the timing
and amount of revenue recognized and the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.




| |                    
| | -------------------
| | Revenue Recognition

Revenue consists principally of fees for licenses
of the Companys software products, maintenance,
consulting, and training. As part of the revenue recognition
process, significant management judgments and estimates must be
made and used to determine the revenue recognized in any
accounting period. Material differences may result in the amount
and timing of our revenue for any period if we made different
judgments or utilized different estimates.

We recognize revenue using the residual method in
accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended by
SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions.
Under the residual method, revenue is recognized in a multiple
element arrangement in which Company-specific objective evidence
of fair value exists for all of the undelivered elements in the
arrangement, but does not exist for one or more of the delivered
elements in the arrangement. Company-specific objective evidence
of fair value of maintenance and other services is based on our
customary pricing for such maintenance and/or services when sold
separately. We have analyzed all of the elements included in our
multiple-element arrangements and believe that we have
sufficient Company-specific objective evidence to allocate
revenue to the maintenance services and professional services
components of our license arrangements. We sell our professional
services separately, generally, on a time-and-materials basis
and at times without a software license, and we have established
Company-specific objective evidence on this basis.
Company-specific objective evidence for maintenance is
determined based upon either renewal rates when maintenance is
sold separately or the option price for annual maintenance
renewals included in the underlying customer contract. At the
outset of the arrangement with the customer, we defer revenue
for the fair value of any undelivered elements (e.g.,
maintenance, consulting, and training) and recognize revenue for
the remainder of the arrangement fee attributable to the
elements initially delivered in the arrangement (i.e., software
product) when the basic criteria in SOP 97-2 have been met.
If such evidence of fair value for each element of the
arrangement does not exist, all revenue from the arrangement is
deferred until such time that evidence of fair value does exist
or until all elements of the arrangement are delivered. Changes
to the elements of a software arrangement, the ability to
identify Company-specific objective evidence and the ability to
measure the fair value of the respective elements could
materially impact the amount of earned and deferred revenue.

Under SOP 97-2, revenue attributable to an
element in a customer arrangement is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, collection of the resulting
receivable is probable, and the arrangement does not require
services that are essential to the functionality of the
software. Our ability to estimate if the collection of the
resulting receivable is probable could materially impact the
amount of revenue we record.

Persuasive evidence of an arrangement exists.For our license arrangements with
end-users, our customary practice is to have a signed written
agreement or, in some cases, either a click-wrap or shrink-wrap
license. Existing customers with a license agreement in place
may purchase additional products through a purchase order
governed by the license agreement. Sales to most of our
resellers are evidenced by a master agreement governing the
relationship together with purchase orders on a
transaction-by-transaction basis.

Delivery has occurred.Our software may be either physically
or electronically delivered to the customer. Delivery is deemed
to have occurred upon the shipment of physical product, provided
title and risk of loss have passed to the customer, or upon
online availability of product to the customer. If undelivered
products or services exist in an arrangement that are essential
to the functionality of the delivered product,

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delivery is not considered to have occurred until
these products or services are delivered. In the case of
arrangements with resellers, revenue is generally recognized
upon sell-through. Evidence of sell-through may take
a variety of forms, including the following: (1) a purchase
order identifying an end-user customer, usually in the
ship to location; (2) a copy of the purchase
order or contract between reseller and end-user; (3) a
royalty report from the reseller; (4) a sell-through
report; or (5) other documented, objective evidence that
indicates that the reseller does not have product in inventory,
such as ending inventory reports.


The fee is fixed or
determinable.We consider a fee fixed
only if (1) it is required to be paid at a set amount;
(2) it is not subject to refund or adjustment; and
(3) payments are due on a known or fixed schedule. We
generally consider arrangements with payment terms extending
beyond one year not to be fixed and determinable. If the fee is
not fixed and determinable, we recognize revenue as payments
become due from the customer. Amounts received from customers in
advance of revenue being recognized are recorded as a liability
as a component of deferred revenue in our financial
statements.

Collectibility is
probable.Collectibility is assessed
on a customer-by-customer basis. Prior to the IBM Transaction,
we frequently sold to customers for whom we had a history of
successful collection. Subsequent to the IBM Transaction, a
portion of our business is generated from new customers which
are subjected to a credit review process that evaluates each
customers financial position and ultimately their ability
to pay. If it is determined from the outset of an arrangement
that collectibility is not probable based upon our credit review
process, revenue is recognized only as cash is collected.

Functionality of the software.Our professional services generally
are not essential to the functionality of the software. Our
software products are fully functional upon delivery and
implementation and do not require any significant modification
or alteration. Customers purchase these professional services to
facilitate the adoption of our technology and dedicate personnel
to participate in the services being performed, but they may
also decide to use their own resources or appoint other
professional service organizations to provide these services.
Software products are billed separately and independently from
professional services, which are generally billed on a
time-and-materials or milestone-achieved basis. We generally
recognize revenue from professional services as the services are
performed. If consulting services are essential to the
functionality of the licensed software, then both the license
revenue and the consulting service revenue are recognized under
either the percentage of completion or the completed contract
method of contract accounting.

Our arrangements do not generally include
acceptance clauses. However, if an arrangement includes an
acceptance provision, acceptance occurs upon the earlier of
receipt of a written customer acceptance or expiration of the
acceptance period. Our arrangements do not generally provide for
a right of return, and historically product returns have not
been significant. We provide for sales return allowances on an
estimated basis.

Deferred revenue includes amounts received from
customers for which revenue has not been recognized that
generally result from deferred maintenance and support,
consulting or training services not yet rendered and license
revenue deferred until all requirements under SOP 97-2 are
met. Deferred revenue is recognized upon delivery of our
product, as services are rendered, or as other requirements
requiring deferral under SOP 97-2 are satisfied. Accounts
receivable include only amounts due from customers for which
revenue has been recognized.



| |                                
| | -------------------------------
| | Allowance For Doubtful Accounts

We maintain an allowance for doubtful accounts
for estimated losses resulting from the inability of our
customers to make required payments. Provisions are made based
upon a specific review of all significant outstanding invoices.
For those invoices not specifically reviewed, provisions are
provided based on historical collection experience. If the data
we use to calculate the allowance provided for doubtful accounts
does not reflect the future ability to collect outstanding
receivables, additional provisions for doubtful accounts may be
needed and the future results of operations could be materially
affected. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.

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| |                           
| | --------------------------
| | Software Development Costs

We account for software development costs in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed.
SFAS No. 86 specifies that costs incurred internally in
creating a computer software product should be charged to
expense when incurred as research and development costs until
technological feasibility has been established for the product.
Once technological feasibility is established, all development
costs should be capitalized until the product is available for
general release to customers. For new versions of our products,
we typically achieve technological feasibility far enough in
advance of general release to warrant the capitalization of
subsequent development costs. Judgment is required in
determining when the technological feasibility of a product is
established, in estimating the life of the product for which the
capitalized costs will be amortized and in estimating if the
carrying value of capitalized software costs is equal to or less
than future operating profits from the associated products.



| |                               
| | ------------------------------
| | Goodwill and Intangible Assets

We have a significant amount of intangible assets
related to goodwill and other acquired intangibles. The
determination of related estimated useful lives and whether or
not these assets are impaired involves significant judgment. We
account for the valuation of goodwill and other intangible
assets in accordance with SFAS No. 142, Goodwill and
Other Intangible Assets, and SFAS No. 144,
Accounting for the Impairment and Disposal of Long-Lived
Assets. Changes in market conditions, business conditions or
strategy could significantly impact these judgments and require
negative adjustments to recorded asset balances. We performed
the first of the required annual impairment tests of goodwill in
the fourth quarter of 2002 and determined that no adjustments
were required.



| |             
| | ------------
| | Income Taxes

We account for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes.
Significant management judgment is required in determining the
provision for income taxes, deferred tax assets and liabilities
and any valuation allowance recorded against net deferred tax
assets. In preparing our consolidated financial statements, we
are required to estimate our income taxes in each of the
jurisdictions in which we operate. This process involves
estimating actual current tax liability together with assessing
temporary differences resulting from differing treatment of
items, such as deferred revenue, for tax and accounting
purposes. This process also includes estimating tax liabilities
related to tax audits that can be conducted in any jurisdiction
where we have operated. These differences result in deferred tax
assets and liabilities, which are included within the
consolidated balance sheet. We then assess the likelihood that
deferred tax assets will be recovered from future taxable
income, and to the extent we believe that recovery is not
likely, we establish a valuation allowance. To the extent we
establish a valuation allowance or increase this allowance in a
period, we include an expense within the tax provision of the
Consolidated Statement of Operations.

Significant management judgment is required in
determining the provision for income taxes, deferred tax assets
and liabilities and any valuation allowance recorded against net
deferred tax assets. We record a valuation allowance due to
uncertainties related to our ability to utilize some of the
deferred tax assets, primarily consisting of certain net
operating losses carried forward, foreign tax credits and
general business credits, before they expire. The valuation
allowance is based on estimates of taxable income by
jurisdiction in which we operate and the period over which
deferred tax assets will be recoverable. In the event that
actual results differ from these estimates or we adjust these
estimates in future periods, we may need to adjust our valuation
allowance, which could materially impact our financial position
and results of operations.



| |                                          
| | -----------------------------------------
| | Merger, Realignment and Other
    Charges

We account for merger, realignment and other
charges in accordance with FASB Emerging Issues Task Force
(EITF) Topic No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to
Exit an Activity, and EITF No. 95-3, Recognition of
Liabilities in Connection with a Purchase

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Business
Combination . We have recorded
significant liabilities in connection with our mergers and
realignment programs. These liabilities primarily consist of
estimated costs to terminate employees and exit facilities.
Particularly, these liabilities include managements
estimates pertaining to sublease activities, restoration costs
and lease buyouts for facilities around the world. As we
continue to evaluate the commercial real estate market around
the world, enter into sublease agreements, vacate facilities and
negotiate with landlords, we may be required to significantly
adjust our original realignment liability. Any adjustments to
our accrued merger, realignment and other charges would be
recorded in the period such determination is made.


Results of Operations

The discussion and analysis of our results of
operations for the years ended December 31, 2002, 2001,
2000 is structured to take the following events into account:



| |   |                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The IBM Transaction, which was completed during
    the quarter ended September 30, 2001. The database
    business, the assets of which were sold to IBM, accounted for
    84% of our revenue during the first half of 2001 and 74% for the
    year ended December 31, 2001.                                  
|
| |  | The strategic realignment that we undertook
    during the second half of 2000. This realignment led to a
    transition from five former business units into two operating
    businesses  Ascential Software and Informix Software
    (the database business that we sold to IBM in the IBM
    Transaction).

References to Ascential Software in
this report refer to our existing enterprise integration
business, references to Informix Software refer to
our legacy database business assets sold to IBM on July 1,
2001, and references to Ascential Software
Corporation refer to Ascential Software and Informix
Software on a combined basis.

A comparison of revenue and expenses for the
years ended December 31, 2001 and 2000, respectively,
provides little insight as a result of the IBM Transaction.
Accordingly, the discussion and analysis of our results of
operations is presented as follows:



| |    |                                                                       
| | -- | ----------------------------------------------------------------------
| | I. | Overview of Results of Operations 
    Ascential Software Corporation



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenues and expenses for Ascential Software
    Corporation are presented as a percentage of total net revenues
    for the years ended December 31, 2002, 2001 and 2000.



| |     |                                                        
| | --- | -------------------------------------------------------
| | II. | Revenues  Ascential Software and
    Informix Software



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Discussion and analysis of revenues, including:
    (1) a table of revenues by type for Ascential Software and
    Informix Software for the years ended December 31, 2002,
    2001 and 2000, respectively; (2) a description of revenues
    for Ascential Software and Informix Software; (3) a
    discussion and analysis of Ascential Software revenues for the
    years ended December 31, 2002, 2001 and 2000, respectively;
    and (4) a discussion and analysis of Informix Software
    revenues for the six-month periods ended June 30, 2001 and
    December 31, 2001, respectively, with each as compared to
    the corresponding periods in 2000.



| |      |                                                                                                      
| | ---- | -----------------------------------------------------------------------------------------------------
| | III. | Costs and Expenses  Ascential
    Software, Informix Software and Ascential Software
    Corporation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Discussion and analysis of costs and expenses
    including: (1) a table of costs and expenses by type for
    Ascential Software and Informix Software for the years ended
    December 31, 2002 and 2001 and Ascential Software
    Corporation for the year ended December 31, 2000;
    (2) a discussion and analysis of Ascential Software costs
    and expenses for the years ended December 31, 2002 and
    2001; (3) a discussion and analysis of costs associated
    with Informix Software for the six months ended
    December 31, 2001 and the year ended December 31,
    2002; and (4) a discussion and analysis of costs and
    expenses for Ascential Software Corporation (being the combined
    total of Informix Software and Ascential Software) for the six
    months ended June 30, 2001 as compared to the corresponding
    period in 2000.

22



---



##### Table of Contents





| |     |                                                                           
| | --- | --------------------------------------------------------------------------
| | IV. | Merger, Realignment and Other
    Charges  Ascential Software Corporation



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Discussion and analysis of Merger, Realignment
    and Other Charges of Ascential Software Corporation recorded
    during the years ended December 31, 2002, 2001 and 2000.



| |    |                                                            
| | -- | -----------------------------------------------------------
| | V. | Other Income (Expense)  Ascential
    Software Corporation



| |                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------
| | Discussion and analysis of other income (expense)
    of Ascential Software Corporation for the years ended
    December 31, 2002, 2001 and 2000.



| |     |                                                  
| | --- | -------------------------------------------------
| | VI. | Income Taxes  Ascential Software
    Corporation



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Discussion and analysis of income taxes of
    Ascential Software Corporation for the years ended
    December 31, 2002, 2001 and 2000.



|   |                                                                           
|-- | --------------------------------------------------------------------------
|I. | Overview of Results of
    Operations  Ascential Software
    Corporation

The following table compares the results of
operations of Ascential Software Corporation for the years ended
December 31, 2002, 2001 and 2000.

|                   |                                                |                         |     |      |     |      |     |    |     |  |     |    |     | 
|------------------ | ---------------------------------------------- | ----------------------- | --- | ---- | --- | ---- | --- | -- | --- |  | --- | -- | --- | 
|                   |                                                |                        
|                   |                                                | Percent of Total       
|                   |                                                | Net Revenues           
|                   |                                                | Years Ended            
|                   |                                                | December 31,           
|                   |                                                |                        
|                   |                                                | 2002                    |     | 2001 |     | 2000
|                   |                                                |                         |     |      |     |     
|Net revenues:      |                                                |                         |     |      |     |      |     |    |     |  |     |   
|                   | Licenses                                       |                         |     | 53   | %   |      |     | 44 | %   |  |     | 44 | %  
|                   | Services                                       |                         |     | 47   |     |      |     | 56 |     |  |     | 56 |    
|                   |                                                |                         |     |      |     |      |     |    |     |  |     |   
|                   |                                                | Total net revenues      |     |      | 100 |      |     |    | 100 |  |     |    | 100 | 
|                   |                                                |                         |     |      |     |      |     |    |     |  |     |   
|Cost and expenses: |                                                |                         |     |      |     |      |     |    |     |  |     |   
|                   | Cost of software                               |                         |     | 16   |     |      |     | 7  |     |  |     | 5  |    
|                   | Cost of services                               |                         |     | 30   |     |      |     | 22 |     |  |     | 20 |    
|                   | Sales and marketing                            |                         |     | 65   |     |      |     | 43 |     |  |     | 43 |    
|                   | Research and development                       |                         |     | 21   |     |      |     | 18 |     |  |     | 18 |    
|                   | General and administrative                     |                         |     | 36   |     |      |     | 17 |     |  |     | 11 |    
|                   | Write-off of acquired research and development |                         |     | 1    |     |      |     | 1  |     |  |     |   |    
|                   | Merger, realignment and other charges          |                         |     | 21   |     |      |     | 12 |     |  |     | 14 |    
|                   |                                                |                         |     |      |     |      |     |    |     |  |     |   
|                   |                                                | Total cost and expenses |     |      | 190 |      |     |    | 120 |  |     |    | 111 | 
|                   |                                                |                         |     |      |     |      |     |    |     |  |     |   
|Operating loss     |                                                |                         | (90 | )%   |     |      | (20 | )% |     |  | (11 | )%

23



---



##### Table of Contents





|    |                                                        
|--- | -------------------------------------------------------
|II. | Revenues  Ascential Software and
    Informix Software

The following table compares the revenue for the
businesses of Ascential Software and Informix Software for the
years ended December 31, 2002, 2001 and 2000 (in millions):

|                                                                                                |                                                    |                                  |   |       |      |      |   |       |       |  |   |       |       | 
|----------------------------------------------------------------------------------------------- | -------------------------------------------------- | -------------------------------- | - | ----- | ---- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                                                                                |                                                    |                                 
|                                                                                                |                                                    | Years Ended December 31,        
|                                                                                                |                                                    |                                 
|                                                                                                |                                                    | 2002                             |   | 2001  |      | 2000
|                                                                                                |                                                    |                                  |   |       |      |     
|Ascential Software                                                                              |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | License revenue                                    |                                  | $ | 59.6  |      |      | $ | 62.4  |       |  | $ | 66.7  |      
|                                                                                                | Service revenue:                                   |                                  |   |       |      |      |   |       |       |  |   |       |      
|                                                                                                |                                                    | Maintenance revenue              |   |       | 30.0 |      |   |       | 29.1  |  |   |       | 20.1  | 
|                                                                                                |                                                    | Consulting and education revenue |   |       | 23.4 |      |   |       | 32.4  |  |   |       | 34.9  | 
|                                                                                                |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | Total service revenue                              |                                  |   | 53.4  |      |      |   | 61.5  |       |  |   | 55.0  |      
|                                                                                                |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | Total revenues  Ascential Software                |                                  | $ | 113.0 |      |      | $ | 123.9 |       |  | $ | 121.7 |      
|                                                                                                |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | License revenues as a percent of total
    revenue |                                  |   | 53    | %    |      |   | 50    | %     |  |   | 55    | %    
|                                                                                                | Service revenues as a percent of total
    revenue |                                  |   | 47    | %    |      |   | 50    | %     |  |   | 45    | %    
|Informix Software                                                                               |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | License revenue                                    |                                  | $ |      |      |      | $ | 149.3 |       |  | $ | 337.7 |      
|                                                                                                | Service revenue:                                   |                                  |   |       |      |      |   |       |       |  |   |       |      
|                                                                                                |                                                    | Maintenance revenue              |   |       |     |      |   |       | 183.8 |  |   |       | 392.4 | 
|                                                                                                |                                                    | Consulting and education revenue |   |       |     |      |   |       | 24.3  |  |   |       | 77.5  | 
|                                                                                                |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | Total service revenue                              |                                  |   |      |      |      |   | 208.1 |       |  |   | 469.9 |      
|                                                                                                |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | Total revenue  Informix Software                  |                                  | $ |      |      |      | $ | 357.4 |       |  | $ | 807.6 |      
|                                                                                                |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | License revenue as a percent of total
    revenue  |                                  |   |      |      |      |   | 42    | %     |  |   | 42    | %    
|                                                                                                | Service revenue as a percent of total
    revenue  |                                  |   |      |      |      |   | 58    | %     |  |   | 58    | %    
|Ascential Software Corporation (Combined
    total of Ascential Software and Informix Software) |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | License revenue                                    |                                  | $ | 59.6  |      |      | $ | 211.7 |       |  | $ | 404.4 |      
|                                                                                                | Service revenue:                                   |                                  |   |       |      |      |   |       |       |  |   |       |      
|                                                                                                |                                                    | Maintenance revenue              |   |       | 30.0 |      |   |       | 212.9 |  |   |       | 412.5 | 
|                                                                                                |                                                    | Consulting and education revenue |   |       | 23.4 |      |   |       | 56.7  |  |   |       | 112.4 | 
|                                                                                                |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | Total service revenue                              |                                  |   | 53.4  |      |      |   | 269.6 |       |  |   | 524.9 |      
|                                                                                                |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | Total revenue                                      |                                  | $ | 113.0 |      |      | $ | 481.3 |       |  | $ | 929.3 |      
|                                                                                                |                                                    |                                  |   |       |      |      |   |       |       |  |   |      
|                                                                                                | License revenue as a percent of total
    revenue  |                                  |   | 53    | %    |      |   | 44    | %     |  |   | 44    | %    
|                                                                                                | Service revenue as a percent of total
    revenue  |                                  |   | 47    | %    |      |   | 56    | %     |  |   | 56    | %    



| |                       
| | ----------------------
| | Description of Revenue

We derive revenue from licensing software and
providing post-license technical product support and updates to
customers and from consulting and education services. As
described above, we have identified revenue recognition as one
of our critical accounting policies. As part of the revenue
recognition process, significant management judgments and
estimates must be made and used in connection with the revenue
recognized in any accounting period. Material differences may
result in the amount and timing of our revenue for any period if
management made different judgments or utilized different
estimates. Revenue results are difficult to predict, and any
shortfall in revenue or delay in recognizing revenue could cause
our operating results to vary significantly from quarter to
quarter.

24



---



##### Table of Contents



License Revenue.License revenue may involve our
shipment of product or our granting of a license to a customer
to manufacture products that incorporate our technology. Our
products are sold directly to end-user customers or through
resellers, including original equipment manufacturers
(OEMs), distributors and value added resellers
(VARs). Revenue from license agreements with
resellers is recognized as earned by us, generally, when
sell-through has occurred; the licenses are resold
or utilized by the reseller and all of our related obligations
have been satisfied.

Our license transactions can vary in size and it
is difficult to forecast both the timing and dollar value of
transactions. As a result, license transactions have caused
fluctuations in net revenues and net income (loss) because of
the relatively high gross margin on such revenues. As is common
in the software industry, a disproportionate amount of our
license revenue is derived from transactions that close in the
last weeks or days of a quarter. The timing of closing large
license agreements also increases the risk of quarter-to-quarter
fluctuations. We expect that these types of transactions and the
resulting fluctuations in revenue will continue.

Service Revenue.Service revenue is comprised of
maintenance, consulting and education revenues. Maintenance
contracts generally call for us to provide technical support and
software updates to customers. Maintenance revenue is recognized
ratably over the term of the maintenance contract, generally on
a straight-line basis when all revenue recognition requirements
are met. Other service revenue, primarily training and
consulting, is generally recognized at the time the service is
performed and it is determined that we have fulfilled our
obligations resulting from the services contract.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Ascential Software  License
    revenue  years ended December 31, 2002, 2001 and
    2000

The following table compares the license revenue
for the Ascential Software product lines for the years ended
December 31, 2002, 2001 and 2000 (in millions):

|                       |  |                          |      |      |  |      |      |  |  |   |      | 
|---------------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                       |  |                         
|                       |  | Years Ended December 31,
|                       |  |                         
|                       |  | 2002                     |      | 2001 |  | 2000
|                       |  |                          |      |      |  |     
|Enterprise Integration |  | $                        | 59.5 |      |  | $    | 48.2 |  |  | $ | 38.6 | 
|Content Management     |  |                          | .1   |      |  |      | 8.6  |  |  |   | 10.6 | 
|i.Decide               |  |                          |     |      |  |      | 4.1  |  |  |   | 2.7  | 
|i.Sell                 |  |                          |     |      |  |      | 1.5  |  |  |   | 14.8 | 
|                       |  |                          |      |      |  |      |      |  |  |   |      | 
|Total license revenue  |  | $                        | 59.6 |      |  | $    | 62.4 |  |  | $ | 66.7 | 
|                       |  |                          |      |      |  |      |      |  |  |   |      | 

During 2001 and 2002, we terminated various
product lines in an effort to focus product sales on our
enterprise integration product offerings that had been expanded
during that time. As a result, license revenue for Ascential
Software for the twelve months ended December 31, 2002
decreased 4% or $2.8 million to $59.6 million from
$62.4 million for the same period in 2001. The decrease
consists of an $8.5 million decrease in revenue from our
content management product line, which we stopped selling during
the quarter ended June 30, 2002, a $4.1 million
decrease in revenue from our i.Decide product, which was
abandoned as a result of the sale of the assets related to our
database business, and a $1.5 million decrease in revenue
from our i.Sell product, which was discontinued in the first
quarter of 2001. These declines were partially offset by a 23%
or $11.3 million increase in revenue from enterprise
integration products. This increase was caused by the addition
of products and technology acquired from Torrent, Vality and
Metagenix that were integrated into our enterprise integration
product offering and the release of new products during 2002.
This expanded offering contributed to increased sales volume and
an increase to the list prices of our products that enabled us
to achieve higher average selling prices in 2002. The overall
increase in sales of enterprise integration products was
positively impacted during 2002 by leveraging the reseller
arrangement that we entered into with IBM during the second half
of 2001 whereby IBM sells our products. License revenue under
this arrangement increased $9.5 million during 2002. Total
revenue from IBM represented 10.8% of our total revenue in 2002.
Termination of this arrangement with IBM, should it occur, could
have a material impact on our future financial results if we are
unable to replace the revenue.

25



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##### Table of Contents



License revenue decreased 6% or $4.3 million
to $62.4 million in 2001 from $66.7 million in 2000.
This decrease was due primarily to the termination of sales of
our e-commerce solution product, i.Sell, during the first
quarter of 2001 resulting in a $13.3 million decline in
license revenue while sales of our content management products
declined during 2001 by $2.0 million. This decrease was
partially offset by license revenues for enterprise integration
products that increased 25% to $48.2 million from
$38.6 million in 2000 and license revenue from our analytic
offering, i.Decide, that increased $1.4 million from
$2.7 million in 2000 to $4.1 million in 2001 due to
the early stage of this product. We experienced a slowing of
license revenue growth during the second half of 2001. We
believe this was due in part to certain customers and potential
customers deferring spending on information technology as a
result of the general economic downturn.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Ascential Software  Service
    revenue  years ended December 31, 2002, 2001 and
    2000

The following table compares service revenue for
the Ascential Software product lines for the years ended
December 31, 2002, 2001 and 2000 (in millions):

|                                      |                        |                          |      |      |  |      |      |      |  |   |      |      | 
|------------------------------------- | ---------------------- | ------------------------ | ---- | ---- |  | ---- | ---- | ---- |  | - | ---- | ---- | 
|                                      |                        |                         
|                                      |                        | Years Ended December 31,
|                                      |                        |                         
|                                      |                        | 2002                     |      | 2001 |  | 2000
|                                      |                        |                          |      |      |  |     
|Maintenance revenue:                  |                        |                          |      |      |  |      |      |      |  |   |      |     
|                                      | Enterprise Integration |                          | $    | 29.1 |  |      | $    | 19.8 |  |   | $    | 10.7 | 
|                                      | Content Management     |                          |      | 0.9  |  |      |      | 3.3  |  |   |      | 0.8  | 
|                                      | i.Decide               |                          |      |     |  |      |      | 5.0  |  |   |      | 4.1  | 
|                                      | i.Sell                 |                          |      |     |  |      |      | 1.0  |  |   |      | 4.5  | 
|                                      |                        |                          |      |      |  |      |      |      |  |   |      |     
|Total maintenance revenue             |                        |                          | 30.0 |      |  |      | 29.1 |      |  | $ | 20.1 |     
|Consulting and training revenue:      |                        |                          |      |      |  |      |      |      |  |   |      |     
|                                      | Enterprise Integration |                          |      | 22.9 |  |      |      | 25.6 |  |   |      | 22.0 | 
|                                      | Content Management     |                          |      | 0.5  |  |      |      | 4.7  |  |   |      | 2.8  | 
|                                      | i.Decide               |                          |      |     |  |      |      | 1.7  |  |   |      | 0.2  | 
|                                      | i.Sell                 |                          |      |     |  |      |      | 0.4  |  |   |      | 9.9  | 
|                                      |                        |                          |      |      |  |      |      |      |  |   |      |     
|Total consulting and training revenue |                        |                          | 23.4 |      |  |      | 32.4 |      |  |   | 34.9 |     
|Total service revenue:                |                        |                          |      |      |  |      |      |      |  |   |      |     
|                                      | Enterprise Integration |                          |      | 52.0 |  |      |      | 45.4 |  |   |      | 32.7 | 
|                                      | Content Management     |                          |      | 1.4  |  |      |      | 8.0  |  |   |      | 3.6  | 
|                                      | i.Decide               |                          |      |     |  |      |      | 6.7  |  |   |      | 4.3  | 
|                                      | i.Sell                 |                          |      |     |  |      |      | 1.4  |  |   |      | 14.4 | 
|                                      |                        |                          |      |      |  |      |      |      |  |   |      |     
|Total service revenue                 |                        | $                        | 53.4 |      |  | $    | 61.5 |      |  | $ | 55.0 |     
|                                      |                        |                          |      |      |  |      |      |      |  |   |      |     

As discussed above, during 2001 and 2002 we
terminated various product lines in an effort to focus sales on
our enterprise integration product offerings that had been
expanded during that time. As such, the service revenue
associated with those sales declined resulting in a 13% or
$8.1 million decrease during the twelve months ended
December 31, 2002 to $53.4 million from
$61.5 million for the same period in 2001. This is
primarily due to a $6.6 million decline in service revenue
associated with content management products, a $6.7 million
decline in service revenues from our analytic offering i.Decide
and a $1.4 million decline in service revenue from our
i.Sell product. These declines were partially offset by an
increase in total enterprise integration service revenue, the
components of which are described below.

Total maintenance revenue increased by 39% or
$0.9 million to $30.0 million in the twelve months
ended December 31, 2002 from $29.1 million for the
same period in 2001. The increase is due to a 47% or
$9.3 million increase in maintenance revenue from
enterprise integration products that is attributable to the
growing installed base of customers, including customers
acquired from Vality and Torrent. The increase was partially
offset by decreased maintenance revenue related to the
termination of products and the associated decline in their
maintenance revenue streams, including a $5.0 million
decrease in maintenance revenue

26



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##### Table of Contents



principally associated with our i.Decide product
line, a $2.4 million decrease in content management
maintenance revenue and a $1.0 million decrease in i.Sell
maintenance revenue.


Revenue derived from consulting and training
decreased 28% or $9.0 million to $23.4 million in the
twelve months ended December 31, 2002 from
$32.4 million for the same period in 2001. This decrease is
attributable to a $4.2 million decrease in consulting
revenue associated with content management products, a
$1.7 million decrease in consulting and training revenue
primarily associated with the discontinuation of our i.Decide
product, a $0.4 million decrease associated with the
discontinuation of our i.Sell products and an 11% or
$2.7 million decrease in consulting revenue related to
enterprise integration product offerings. This decrease of
$2.7 million consists of a $6.4 million decrease due
principally to three large consulting projects that were in
process during 2001 but which were completed during 2002 and not
completely replaced by new projects, a decline in product
license revenue in the first quarter of 2002, which had an
impact on follow-on services purchased, and an increase in
indirect sales of products whereby the associated services are
delivered by third parties. These declines were partially offset
by an increase in consulting and training revenue associated
with new licenses. We expect that, barring unforeseen
circumstances, future growth of consulting, maintenance and
education revenue will be largely dependent on the growth of
license revenue.

Service revenue for the twelve months ended
December 31, 2002 includes $1.4 million of revenue
associated with the content management product line. We expect
that the content management revenue stream will continue to
decline over the first half of 2003 until all the related
service contracts are fulfilled.

Service revenue increased 12% to
$61.5 million in 2001 from $55.0 million in 2000,
despite a $13.0 million decline resulting from the
termination of the i.Sell product offering. Maintenance revenue
increased 45% to $29.1 million in 2001 from
$20.1 million in 2000. This is principally due to a
$9.1 million increase in enterprise integration maintenance
revenue as we continued to build our installed customer base,
and $2.5 and $0.9 million increases in content management
and i.Decide maintenance revenue, respectively, during that time
due to their early stage as products. These increases were
offset by a $3.5 million decline in i.Sell maintenance
revenue. Consulting and education revenue decreased 7% to
$32.4 million in 2001 from $34.9 million in 2000. This
decrease is primarily due to a $9.5 million decline in
revenue derived from i.Sell education and consulting. This
decline was partially offset by $1.9 million and
$1.5 million increases in content management and i.Decide
consulting and education revenue, respectively, due to the early
stage of those products in 2001 and a $3.6 million increase
in enterprise integration consulting revenue which is primarily
a result of the increase in license revenue during 2001, as
consulting and education revenue have historically been driven
by engagements and projects associated with new license revenue.
There were three large DataStage consulting engagements
initiated during 2001 that generated approximately
$7.0 million in consulting revenue.



| |                                                                           
| | --------------------------------------------------------------------------
| | Informix Software  Revenue for
    years ended December 31, 2001 and 2000

Due to the IBM Transaction, we separately discuss
the revenue of Informix Software for the first and second halves
of 2001 compared to the corresponding periods in 2000. There was
no revenue derived from Informix Software in 2002. The following
table compares the revenue for Informix Software for the
six-month

27



---



##### Table of Contents



periods ended June 30, 2001 and 2000,
respectively, together with the six-month periods ended
December 31, 2001 and 2000, respectively, and the years
ended December 31, 2001 and 2000, respectively
(in millions):


|                  |                                   |                                  |   |                  |       |              |   |       |       |      |   |      |     |  |   |       |       |  |   |       |       |  |   |       |       | 
|----------------- | --------------------------------- | -------------------------------- | - | ---------------- | ----- | ------------ | - | ----- | ----- | ---- | - | ---- | --- |  | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                  |                                   |                                  |   |                  |       |             
|                  |                                   | Six Months Ended                 |   | Six Months Ended |       | Years Ended 
|                  |                                   | June 30,                         |   | December 31,     |       | December 31,
|                  |                                   |                                  |   |                  |       |             
|                  |                                   | 2001                             |   | 2000             |       | 2001         |   | 2000  |       | 2001 |   | 2000
|                  |                                   |                                  |   |                  |       |              |   |       |       |      |   |     
|Informix Software |                                   |                                  |   |                  |       |              |   |       |       |      |   |      |     |  |   |       |       |  |   |       |       |  |   |      
|                  | License revenue                   |                                  | $ | 149.2            |       |              | $ | 188.0 |       |      | $ | 0.1  |     |  | $ | 149.7 |       |  | $ | 149.3 |       |  | $ | 337.7 |      
|                  | Service revenue:                  |                                  |   |                  |       |              |   |       |       |      |   |      |     |  |   |       |       |  |   |       |       |  |   |       |      
|                  |                                   | Maintenance revenue              |   |                  | 182.5 |              |   |       | 199.8 |      |   |      | 1.3 |  |   |       | 192.6 |  |   |       | 183.8 |  |   |       | 392.4 | 
|                  |                                   | Consulting and education revenue |   |                  | 24.2  |              |   |       | 44.6  |      |   |      | 0.1 |  |   |       | 32.9  |  |   |       | 24.3  |  |   |       | 77.5  | 
|                  |                                   |                                  |   |                  |       |              |   |       |       |      |   |      |     |  |   |       |       |  |   |       |       |  |   |      
|                  | Total service revenue             |                                  |   | 206.7            |       |              |   | 244.4 |       |      |   | 1.4  |     |  |   | 225.5 |       |  |   | 208.1 |       |  |   | 469.9 |      
|                  |                                   |                                  |   |                  |       |              |   |       |       |      |   |      |     |  |   |       |       |  |   |       |       |  |   |      
|                  | Total revenue  Informix Software |                                  | $ | 355.9            |       |              | $ | 432.4 |       |      | $ | 1.5  |     |  | $ | 375.2 |       |  | $ | 357.4 |       |  | $ | 807.6 |      
|                  |                                   |                                  |   |                  |       |              |   |       |       |      |   |      |     |  |   |       |       |  |   |       |       |  |   |      

License revenue  six months ended
June 30, 2001 and 2000.License
revenue decreased 21% to $149.2 million for the six months
ended June 30, 2001 from $188.0 million for the same
period in 2000. The decline was primarily a result of a decrease
in license revenue from the traditional client-server products
of the database business and also from a decrease in large
enterprise transactions. These trends resulted from our being
less successful in attracting significant new database customers
and in securing additional business from our existing database
customers. Our principal competitors in the database business,
Oracle, IBM and Microsoft, were much larger, much better
financed, and continued to invest substantially in their
database businesses. Strategic partners in the database business
(including the major enterprise software application providers)
therefore promoted our competitors products more than they
promoted our database products. As a result, we were not
successful in attracting significant new database customers. In
addition, most of our database customers who had invested in our
traditional client-server and tools products were in the process
of replacing those products and purchasing newer products.
Because of our competitive position described above, many of our
database customers chose to purchase newer database products
from our competitors. We also believe that the prevailing
economic slowdown had led to a deferral by some existing
customers and potential customers of their decisions to enter
into large enterprise transactions. In addition, we believe the
impending closing of the IBM Transaction may have impaired our
ability to close certain transactions during the second quarter
of 2001.

During 2001, we recognized revenue from resellers
with previously recorded customer advances of $8.4 million
primarily related to sales of Informix Software products. The
$8.4 million recognized included $8.2 million of
revenues related to licenses that were resold or utilized by the
reseller and $0.2 million related to contractual reductions
in customer advances, which typically arise when a reseller
agreement expires before the advance balance is fully utilized.
In addition, we recorded $2.0 million of further reductions
to the customer advances liabilities during 2001 as the net
result of the transfer of the database customer advances to IBM
(as part of the IBM Transaction), which were offset by any
additional amounts we received from customers during 2001.
During 2000, we recognized revenue of $11.1 million as a
result of contractual reductions in customer advances. During
2001, we recorded $1.1 million of revenue from the customer
advances balance in respect of a transaction with a customer
that was previously a supplier of services to Informix Software
under a long-term contract. Concurrent with the revenue
transaction with this customer, we entered into an arrangement
to terminate these services, pursuant to which we paid a
termination fee of $3.0 million.

Service revenue  six months ended
June 30, 2001 and 2000.Service
revenue for the six months ended June 30, 2001 decreased
15% to $206.7 million from $244.4 million for the same
period in 2000. Service revenue accounted for 58% and 57% of
total revenues during the first half of 2001 and 2000,
respectively. The decrease in service revenue in 2001 was
attributable primarily to a decline in consulting revenue in our
database business. The increase in service revenue, as a
percentage of total revenues in 2001, was attributable primarily
to the decline in the license revenue of our database business.
Maintenance revenue decreased 9% to $182.5 million for the
six months ended June 30, 2001 from $199.8 million for
the same period in 2000. The

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decrease in maintenance revenues in 2001 was
attributable primarily to our inability to maintain maintenance
revenue levels from our installed base in a climate of
decreasing license revenues. Consulting and education revenues
for the six months ended June 30, 2001 decreased 46% to
$24.2 million from $44.6 for the same period in 2000. The
decrease in consulting and education revenue in 2001 was
primarily due to the decline in license revenue experienced
during the first half of 2001, as consulting and education
revenue are typically driven by engagements and projects
associated with new license revenue.


License and service revenue  six
months ended December 31, 2001 and
2000.We closed the IBM Transaction in
two phases  the first with respect to operations in
the United States and certain countries abroad on July 1,
2001, and the second with respect to nine remaining countries
(the Phase 2 countries) on August 1, 2001.
During July 2001, and as Informix Softwares principal
revenue for the six months ended December 31, 2001, license
revenue generated by the Phase 2 countries was
$0.1 million and service revenue generated by the
Phase 2 countries was $1.4 million. For the
corresponding six months ended December 31, 2000, license
and service revenue for Informix Software were
$149.7 million and $225.5 million, respectively.



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | III.     Costs and
    Expenses  Ascential Software, Informix Software and
    Ascential Software Corporation

The following table compares the costs and
expenses for the businesses of Ascential Software and Informix
Software for the years ended December 31, 2002 and 2001
together with the total costs of Ascential Software Corporation
for the years ended December 31, 2002, 2001 and 2000. Cost
and expense information is not shown separately for Ascential
Software and Informix Software for the year ended
December 31, 2000 because the cost infrastructure
supporting the data integration and database businesses were not
separated:

|                         |                                       |                          |       |      |  |      |       |       |  |  |   |               | 
|------------------------ | ------------------------------------- | ------------------------ | ----- | ---- |  | ---- | ----- | ----- |  |  | - | ------------- | 
|                         |                                       |                         
|                         |                                       | Years Ended December 31,
|                         |                                       |                         
|                         |                                       | 2002                     |       | 2001 |  | 2000
|                         |                                       |                          |       |      |  |     
|Ascential Software       |                                       |                          |       |      |  |      |       |       |  |  |   |              
|                         | Cost of software                      |                          | $     | 17.5 |  |      | $     | 16.3  |  |  |   | Not available | 
|                         | Cost of services                      |                          |       | 33.1 |  |      |       | 45.2  |  |  |   |              | 
|                         | Sales and marketing                   |                          |       | 73.1 |  |      |       | 92.3  |  |  |   |              | 
|                         | Research and development              |                          |       | 24.0 |  |      |       | 32.5  |  |  |   |              | 
|                         | General and administrative            |                          |       | 28.5 |  |      |       | 25.4  |  |  |   |              | 
|                         | In-process research and development   |                          |       | 1.2  |  |      |       | 5.5   |  |  |   |              | 
|                         | Merger, realignment and other charges |                          |       | 14.2 |  |      |       | 12.0  |  |  |   |              | 
|                         |                                       |                          |       |      |  |      |       |       |  |  |   |              
|Total costs and expenses |                                       | $                        | 191.6 |      |  | $    | 229.2 |       |  |  |  |              
|Informix Software        |                                       |                          |       |      |  |      |       |       |  |  |   |              
|                         | Cost of software                      |                          | $     | 0.8  |  |      | $     | 18.0  |  |  |   | Not available | 
|                         | Cost of services                      |                          |       |     |  |      |       | 62.3  |  |  |   |              | 
|                         | Sales and marketing                   |                          |       |     |  |      |       | 114.9 |  |  |   |              | 
|                         | Research and development              |                          |       |     |  |      |       | 54.5  |  |  |   |              | 
|                         | General and administrative            |                          |       | 12.6 |  |      |       | 56.2  |  |  |   |              | 
|                         | In-process research and development   |                          |       |     |  |      |       |      |  |  |   |              | 
|                         | Merger, realignment and other charges |                          |       | 9.5  |  |      |       | 42.4  |  |  |   |              | 
|                         |                                       |                          |       |      |  |      |       |       |  |  |   |              
|Total costs and expenses |                                       | $                        | 22.9  |      |  | $    | 348.3 |       |  |  |  |              

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|                                                                                                |                                       |                          |       |      |  |      |       |       |  |   |         |       | 
|----------------------------------------------------------------------------------------------- | ------------------------------------- | ------------------------ | ----- | ---- |  | ---- | ----- | ----- |  | - | ------- | ----- | 
|                                                                                                |                                       |                         
|                                                                                                |                                       | Years Ended December 31,
|                                                                                                |                                       |                         
|                                                                                                |                                       | 2002                     |       | 2001 |  | 2000
|                                                                                                |                                       |                          |       |      |  |     
|Ascential Software Corporation (Combined
    total of Ascential Software and Informix Software) |                                       |                          |       |      |  |      |       |       |  |   |         |      
|                                                                                                | Cost of software                      |                          | $     | 18.3 |  |      | $     | 34.3  |  |   | $       | 50.4  | 
|                                                                                                | Cost of services                      |                          |       | 33.1 |  |      |       | 107.5 |  |   |         | 184.6 | 
|                                                                                                | Sales and marketing                   |                          |       | 73.1 |  |      |       | 207.2 |  |   |         | 402.6 | 
|                                                                                                | Research and development              |                          |       | 24.0 |  |      |       | 87.0  |  |   |         | 166.1 | 
|                                                                                                | General and administrative            |                          |       | 41.1 |  |      |       | 81.6  |  |   |         | 100.0 | 
|                                                                                                | In-process research and development   |                          |       | 1.2  |  |      |       | 5.5   |  |   |         |      | 
|                                                                                                | Merger, realignment and other charges |                          |       | 23.7 |  |      |       | 54.4  |  |   |         | 126.8 | 
|                                                                                                |                                       |                          |       |      |  |      |       |       |  |   |         |      
|Total costs and expenses                                                                        |                                       | $                        | 214.5 |      |  | $    | 577.5 |       |  | $ | 1,030.5 |      
|                                                                                                |                                       |                          |       |      |  |      |       |       |  |   |         |      



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Ascential Software Costs and
    Expenses  years ended December 31, 2002 and
    2001.

Cost of software.Cost of software consists primarily of: (1) amortization of
capitalized or acquired software development costs and
write-offs of previously capitalized software,
(2) third-party royalties, and (3) distribution and
documentation costs. During the twelve months ended
December 31, 2002, cost of software increased by 7% or
$1.2 million to $17.5 million from $16.3 million
during the same period of 2001. The most significant item
contributing to the increase was $5.2 million of impairment
charges related to the termination of product lines,
$4.5 million associated with the content management product
line and $0.7 million associated with our former Axielle
product, our portal offering. Software amortization increased by
$2.1 million as a result of a $3.2 million increase in
amortization of purchased technology, principally related to the
acquisitions of Torrent and Vality, and $0.9 million of
amortization related to the acquisition of the MetaRecon
technology. Software amortization related to internally
capitalized software declined by $2.0 million primarily as
a result of the impairment of the content management and Axielle
technology. We acquired $4.1 million of completed
technology through the Torrent acquisition on November 28,
2001 and $8.2 million of completed technology through the
Vality acquisition on April 3, 2002. Both are being
amortized over three years on a straight-line basis. We have
paid approximately $4.3 million through December 31,
2002 to acquire and further develop MetaRecon and are amortizing
payments over three years on a straight-line basis. Future
amortization costs may increase if we acquire new technology
through strategic business combinations or technology purchases.

Royalty costs declined by $6.8 million
primarily related to the decline in sales of content management
and i.Sell product offerings that were sold with much higher
third party royalty costs than enterprise integration products.
Once these product lines were terminated, we were no longer
required to pay the related royalties. As part of the settlement
of a dispute with former shareholders of IntegraSoft, Inc.,
which we acquired in 1998, we recorded $2.1 million of
prepaid royalties that we are amortizing over eighteen months on
a straight-line basis and will be fully amortized by
December 31, 2003. The amortization of this prepaid royalty
is the most significant component of ongoing royalty costs.

The costs of distribution personnel and media
increased by $0.7 million during 2002. This is due to the
fact that this function was shared with the Informix database
business during most of 2001 and the costs to operate the
function on a stand alone basis exceed the portion of shared
costs previously allocated to the Ascential Software operation.

Cost of services.Cost of services consists of maintenance, consulting and
training personnel expenses and subcontracting costs. Cost of
services for the twelve months ended December 31, 2002
decreased 27% or $12.1 million to $33.1 million from
$45.2 million for the same period in 2001. The decrease is
primarily a result of a 30% reduction in services headcount
between December 31, 2001 and December 31, 2002 even
after we added approximately 22 services employees through
the acquisition of Vality. The cost savings related to the
headcount reductions were offset somewhat by increased
subcontracting costs as we moved toward a

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more variable cost model for delivering our
consulting services. The following table summarizes service
margins for the twelve months ended December 31, 2002 and
2001:


|                   |                               |               |  |      |    |  |  |     |   
|------------------ | ----------------------------- | ------------- |  | ---- | -- |  |  | --- | --
|                   |                               |              
|                   |                               | Twelve Months
|                   |                               | Ended        
|                   |                               | December 31, 
|                   |                               |              
|                   |                               | 2002          |  | 2001
|                   |                               |               |  |     
|Ascential Software |                               |               |  |      |    |  |  |    
|                   | Total service margin          |               |  | 38   | %  |  |  | 27  | % 
|                   | Maintenance margin            |               |  | 73   | %  |  |  | 74  | % 
|                   | Consulting & education margin |               |  | (7   | )% |  |  | (15 | )%

The total service margin has improved to 38% in
the twelve months ended December 31, 2002 from 27% in the
same period in 2001. This improvement is caused, in part, by an
increase in the proportion of the higher margin maintenance
revenue to total services revenue for the same periods. For the
twelve months ended December 31, 2002, the maintenance
business represented 56% of total service revenue and generated
a margin of 73% while, for the twelve months ended
December 31, 2001, the maintenance business represented 47%
of total service revenue and generated a margin of 74%. Barring
unforeseen circumstances, we expect maintenance margins to
continue to improve slightly during 2003 as the number of
customers subscribing to maintenance increases and we further
leverage our technical support personnel as well as our
e.Service web support site to resolve customer issues.

The improvement in the 2002 consulting and
education margins to (7)% in 2002 from (15)% in 2001 is a result
of cost control efforts and improved utilization of consultants.
This margin improvement was partially offset by the wind down of
the content management business where the completion of
consulting engagements for that business required additional use
of third parties and yielded a loss. Cost of services for the
year ended December 31, 2002 includes $3.7 million of
costs associated with the content management business. As the
utilization of consultants on non-revenue generating projects
and activities focused on procuring new business decreases
during 2003, barring unforeseen circumstances, we expect the
margin improvement to continue and be positive in 2003. We
expect that, barring unforeseen circumstances, costs associated
with the content management business will continue to decline in
2003 and do not expect such costs to recur beyond the second
quarter of 2003 when substantially all consulting, service and
support contracts associated with that product line should end.

Sales and marketing expenses.Sales and marketing expenses consist
primarily of salaries, commissions, marketing and communications
programs and related overhead costs. Sales and marketing
expenses for the twelve months ended December 31, 2002
decreased 21% to $73.1 million from $92.3 million for
the same period in 2001. This decrease is primarily due to a 33%
reduction in sales and marketing headcount between
December 31, 2001 and December 31, 2002 as well as a
reduction in marketing program expenditures. Approximately 45
sales and marketing employees were added through the acquisition
of Vality, however these increases were more than offset by
reductions to the total sales and marketing headcount, which was
245 at December 31, 2002, including 67 quota carrying sales
representatives. Although headcount was reduced during 2002, our
focus throughout the year was also to shift sales headcount to
those regions with more revenue growth potential and to improve
the sales productivity of our sales force. We believe that we
have made significant progress in both these initiatives. Sales
headcount may increase during 2003 depending on the revenue,
productivity and growth levels that we may experience.

Sales and marketing expenses for the twelve
months ended December 31, 2002 include $0.8 million of
costs associated with the content management business, which we
do not expect to recur beyond 2002, barring unforeseen
circumstances.

Research and development
expenses.Research and development
expenses consist primarily of salaries, third-party project
consulting and related overhead costs for product development.
Development efforts during 2002 were focused on integrating the
technology acquired from Vality, Torrent and Metagenix and
creating major enhancements to our enterprise integration
product suite. Research and development expense for the twelve
months ended December 31, 2002 decreased 26%, or
$8.5 million, to $24.0 million from $32.5 million

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for the same period in 2001. This decline is due
primarily to a reduction of $5.4 million in amortization of
goodwill and acquired workforce in the twelve months ended
December 31, 2002 as compared to the same period of 2001.
This reduction was a result of the implementation of
SFAS 142 effective January 1, 2002 which eliminated
the amortization of intangibles with indefinite lives.
Additionally, total engineering headcount was reduced by 20%
between December 31, 2001 and December 31, 2002. This
headcount reduction relates to employees associated with the
content management product line and is net of the addition of
approximately 30 engineering employees in connection with the
acquisition of Vality. These cost reductions were offset by
increased net expense resulting from a reduction in the amount
of internal software capitalized. We capitalized
$2.0 million less in the twelve months ended
December 31, 2002 as compared to the same period in the
prior year as a result of reduced headcount costs and the timing
and status of engineering projects during 2002 as compared to
2001. We will continue to focus our development efforts on
Enterprise Integration products and expect a slight increase in
research and development expenses in 2003.


Research and development expenses for the twelve
months ended December 31, 2002 included $3.1 million
of costs associated with the content management business, which,
barring unforeseen circumstances, we do not expect to recur past
2002.

General and administrative
expenses.General and administrative
expenses consist primarily of finance, legal, information
systems, human resources, bad debt expense and related overhead
costs. During the twelve months ended December 31, 2002,
general and administrative expenses increased 12% or
$3.1 million to $28.5 million from $25.4 million
for the same twelve months in 2001. The increase in general and
administrative expenses experienced during the year is
attributable to several factors. The entire year of 2002
included personnel and information technology infrastructure
costs for a fully staffed and independent general and
administrative function. In contrast, general and administrative
expenses for the first three quarters of 2001 were ratably
distributed over the Ascential Software business and the
Informix Software business. In order to function independently,
we were required to appropriately staff these functions and our
corporate expenditures for audit and tax advisory fees,
insurance costs, and similar services also increased resulting
in an overall increase of administrative costs of
$6.0 million compared to 2001. In addition, the twelve
months ended December 31, 2002 includes an increase of
$2.3 million in certain, primarily litigation and
dispute-related, legal costs compared to the same period of the
previous year. The increased costs in the twelve months ended
December 31, 2002 are offset by a decline of
$5.2 million in bad debt expense. Following the sale of
assets related to our database business and during the
segmentation of accounts receivable balances in connection with
that sale, several Ascential Software accounts were identified
which were deemed to be uncollectible. This segmentation
process, combined with the termination of the i.Sell product
resulted in an unusually high bad debt expense during 2001 of
$7.7 million. While bad debt expense declined significantly
during 2002, $1.6 million of the amount recorded in 2002
related to accounts associated with sales of content management
products which became uncollectible as a result of the change in
strategy for that product line during 2002. As a result of the
reserves recorded for the content management product receivable
and improvement in the collectibility of receivable balances due
to increased transactions with Fortune 500 companies we
reported DSO, or days sales outstanding, of 72 days at
December 31, 2002 compared to 98 days at
December 31, 2001. DSO is calculated by dividing accounts
receivable net, as of the balance sheet date, by the quotient
determined by dividing the current quarters net revenue by
ninety days. Barring unforeseen circumstances, we expect that
our bad debt expense will decline during 2003 as compared to
2002.

As discussed above, we believe that the recording
of the allowance for doubtful accounts is one of our critical
accounting policies. The preparation of financial statements
requires our management to assess the collectibility of our
accounts receivables and make estimates of any allowances
required with respect to doubtful accounts. We record an
increase in the allowance for doubtful accounts when the
prospect of collecting a specific account receivable becomes
doubtful. We regularly review the adequacy of our allowance for
doubtful accounts after considering the size of the accounts
receivable aging, the age of each invoice, each customers
expected ability to pay and our collection history with each
customer. We review any invoice greater than 90 days past
due to determine if an allowance is appropriate based on the
risk category using the factors discussed above. For all
invoices that are not specifically reserved, we maintain a
reserve based on an estimate of potentially uncollectible
receivables. The allowance for doubtful accounts represents our
best

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estimate, but changes in circumstances relating
to accounts receivable may result in a requirement for
additional allowances in the future.


General and administrative expenses for the
twelve months ended December 31, 2002, included
$2.2 million of costs associated with the content
management business, principally bad debt expense. Barring
unforeseen circumstances, we do not expect these costs to recur
beyond 2002.

Merger, realignment and other costs.These costs are discussed separately
in section IV. Merger, Realignment and Other
Charges  Ascential Software Corporation below.

Write-off of acquired in-process research and
development  Ascential Software.In connection with the Vality
acquisition in April 2002, we recorded a charge of
$1.2 million, or approximately 1% of the $98.3 million
in total consideration and liabilities assumed, for in-process
research and development costs (IPRD). The value
allocated to the project identified as IPRD was charged to
operations during the three months ended June 30, 2002.

At the acquisition date, Valitys in-process
projects were WAVE, IRT and AUTO. The WAVE product provides
capabilities to allow end users with extensive multinational
files to easily invoke a single process to standardize, enhance
and verify input address information using relevant postal
reference files. The in-process WAVE project sought to produce a
technical design that would allow the existing WAVES product to
function on a new operating platform. The WAVE project was
initiated in June 2001 and completed by the end of July 2002. At
the acquisition date, IPRD was approximately 9% complete, based
on costs expended to date and estimated costs to complete the
product. We incurred $0.3 million of costs to complete this
project, which was consistent with managements estimate as
of the acquisition date.

The IRT project seeks to produce a new
application protocol interface that will provide a new paradigm
for the development and deployment of real time data quality
applications on a new operating platform. The project was
initiated in October 2001 and was completed by the end of July
2002. At the acquisition date, IPRD was approximately 4%
complete based on costs expended to date and estimated costs to
complete the project. We incurred another $0.3 million of
costs to complete this project, which was consistent with
managements estimate as of the acquisition date.

The AUTO project is intended to provide a
learning engine that can generate new pattern action language
rule sets with the use of advanced mathematical techniques. The
AUTO project was initiated in April 2001 and at the date of the
acquisition management estimated that the completion of the
project would be accomplished by the end of November 2002. At
the acquisition date, management had estimated that IPRD was
approximately 25% complete, based on costs expended to date and
estimated costs to complete the product. At the date of the
acquisition, we expected to invest another $0.2 million of
development costs in this product. Due to turnover of research
and development personnel, management now estimates, barring
unforeseen circumstances, that this project will be completed by
the end of the second quarter of 2004 and we expect to invest
approximately another $0.5 million into development in
order to do so.

As of the Vality acquisition date, WAVE, IRT or
AUTO technologies had not yet reached technological feasibility
and had no alternative uses. The technological feasibility of
the in-process product is established when the enterprise has
completed all planning, designing, coding and testing activities
that are necessary to establish that the product can be produced
to meet its design specifications.

The value of IPRD was determined using an income
approach. This approach takes into consideration earnings
remaining after deducting from cash flows related to the
in-process technology, the market rates of return on
contributory assets, including assembled workforce, customer
accounts and existing technology. The cash flows are then
discounted to present value at an appropriate rate. Discount
rates are determined by an analysis of the risks associated with
each of the identified intangible assets. The discount rate used
for IPRD ranged from 40 to 50%, consistent with the
characteristics of each IPRD project, a premium over the
estimated weighted-average cost of capital of 21%. The resulting
net cash flows to which the discount rate was applied are based
on managements estimates of revenues, operating expenses,
and income taxes from such acquired technology.

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In connection with the Torrent acquisition in
November 2001, we recorded a charge of $5.5 million, or
10.9% of the $50.7 million in total consideration and
liabilities assumed, for IPRD. The value allocated to the
project identified as IPRD was charged to operations in the
fourth quarter of 2001.

At the acquisition date, Torrents major
in-process project was to add a new graphical user interface as
well as additional features and functionality to an existing
product. This technology had not yet reached technological
feasibility and had no alternative uses. The technological
feasibility of the in-process product is established when the
enterprise has completed all planning, designing, coding and
testing activities that are necessary to establish that the
product can be produced to meet its design specifications.

At the date of the acquisition, management
estimated that completion of the project would be accomplished
by the end of February 2002. The initial development effort
commenced in January 2001. At the acquisition date, IPRD was
approximately 50% complete, based on costs expended to date and
estimated costs to complete the product. At the date of the
acquisition, we expected to invest another $1.3 million of
development costs in this product. During 2002, we decided not
to complete this project but instead to integrate Torrents
products into our Enterprise Integration Suite.

The value of IPRD was determined using an income
approach. This approach takes into consideration earnings
remaining after deducting from cash flows related to the
in-process technology, the market rates of return on
contributory assets including assembled workforce, customer
accounts and existing technology. The cash flows are then
discounted to present value at an appropriate rate. Discount
rates are determined by an analysis of the risks associated with
each of the identified intangible assets. The discount rate used
for IPRD was 35%, a premium over the estimated weighted-average
cost of capital of 26%. The resulting net cash flows to which
the discount rate was applied are based on managements
estimates of revenues, operating expenses, and income taxes from
such acquired technology. See Note 12 of Notes to
Consolidated Financial Statements.



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | Costs and Expenses  Informix
    Software  Year ended December 31, 2002 and six
    months ended December 31, 2001

The following table presents the costs and
expenses of Informix Software for the year ended
December 31, 2002 and the six months ended
December 31, 2001:

|                                      |  |              |      |              |  |   |      | 
|------------------------------------- |  | ------------ | ---- | ------------ |  | - | ---- | 
|                                      |  | Year         |      | Six Months  
|                                      |  | Ended        |      | Ended       
|                                      |  | December 31, |      | December 31,
|                                      |  | 2002         |      | 2001        
|                                      |  |              |      |             
|Cost of software                      |  | $            | 0.8  |              |  | $ | 0.8  | 
|Cost of services                      |  |              |     |              |  |   | 1.1  | 
|Sales and marketing                   |  |              |     |              |  |   | 2.0  | 
|Research and development              |  |              |     |              |  |   | 0.5  | 
|General and administrative            |  |              | 12.6 |              |  |   | 10.1 | 
|Merger, realignment and other charges |  |              | 9.5  |              |  |   | 36.8 | 
|                                      |  |              |      |              |  |   |      | 
|Total costs and expenses              |  | $            | 22.9 |              |  | $ | 51.3 | 
|                                      |  |              |      |              |  |   |      | 

The costs and expenses for Informix Software for
the twelve months ended December 31, 2002, excluding
merger, realignment and other charges totaled
$13.4 million. This amount included $9.1 million
related to closing the operations of the general and
administrative groups formerly located in our prior corporate
headquarters that was relocated to Westborough, Massachusetts,
including retention bonuses paid to terminated employees,
$5.2 million in dispute resolution and legal defense costs
for the settlement of disputes associated with the historical
database operations, $1.1 million for information
technology costs resulting from the separation of the
businesses, and $0.8 million for the write-off of foreign
value added taxes that are unrecoverable as a result of the sale
of the database business assets. These transitional costs were
offset by the reversal of $2.8 million that was not
required to be paid due to a favorable resolution of the EXPO
matter in Germany during the year. Barring unforeseen
circumstances, these transitional costs are expected to decline
significantly during 2003 to a relatively insignificant amount.

34



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The costs and expenses for Informix Software for
the six months ended December 31, 2001 consist primarily of
expenses resulting from the database operations in the Phase
2 countries and transitional database costs that are not
expected to recur. The $10.1 million of general and
administrative expenses for the six months ended
December 31, 2001 consisted primarily of: (1) a
$4.8 million charge recorded in respect of the actions
filed with respect to the Unidata operations in Asia (see
Note 13 of Notes to Consolidated Financial Statements) and
(2) $3.2 million of salary and related costs for
transitional employees and executives of the database business
that did not join IBM subsequent to the IBM Transaction.

Merger, realignment and other charges.Merger, realignment and other charges
for Informix Software for the twelve months ended
December 31, 2002 and December 31, 2001, respectively,
are discussed below  see IV. Merger,
Realignment and Other Charges  Ascential Software
Corporation.



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Costs and Expenses  Ascential
    Software Corporation (combined total of Informix Software and
    Ascential Software)  six months ended June 30,
    2001 and 2000.

As discussed above, separate costs and expense
data for the Ascential Software and Informix Software operations
is not available for 2000. Additionally, the total costs of the
consolidated company decreased significantly after the sale of
that business to IBM during the third quarter of 2001. Therefore
the comparison of the expenses for these periods will be made on
a consolidated basis by discussing the six months ended
June 30, 2001 as compared to the same period in 2000. The
following table depicts the costs and expenses for Ascential
Software Corporation for the six months ended June 30, 2001
and 2000, and December 31, 2001 and 2000, and the years
ended December 31, 2001 and 2000, respectively.

|                                               |  |                  |       |                  |  |              |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |         | 
|---------------------------------------------- |  | ---------------- | ----- | ---------------- |  | ------------ | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- |  |  | - | ------- | 
|                                               |  |                  |       |                  |  |             
|                                               |  | Six Months Ended |       | Six Months Ended |  | Years Ended 
|                                               |  | June 30,         |       | December 31,     |  | December 31,
|                                               |  |                  |       |                  |  |             
|                                               |  | 2001             |       | 2000             |  | 2001         |       | 2000 |  | 2001 |       | 2000
|                                               |  |                  |       |                  |  |              |       |      |  |      |       |     
|Cost of software                               |  | $                | 25.8  |                  |  | $            | 26.0  |      |  | $    | 8.5   |      |  | $ | 24.4  |  |  | $ | 34.3  |  |  | $ | 50.4    | 
|Cost of services                               |  |                  | 85.5  |                  |  |              | 96.8  |      |  |      | 22.0  |      |  |   | 87.8  |  |  |   | 107.5 |  |  |   | 184.6   | 
|Sales and marketing                            |  |                  | 164.1 |                  |  |              | 206.8 |      |  |      | 43.1  |      |  |   | 195.8 |  |  |   | 207.2 |  |  |   | 402.6   | 
|Research and development                       |  |                  | 71.9  |                  |  |              | 87.0  |      |  |      | 15.1  |      |  |   | 79.1  |  |  |   | 87.0  |  |  |   | 166.1   | 
|General and administrative                     |  |                  | 54.6  |                  |  |              | 45.9  |      |  |      | 27.0  |      |  |   | 54.1  |  |  |   | 81.6  |  |  |   | 100.0   | 
|Write-off of acquired research and development |  |                  |      |                  |  |              |      |      |  |      | 5.5   |      |  |   |      |  |  |   | 5.5   |  |  |   |        | 
|Merger, realignment and other charges          |  |                  | 5.6   |                  |  |              | 50.1  |      |  |      | 48.8  |      |  |   | 76.7  |  |  |   | 54.4  |  |  |   | 126.8   | 
|                                               |  |                  |       |                  |  |              |       |      |  |      |       |      |  |   |       |  |  |   |       |  |  |   |         | 
|Total costs and expenses                       |  | $                | 407.5 |                  |  | $            | 512.6 |      |  | $    | 170.0 |      |  | $ | 517.9 |  |  | $ | 577.5 |  |  | $ | 1,030.5 | 

Cost of software.Cost of software consists primarily
of: (1) amortization of previously capitalized software
development costs, any write-offs of previously capitalized
software and amortization of acquired developed technology,
(2) third-party royalties, and (3) distribution and
documentation costs. During the six months ended June 30,
2001, cost of software decreased 1% to $25.8 million from
$26.0 million from the same period in 2000. The decrease in
2001 was primarily due to a decrease in capitalized software
amortization as certain database products became fully amortized
during 2000. This decrease was partially offset by an increase
in third-party royalties associated with increased license
revenue from certain Ascential Software product offerings.

Cost of services.Cost of services consists primarily of
maintenance, consulting and training personnel expenses. Cost of
services decreased 12% to $85.5 million for the six months
ended June 30, 2001 when compared to the corresponding
period in 2000. Service margins remained fairly consistent at
64% to 65% during the six months ended June 30, 2001 and
2000. The absolute dollar decrease in cost of services in 2001
was primarily due to cost containment actions that included
headcount reductions as a result of the strategic realignment in
the second half of 2000.

Sales and marketing expenses.Sales and marketing expenses consist
primarily of salaries, commissions, marketing and communications
programs and related overhead costs. Sales and marketing
expenses decreased

35



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21% to $164.1 million for the six months
ended June 30, 2001 when compared to the same period in
2000. The decrease in 2001 was due primarily to a reduction in
headcount and related overhead costs, as we reduced our cost
profile in line with the reduction in revenue that we
experienced. This cost reduction resulted from the realignment
activities that we undertook during the second half of 2000. The
decrease was also attributable to a significant reduction in
advertising expenditures compared to the corresponding period in
2000. Sales and marketing expense declined as a percentage of
revenue to 39% as compared to 42% in the corresponding period in
2000.


Research and development expenses.Research and development expenses
consist primarily of salaries, project consulting and related
overhead costs for product development. Research and development
expenses for the six months ended June 30, 2001 were
$71.9 million, or 17% of net revenues, compared to
$87.0 million, or 18% of net revenues, for the
corresponding period in 2000. As a percentage of net revenues,
research and development expenses remained fairly consistent at
17% to 18% due to the realization of cost containment efforts
employed during 2001, which included headcount and overhead
reductions resulting from the realignment in 2000.

General and administrative expenses.General and administrative expenses
consist primarily of finance, legal, information systems, human
resources, bad debt expense and related overhead costs. General
and administrative expenses increased 19% to $54.6 million
for the six months ended June 30, 2001 when compared to the
same period in 2000. The increase in 2001 was caused by
increased bad debt and litigation related expenses offset by a
decrease in employee-related costs. Bad debt expense was
$5.3 million during the six months ended June 30, 2001
as a result of increased reserves against defaults by technology
start-up companies and other companies experiencing the downturn
in the general economic environment and also as a result of the
reserves required due to the discontinuation of our i.Sell
product during the first quarter of 2001. Litigation related
expenses increased to $6.9 million in the six months ended
June 30, 2001 primarily as a result of the charge that was
recognized during the period in connection with the tentative
settlement of the actions filed against the Unidata operations
in Asia. We assumed these obligations as part of the merger with
Ardent (see Note 13 of Notes to Consolidated Financial
Statements). During the six months ended June 30, 2001,
general and administrative expense increased as a percentage of
revenue to 13% compared to 9% for the corresponding period in
2000.



|    |                                                                           
|--- | --------------------------------------------------------------------------
|IV. | Merger, Realignment and Other
    Charges  Ascential Software Corporation

We have identified the recording of charges
related to our merger, realignment and other activities as one
of our critical accounting policies. Managements judgment
and estimates are required in determining the amount, timing and
classification of these charges.

We have recorded charges for facilities costs
related to our merger, realignment and other activities in
accordance with EITF No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)and EITF No. 95-3, Recognition of Liabilities in
Connection with a Purchase Business Combination. Facilities
costs relate to residual lease obligations and restoration costs
for facilities that we have permanently vacated or planned to
permanently vacate at December 31, 2002.

We have recorded charges for severance and
employment-related costs related to our merger, realignment and
other activities in accordance with either EITF No. 94-3,
or SFAS No. 112, Employers Accounting for
Post-employment Benefits. We do not accrue for severance
costs related to future terminations or a reduction-in-force
that are recognized in accordance with SFAS No. 112 because
the costs are not estimable.



| |                                                                             
| | ----------------------------------------------------------------------------
| | Merger, realignment and other
    charges  year ended December 31,
    2002

During 2002, we recorded $23.7 million of
merger, realignment and other charges of which
$20.1 million will be paid in cash. The following table
summarizes the components of these charges, distinguishing
charges

36



---



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that relate to the ongoing Ascential Software
business and those that relate to the Informix Software business
sold in the IBM Transaction (in millions):


|                                                |                                 |                                              |      |          |      |       |     |      |      |   |      |      |      | 
|----------------------------------------------- | ------------------------------- | -------------------------------------------- | ---- | -------- | ---- | ----- | --- | ---- | ---- | - | ---- | ---- | ---- | 
|                                                |                                 |                                             
|                                                |                                 | Year Ended December 31, 2002                
|                                                |                                 |                                             
|                                                |                                 | Ascential                                    |      | Informix |      |      
|                                                |                                 | Software                                     |      | Software |      | Total
|                                                |                                 |                                              |      |          |      |      
|Severance and employment related
    costs:     |                                 |                                              |      |          |      |       |     |      |      |   |      |     
|                                                | Third quarter 2002 realignment  |                                              | $    | 6.8      |      |       | $   |     |      |   | $    | 6.8  |     
|                                                | Second quarter 2002 realignment |                                              |      | 5.4      |      |       |     | 0.3  |      |   |      | 5.7  |     
|                                                | First quarter 2002 realignment  |                                              |      | 0.3      |      |       |     | 1.3  |      |   |      | 1.6  |     
|                                                | Third quarter 2001 realignment  |                                              |      | (0.4     | )    |       |     |     |      |   |      | (0.4 | )   
|                                                |                                 |                                              |      |          |      |       |     |      |      |   |      |     
|                                                |                                 | Total severance and employment related costs |      |          | 12.1 |       |     |      | 1.6  |   |      |      | 13.7 | 
|                                                |                                 |                                              |      |          |      |       |     |      |      |   |      |     
|Facilities and equipment costs:                 |                                 |                                              |      |          |      |       |     |      |      |   |      |     
|                                                | IBM Transaction                 |                                              |      |         |      |       |     | 4.3  |      |   |      | 4.3  |     
|                                                | Third quarter 2002 realignment  |                                              |      | 0.3      |      |       |     | 2.7  |      |   |      | 3.0  |     
|                                                | Second quarter 2002 realignment |                                              |      | 0.8      |      |       |     | 0.4  |      |   |      | 1.2  |     
|                                                | First quarter 2002 realignment  |                                              |      |         |      |       |     | 0.8  |      |   |      | 0.8  |     
|                                                | 2000 strategic realignment      |                                              |      |         |      |       |     | 0.2  |      |   |      | 0.2  |     
|                                                | Other                           |                                              |      |         |      |       |     | (0.3 | )    |   |      | (0.3 | )   
|                                                |                                 |                                              |      |          |      |       |     |      |      |   |      |     
|                                                |                                 | Total facilities and equipment costs         |      |          | 1.1  |       |     |      | 8.1  |   |      |      | 9.2  | 
|                                                |                                 |                                              |      |          |      |       |     |      |      |   |      |     
|Other:                                          |                                 |                                              |      |          |      |       |     |      |      |   |      |     
|                                                | Professional fees               |                                              |      | 0.4      |      |       |     |     |      |   |      | 0.4  |     
|                                                | Other exit costs                |                                              |      | 0.6      |      |       |     | (0.2 | )    |   |      | 0.4  |     
|                                                |                                 |                                              |      |          |      |       |     |      |      |   |      |     
|                                                |                                 | Total other                                  |      |          | 1.0  |       |     |      | (0.2 | ) |      |      | 0.8  | 
|                                                |                                 |                                              |      |          |      |       |     |      |      |   |      |     
|Total merger, realignment and other
    charges |                                 | $                                            | 14.2 |          |      | $     | 9.5 |      |      | $ | 23.7 |     
|                                                |                                 |                                              |      |          |      |       |     |      |      |   |      |     

The merger, realignment and other charges
recorded during 2002 for Ascential Software and Informix
Software are described below.



| |                   
| | ------------------
| | Ascential Software

Severance and employment related costs.During 2002, we approved plans to
realign our business operations to reduce costs, integrate
Vality into our existing operations and terminate our content
management product line. The approval of these plans resulted in
a charge of $12.1 million in connection with a worldwide
work force reduction of 298 employees. Our third quarter
2002 realignment plan included the termination of
159 employees, consisting of 142 employees to reduce
overall infrastructure costs and 17 employees previously
associated with our content management product line, and
resulted in a charge of $6.8 million. Our second quarter
2002 realignment plan included the termination of
135 employees, consisting of 91 employees made
redundant by the integration of Vality operations into our
existing operations and 44 employees previously associated
with our content management product line, and resulted in a
charge of $5.4 million. Our first quarter of 2002
realignment plan included the termination of 4 employees in
an effort to reduce costs by consolidating certain offices in
Europe and resulted in a charge of $0.3 million. During
2002, we also reversed $0.4 million of costs associated
with our third quarter 2001 realignment plan as certain
employees terminated employment voluntarily.

Facilities and equipment costs.Realignment plans approved in 2002
also resulted in a $1.1 million charge for facilities and
equipment costs and primarily consisted of an $0.8 million
charge in connection with our second quarter 2002 realignment
plan for the impairment of computer equipment related to the
termination of our content management product line.

37



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Other.These costs
consisted of $0.6 million of other exit costs, including
$0.3 million related to our third quarter 2002 realignment
plan and $0.3 million related to our second quarter of 2002
realignment plan. Additionally, $0.4 million was incurred
as part of our second quarter 2002 realignment plan for
professional fees to terminate our content management product
line.

Expected Savings.Barring unforeseen circumstances, when
completed, we expect that the realignment activities undertaken
during 2002 should result in a reduction in our operating
expenses by approximately $37.1 million on an annualized
basis compared to the year ended December 31, 2001. This
expected savings is comprised of $16.3 million in annual
selling and marketing expenses, $10.3 million in annual
costs of services, $6.5 million in annual research and
development expenses and $4.0 million in annual general and
administrative expenses. We estimate that approximately
$33.3 million of the $37.1 million will be cash
savings. We may record future merger, realignment, and other
charges as we continue to assess the size of our infrastructure.
We have also introduced certain additional cost cutting
initiatives that, barring unforeseen circumstances, should
result in future savings.



| |                  
| | -----------------
| | Informix Software

Severance and employment related costs.During 2002, we approved plans to
continue to eliminate costs from our Informix Software business
that resulted in the termination of 39 employees and a
charge of $1.6 million.

Facilities and equipment costs.During 2002, we approved realignment
plans that included revised estimates to exit facilities related
to the IBM Transaction and write-off of abandoned fixed assets
that resulted in a charge of $8.1 million. We recorded a
charge of $4.3 million to revise estimates to exit
facilities related to the IBM Transaction consisting of
$9.3 million for the revision of reserve assumptions to
reflect current market conditions and $2.0 million to
assume additional leases, partially offset by $7.0 million
related to the release from lease obligations of certain
facilities. We recorded a charge of $2.7 million related to
our third quarter 2002 realignment plan to write-off abandoned
fixed assets primarily at vacated facilities. We recorded a
charge of $0.4 million related to our second quarter 2002
realignment primarily for costs to manage facilities being
exited. We also recorded a charge of $0.8 million related
to our first quarter 2002 realignment plan for facility lease
management and other lease obligation costs and
$0.2 million related to our 2000 realignment plan for
revised sublease assumptions due to a change in market
conditions. During 2002 we reversed $0.3 million of costs
related to the IBM Transaction, primarily for the refund of a
facility deposit that had been reserved previously.

Other.During 2002,
we approved plans to eliminate costs from our Informix Software
business that resulted in $0.2 million of charges for other
exit costs and reversed $0.4 million related primarily to
the Ardent merger since reserves were no longer required as
obligations had been paid in full.

Expected Savings.We
do not expect that the realignment activities undertaken during
2002 will have a significant impact on future operating expenses
as these activities primarily relate to the adjustment of
reserves that were recorded in 2001.



| |                                                                         
| | ------------------------------------------------------------------------
| | Merger, realignment and other
    charges  year ended December 31, 2001

During 2001, we recorded $54.4 million of
merger, realignment and other charges of which
$50.2 million will be paid in cash. The following table
summarizes the components of these charges, distinguishing
charges

38



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that relate to the ongoing Ascential Software
business and those that relate to the assets of our database
business sold in the IBM Transaction (in millions):


|                                                  |                                                      |                              |      |          |  |       |      |      |  |  |      |      | 
|------------------------------------------------- | ---------------------------------------------------- | ---------------------------- | ---- | -------- |  | ----- | ---- | ---- |  |  | ---- | ---- | 
|                                                  |                                                      |                             
|                                                  |                                                      | Year Ended December 31, 2001
|                                                  |                                                      |                             
|                                                  |                                                      | Ascential                    |      | Informix |  |      
|                                                  |                                                      | Software                     |      | Software |  | Total
|                                                  |                                                      |                              |      |          |  |      
|Severance and employment-related
    costs        |                                                      |                              |      |          |  |       |      |      |  |  |      |     
|                                                  | Third quarter 2001 realignment                       |                              | $    | 10.1     |  |       | $    |     |  |  | $    | 10.1 | 
|                                                  | 2000 Strategic realignment                           |                              |      |         |  |       |      | 3.5  |  |  |      | 3.5  | 
|                                                  |                                                      |                              |      |          |  |       |      |      |  |  |      |     
|                                                  | Total  Severance and
    employment-related charges |                              |      | 10.1     |  |       |      | 3.5  |  |  |      | 13.6 | 
|                                                  |                                                      |                              |      |          |  |       |      |      |  |  |      |     
|Facilities and Equipment
    costs                |                                                      |                              |      |          |  |       |      |      |  |  |      |     
|                                                  | IBM Transaction                                      |                              | $    |         |  |       | $    | 35.3 |  |  | $    | 35.3 | 
|                                                  | 2000 Strategic realignment/ Other                    |                              |      |         |  |       |      | 2.1  |  |  |      | 2.1  | 
|                                                  |                                                      |                              |      |          |  |       |      |      |  |  |      |     
|Total  Facilities and Equipment charges          |                                                      |                              |     |          |  |       | 37.4 |      |  |  | 37.4 |     
|                                                  |                                                      |                              |      |          |  |       |      |      |  |  |      |     
|                                                  | Write-off of abandoned technology                    |                              |      | 1.9      |  |       |      |     |  |  |      | 1.9  | 
|                                                  | Costs to exit database commitments                   |                              |      |         |  |       |      | 1.0  |  |  |      | 1.0  | 
|                                                  | Professional fees and other                          |                              |      |         |  |       |      | 0.5  |  |  |      | 0.5  | 
|                                                  |                                                      |                              |      |          |  |       |      |      |  |  |      |     
|Total  merger, realignment and other
    charges |                                                      |                              | 12.0 |          |  |       | 42.4 |      |  |  | 54.4 |     
|                                                  |                                                      |                              |      |          |  |       |      |      |  |  |      |     

The merger, realignment and other charges for
Ascential Software and Informix Software recorded during 2001
are described below.



| |                   
| | ------------------
| | Ascential Software

During the third quarter of 2001, we approved
plans to realign the business operations of Ascential Software.
This included a worldwide workforce reduction, which was
initiated in the third quarter of 2001, of approximately
180 sales and marketing employees, 20 general and
administrative employees, 10 research and development
employees and 50 professional services and manufacturing
employees. As a result of this reduction in workforce, we
recorded $10.1 million of charges for severance and
employment related costs during 2001.

The $1.9 million charge for the write-off of
abandoned technology relates to our i.Decide product, which was
discontinued as a result of the sale of the database business
assets.



| |                  
| | -----------------
| | Informix Software

In connection with the IBM Transaction, we
recorded a $35.3 million charge during 2001 for facilities
and equipment costs related to facilities of the database
business that were not required by either IBM or the Ascential
Software business operations. This charge is comprised of a
charge for the estimated residual lease obligations, a write-off
related to leasehold improvements and other fixed assets at
these abandoned facilities.

As a result of the 2000 strategic realignment and
prior merger and realignment activities, we also recorded
charges of $3.5 million for severance and employment
related costs, $2.1 million for facilities and equipment
costs, $1.0 million to complete the exit from a commitment
related to the database business and $0.5 million for
ongoing professional fees related to the 2000 realignment.



| |                                                                             
| | ----------------------------------------------------------------------------
| | Merger, realignment and other
    charges  year ended December 31,
    2000

During 2000, we recorded $126.8 million of
merger, realignment and other charges of which
$86.8 million was a cash charge. The components of the
$126.8 million charge taken in 2000 are summarized below.

During the six months ended December 31,
2000, we recorded a charge of $76.8 million principally to
account for the actions undertaken to realign our operational
structure into two separate companies and to refine our product
strategy. Included in this charge was $40.9 million for
severance and employment related

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costs, $32.0 million for the write-off of
goodwill and intangible assets, $7.5 million for the
closure of facilities and equipment costs, $4.0 million for
costs to exit various commitments and programs,
$2.5 million of miscellaneous other charges and a credit of
approximately $10.1 million for adjustments recorded in
order to reduce previously accrued merger and restructuring
charges primarily for a decrease in estimated facility costs
related to the acquisition of Ardent.(see Note 16 to the
Notes to Consolidated Financial Statements).


During the quarter ended March 31, 2000, we
recorded a charge of $50.0 million associated with the
acquisition of Ardent. Of this amount, approximately
$10.1 million related to integration and transition costs
incurred during the quarter ended March 31, 2000. Also
included in the $50.0 million was approximately
$39.9 million of accrued merger and restructuring costs
which consisted of the following components: $14.5 million
for financial advisor, legal and accounting fees related to the
acquisition; $13.0 million for severance and employment
related costs; $8.9 million for the closure of facilities
and equipment costs; and $3.5 million for the write-off of
redundant technology and other duplicate costs.



|   |                                                            
|-- | -----------------------------------------------------------
|V. | Other Income (Expense) 
    Ascential Software Corporation

The following table depicts the components of
other income and expense for Ascential Software Corporation for
the years ended December 31, 2002, 2001 and 2000:

|                                                          |  |                          |      |      |  |      |       |   |  |   |      |  
|--------------------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ----- | - |  | - | ---- | -
|                                                          |  |                         
|                                                          |  | Years Ended December 31,
|                                                          |  |                         
|                                                          |  | 2002                     |      | 2001 |  | 2000
|                                                          |  |                          |      |      |  |     
|                                                          |  |                         
|                                                          |  | (in millions)           
|Interest income                                           |  | $                        | 20.2 |      |  | $    | 24.1  |   |  | $ | 14.3 |  
|Interest expense                                          |  |                          | (0.1 | )    |  |      | (0.2  | ) |  |   | (0.5 | )
|Gain on sale of database business, net of
    adjustments |  |                          | 3.0  |      |  |      | 865.7 |   |  |   |     |  
|Impairment of long-term investments                       |  |                          | (2.2 | )    |  |      | (10.2 | ) |  |   |     |  
|Other income, net                                         |  |                          | (0.9 | )    |  |      | (0.9  | ) |  |   | 5.0  |  

Interest income  years ended
December 31, 2002, 2001 and 2000.Interest income for the year ended
December 31, 2002 was $3.9 million less than the
amount for the same period in 2001. This is a result of an
approximate 48% decline in average rates of return on cash as a
result of the drop in interest rates that occurred during the
year, however, this decline in interest rates is offset by our
higher average cash and investment balances during 2002. Our
cash and investment balances were 28% higher, on a quarterly
average, for the year ended December 31, 2002 compared with
the same period in 2001 because the proceeds from the IBM
Transaction were not received until the third quarter of 2001.
Additionally, interest income includes approximately
$6.2 million in 2002 for interest accrued during the year
on the $100.0 million holdback associated with the IBM
Transaction (included in Other current assets at
December 31, 2002) while only $3.0 million in interest
accrued on the holdback during 2001. The balance due on the
holdback and accrued interest was paid by IBM in January 2003,
therefore the related interest income, which accrued at a rate
of 6%, will not recur in 2003. Future interest on the holdback
amount paid to us by IBM in January 2003, to the extent that it
remains invested, will be earned at prevailing interest rates,
which are currently much lower than 6% (see Note 14 to the
Notes to Consolidated Financial Statements).

Interest income increased to $24.1 million
in 2001 from $14.3 million in 2000. The increase in 2001,
when compared to 2000, was due to an increase in the average
interest-bearing cash and short-term investment balances as a
result of the proceeds received from the IBM Transaction as well
as $3.0 million interest earned during 2001 on the holdback
associated with the IBM Transaction.

Interest expense  years ended
December 31, 2002, 2001 and 2000.Interest expense decreased to
$0.1 million for 2002 when compared to 2001 due to a
decrease in interest charges on capital lease payments. Interest
expense decreased by $0.3 million for 2001 when compared to
2000 also primarily due to a decrease in interest charges on
capital lease payments.

Gain on sale of database business, net of
adjustments  years ended December 31, 2002, 2001
and 2000.During the quarter ended
September 30, 2001, we completed the IBM Transaction. In
connection with this sale of our database business assets to
IBM, a gain of $865.7 million was recorded in the year ended

40



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December 31, 2001. During 2002, we recorded
a net increase of $3.0 million to the gain on sale of
database business. The $3.0 million net increase was
comprised of a $7.3 million increase due to the completion
of the final audit of the working capital transferred to IBM
partially offset by a $3.2 million payment to IBM to
resolve informal matters raised by IBM related to the IBM
Transaction, a $0.9 million decrease for administrative and
professional fees required to dissolve subsidiaries rendered as
inactive as a consequence of the IBM Transaction and a
$0.2 million decrease related to adjustments to the working
capital transferred to IBM.


Impairment of long-term
investments  years ended December 31, 2002, 2001
and 2000.We assess the valuation of
our strategic equity investments on a quarterly basis to
determine whether there has been a decline in the carrying
amount of the investment that is other-than-temporary. We have
established criteria that we use in this determination as
follows: (1) whether the value of an investment has
declined below its adjusted cost; (2) whether the decline
in value of an investment below its adjusted cost is
other-than-temporary; and (3) the amount of any realized
loss that should be recorded. As a result of our quarterly
assessments, we realized a loss of $2.2 million during 2002
and $10.2 million during 2001 for declines in value that
were considered other-than-temporary. There were no
corresponding losses recorded in 2000.

As of December 31, 2002, the remaining book
value of long-term investments was approximately
$1.0 million. Due to the rapid changes occurring in the
business sectors in which our strategic investments operate,
additional impairment charges are possible in the future.

Other, net  years ended
December 31, 2002, 2001 and 2000.Other, net for the year ended
December 31, 2002 totaled a loss of $0.9 million. The
most significant contributing factors consisted of
$4.0 million in net foreign exchange losses related
principally to the revaluation of the balance sheets of foreign
subsidiaries whose functional currencies are the U.S. Dollar,
primarily Argentina, Mexico and Brazil, $0.5 million in net
realized gains on short-term investments and $2.7 million
in income from the proceeds received in connection with the
favorable outcome of litigation during the year (see
Note 13 of Notes to Consolidated Financial Statements). For
2001, other expense included approximately $4.5 million of
net foreign currency transaction losses offset primarily by
$1.6 million of rent on subleased facilities in excess of
our obligations to landlords, a gain of approximately
$0.8 million on the cash surrender value of life insurance
policies and $0.4 million of net realized gains on the sale
of a long-term investment. For 2000, other income included
approximately $2.9 million of net realized gains on the
sale of long-term investments and approximately
$1.3 million of tax refunds received in China. We continue
to liquidate various subsidiaries that were active prior to the
IBM Transaction but which are no longer required for our ongoing
operations. As these subsidiaries become substantially
liquidated, the translation adjustment that has accumulated on
our balance sheet in connection with the historical monthly
revaluation of their assets and liabilities will be recorded as
other income or expense. In addition, we are currently reducing
our operations in Latin America.



| |                                                          
| | ---------------------------------------------------------
| | VI.     Income
    Taxes  Ascential Software Corporation

|                                  |  |                          |       |      |  |      |       |   |  |   |       |   
|--------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | --
|                                  |  |                         
|                                  |  | Years Ended December 31,
|                                  |  |                         
|                                  |  | 2002                     |       | 2001 |  | 2000
|                                  |  |                          |       |      |  |     
|Income (loss) before income taxes |  | $                        | (81.4 | )    |  | $    | 782.3 |   |  | $ | (82.3 | ) 
|Income tax expense (benefit)      |  |                          | (17.8 | )    |  |      | 157.4 |   |  |   | 16.0  |   
|Effective tax rate                |  |                          | 21.9  | %    |  |      | 20.1  | % |  |   | (19.4 | )%

During 2002, we realized a tax benefit on losses
generated at a rate that was less than the statutory rate of
approximately 40%. This was due to the impact of the U.S.
alternative minimum tax on the carry-back of U.S. net operating
losses and the impact of income taxes and withholding taxes owed
in foreign jurisdictions. Income tax expense in 2001 was
primarily attributable to taxable gains in the United States and
foreign jurisdictions resulting from the gain from the IBM
Transaction. The income tax expense on the gain resulting from
the IBM Transaction was calculated after the utilization of net
operating loss carryforwards that were previously fully
reserved. Income tax expense in 2000 resulted primarily from
foreign withholding taxes and taxable earnings in certain
foreign jurisdictions.

41



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##### Table of Contents



Liquidity and Capital Resources 
Ascential Software Corporation

Our cash and cash equivalents (Cash)
and short-term investments totaled $504.8 million at
December 31, 2002 and consisted of $216.6 million in
Cash and $288.2 million of short-term investments. At
December 31, 2001, Cash and short-term investments totaled
$758.6 million and consisted of $489.3 million in Cash
and $269.3 million of short-term investments. The
$253.8 million decrease in Cash and short-term investments
for the year ended December 31, 2002 consisted of net cash
payments of $114.5 million related to acquisitions and
technology investments, net cash payments of $71.5 million
for financing activities, net cash payments of
$41.1 million related to merger, realignment and other
costs and the IBM Transaction, and net cash payments of
$26.7 million related to other uses. The net cash payments
of $114.5 million related to acquisitions and technology
investments consisted of $94.2 million to acquire Vality,
$6.5 million of capitalized software development costs,
$6.3 million of payments accrued in 2001 to acquire
Torrent, $4.5 million to acquire technology from Metagenix
and $3.0 million primarily related to the acquisition of
computer equipment and software. The net cash payments of
$71.5 million for financing activities consisted of
$74.1 million to repurchase 26.5 million shares of our
Common Stock partially offset by $2.6 million of proceeds
received through the issuance of 1.7 million shares of our
Common Stock primarily for options exercised and for purchases
related to our employee stock purchase plan. The net cash
payments of $41.1 million related to merger, realignment
and other costs and the IBM Transaction consisted of
$39.6 million of payments related to our merger and
realignment activities, $9.3 million of payments related to
accrued IBM Transaction costs, and $3.2 million of payments
to resolve informal matters raised by IBM related to the IBM
Transaction, partially offset by $11.0 million of proceeds
from the sale of the assets of our database business to IBM. The
net cash payments of $26.7 million related to other uses
consisted of $22.4 million of payments to fund our
operating loss and the payment of $15.8 million in
connection with the resolution of several disputes, including
outstanding matters related to our Informix Software business
partially offset by $8.3 million from the effect of
exchange rates on Cash, and $3.2 million from cash
generated by short-term investments.

In January 2003, we received $109.3 million
from IBM, related to the IBM Transaction, that consisted of a
$100.0 million holdback plus $9.3 million of interest
on the holdback (see Note 14 in the Notes to Consolidated
Financial Statements).

We plan to continue to invest in research and
development activities as well as sales and marketing and
product support. Our investment in property and equipment is
expected to continue, barring unforeseen circumstances, as we
purchase computer systems for research and development, sales
and marketing, and support and administrative staff. During the
year ended December 31, 2002, capital expenditures totaled
$3.0 million.

As of December 31, 2002, we did not have any
significant long-term debt or significant commitments for
capital expenditures. We believe that our current Cash and
short-term investments balances will be sufficient to meet our
working capital requirements for at least the next twelve
months. We also believe that we will have sufficient resources
to continue to fund repurchases of common stock under the
announced $350 million stock repurchase program, and to
fund the costs of current and future facilities, severance and
other obligations associated with the IBM Transaction in
addition to current and future restructuring initiatives.

The following table presents our contractual
obligations as of December 31, 2002 (in millions):

|                                   |  |       |      |                        |  |           |      |           |  |       |      |  |  |   |     |  |  |   |     | 
|---------------------------------- |  | ----- | ---- | ---------------------- |  | --------- | ---- | --------- |  | ----- | ---- |  |  | - | --- |  |  | - | --- | 
|                                   |  |       |      |                       
|                                   |  |       |      | Payments Due By Period
|                                   |  |       |      |                       
|                                   |  |       |      | Less Than              |  |           |      | After 5  
|Contractual Obligations            |  | Total |      | 1 Year                 |  | 13 Years |      | 45 Years |  | Years
|                                   |  |       |      |                        |  |           |      |           |  |      
|Long-term debt                     |  | $     |     |                        |  | $         |     |           |  | $     |     |  |  | $ |    |  |  | $ |    | 
|Capital lease obligations          |  |       |     |                        |  |           |     |           |  |       |     |  |  |   |    |  |  |   |    | 
|Operating leases                   |  |       | 45.7 |                        |  |           | 14.1 |           |  |       | 18.0 |  |  |   | 9.4 |  |  |   | 4.2 | 
|Unconditional purchase obligations |  |       |     |                        |  |           |     |           |  |       |     |  |  |   |    |  |  |   |    | 
|Other long-term obligations        |  |       |     |                        |  |           |     |           |  |       |     |  |  |   |    |  |  |   |    | 
|                                   |  |       |      |                        |  |           |      |           |  |       |      |  |  |   |     |  |  |   |     | 
|Total contractual cash obligations |  | $     | 45.7 |                        |  | $         | 14.1 |           |  | $     | 18.0 |  |  | $ | 9.4 |  |  | $ | 4.2 | 
|                                   |  |       |      |                        |  |           |      |           |  |       |      |  |  |   |     |  |  |   |     | 

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Obligations under operating leases exclude
$58.9 million of minimum lease payments for a 200,000
square foot facility in Santa Clara, California that we leased
in November 1996. We assigned this lease to Network Associates,
Inc., an unrelated third party, in the fourth quarter of 1997.
We remain contingently liable for minimum lease payments through
March 2013 under this assignment that are included in the table
below.

The following table presents our other commercial
commitments as of December 31, 2002 (in millions):

|                                   |  |       |      |                                            |  |           |     |           |  |       |      |  |  |   |      |  |  |   |      | 
|---------------------------------- |  | ----- | ---- | ------------------------------------------ |  | --------- | --- | --------- |  | ----- | ---- |  |  | - | ---- |  |  | - | ---- | 
|                                   |  |       |      |                                           
|                                   |  |       |      | Amount of Commitment Expiration Per Period
|                                   |  |       |      |                                           
|                                   |  |       |      | Less Than                                  |  |           |     | Over 5   
|Other Commercial Commitments       |  | Total |      | 1 Year                                     |  | 13 Years |     | 45 Years |  | Years
|                                   |  |       |      |                                            |  |           |     |           |  |      
|Lines of credit                    |  | $     |     |                                            |  | $         |    |           |  | $     |     |  |  | $ |     |  |  | $ |     | 
|Standby letters of credit          |  |       | 1.3  |                                            |  |           |    |           |  |       |     |  |  |   | 0.7  |  |  |   | 0.6  | 
|Guarantees                         |  |       | 58.9 |                                            |  |           | 5.0 |           |  |       | 10.5 |  |  |   | 11.2 |  |  |   | 32.2 | 
|Standby repurchase obligations     |  |       |     |                                            |  |           |    |           |  |       |     |  |  |   |     |  |  |   |     | 
|Other commercial commitments       |  |       |     |                                            |  |           |    |           |  |       |     |  |  |   |     |  |  |   |     | 
|                                   |  |       |      |                                            |  |           |     |           |  |       |      |  |  |   |      |  |  |   |      | 
|Total contractual cash obligations |  | $     | 60.2 |                                            |  | $         | 5.0 |           |  | $     | 10.5 |  |  | $ | 11.9 |  |  | $ | 32.8 | 
|                                   |  |       |      |                                            |  |           |     |           |  |       |      |  |  |   |      |  |  |   |      | 

In May 2002, we entered into a standby letter of
credit that expires by May 2006 and guarantees $0.7 million
of potential tax payments related to certain payments made to
one of our former officers. These potential tax payments, which
have been fully reserved, relate to severance paid to that
former officer in accordance with a change in control agreement
that was triggered as part of the IBM Transaction. Payment under
the standby letter of credit would be due upon final assessment
of this tax liability. In addition, we were also required to
enter into standby letters of credit to guarantee approximately
$0.6 million of lease payments for certain facilities in
Europe. These guarantees do not have expiration dates and would
allow landlords to obtain lease payments from our bank if we
were to default on our lease payment obligations.

Our Cash and short-term investments totaled
$758.6 million at December 31, 2001. This represented
an increase of $541.6 million from $217.0 million at
December 31, 2000, which was primarily the result of
$888.4 million in proceeds received from the IBM
Transaction (see Note 14 of Notes to Consolidated Financial
Statements) offset by stock repurchases of $143.0 million,
income tax payments of $67.6 million, the purchase of
Torrent for $44.1 million and a cash payment of
$26.2 million in connection with the settlement of our
private securities litigation (see Note 13 of Notes to
Consolidated Financial Statements). During 2001, capital
expenditures totaled $17.7 million. As of December 31,
2001, we did not have any significant long-term debt or
significant commitments for capital expenditures.



| |                                   
| | ----------------------------------
| | Disclosures About Market Rate Risk

Market Rate Risk.The following discussion about our
market rate risk involves forward-looking statements. Actual
results could differ materially from those projected in the
forward-looking statements. We are exposed to market risk
related to changes in interest rates, foreign currency exchange
rates and equity security price risk. We do not use derivative
financial instruments for speculative or trading purposes.

Interest Rate Risk.Our exposure to market rate risk for
changes in interest rates relates primarily to our investment
portfolio. We maintain a short-term investment portfolio
consisting mainly of debt securities with an average maturity of
less than two years. We do not use derivative financial
instruments in our investment portfolio and we place our
investments with high quality issuers and, by policy, limit the
amount of credit exposure to any one issuer. We are averse to
principal loss and seek to ensure the safety and preservation of
our invested funds by limiting default, market and reinvestment
risk. These available-for-sale securities are subject to
interest rate risk and will decrease in value if market interest
rates increase. If market interest rates were to increase
immediately and uniformly by 10 percent from levels at
December 31, 2002, the fair value of the portfolio would
decline by approximately $1.0 million. Although we intend
to utilize our fixed income investments to fund operations and
acquisitions as needed, we currently have the ability to hold
our fixed

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income investments until maturity and believe
that the effect, if any, of potential near-term changes in
interest rates on our financial position, results of operations
and cash flows would not be material.


Equity Security Price Risk.We hold a small portfolio of
marketable-equity traded securities that are subject to market
price volatility. Equity price fluctuations of plus or minus 10%
would have an impact of $0.1 million on the value of these
securities in 2002.

Foreign Currency Exchange Rate Risk.We enter into foreign currency forward
exchange contracts to reduce our exposure to foreign currency
risk due to fluctuations in exchange rates underlying the value
of inter-company accounts receivable and payable denominated in
foreign currencies (primarily European and Asian currencies)
until such receivables are collected and payables are disbursed.
A foreign currency forward exchange contract obligates us to
exchange predetermined amounts of specified foreign currencies
at specified exchange rates on specified dates or to make an
equivalent U.S. dollar payment equal to the value of such
exchange. These foreign currency forward exchange contracts are
denominated in the same currency in which the underlying foreign
currency receivables or payables are denominated and bear a
contract value and maturity date which approximate the value and
expected settlement date of the underlying transactions. As
these contracts are not designated as hedges, as defined by SFAS
No. 133, Accounting for Derivative Instruments and
Hedging Activities, discounts or premiums (the difference
between the spot exchange rate and the forward exchange rate at
inception of the contract) are recorded in earnings to other
income (expense), net at the time of purchase, and changes in
market value of the underlying contract are recorded in earnings
as foreign exchange gains or losses in the period in which they
occur. We operate in certain countries in Latin America, Eastern
Europe, and Asia/ Pacific where there are limited forward
foreign currency exchange markets and thus we may have un-hedged
exposures in these currencies.

Most of our international revenue and expenses
are denominated in local currencies. Due to the substantial
volatility of currency exchange rates, among other factors, we
cannot predict the effect of exchange rate fluctuations on our
future operating results. Although we take into account changes
in exchange rates in our pricing strategy, there would be a time
lapse between any sudden or significant exchange rate movements
and our implementation of a revised pricing structure. In
addition, we cannot predict the effect of exchange rate
fluctuations on our future operating results because of the
length of our average sales cycle which depends on a number of
factors including the level of competition and the size of the
transaction. Notwithstanding our efforts to manage foreign
exchange risk, there can be no assurances that our hedging
activities will adequately protect us against the risks
associated with foreign currency fluctuations.

The table below provides information about our
foreign currency forward exchange contracts. The information is
provided in U.S. dollar equivalents and presents the notional
amount (contract amount), the weighted average contractual
foreign currency exchange rates and fair value. Fair value
represents the difference in value of the contracts at the
market forward rate at December 31, 2002 and the forward
contract rate. All contracts mature within three months. In
addition to the contracts listed below, at December 31,
2002, we had accrued, as a component of accrued liabilities on
our consolidated balance sheet, a loss of $1.7 million
related to the fair market value of forward currency contracts
that had closed as of December 31, 2002 but were not
settled until January 3, 2003.

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| |                  
| | -----------------
| | Forward Contracts

|                                                 |                                           |                  |        |          |  |                |  |           |  |  |   |   | 
|------------------------------------------------ | ----------------------------------------- | ---------------- | ------ | -------- |  | -------------- |  | --------- |  |  | - | - | 
|                                                 |                                           |                 
|                                                 |                                           | Weighted Average
|                                                 |                                           |                 
|                                                 |                                           | Contract         |        | Contract |  |               
|At December 31, 2002                             |                                           | Amount           |        | Rate     |  | Fair Value    
|                                                 |                                           |                  |        |          |  |               
|                                                 |                                           | (In thousands)   |        |          |  | (In thousands)
|Forward currency to be sold under contract:      |                                           |                  |        |          |  |                |  |           |  |  |   |  
|                                                 | Euro Dollar                               |                  | $      | 10,247   |  |                |  | 1.042     |  |  |   |  | 
|                                                 | Australian Dollar                         |                  |        | 6,246    |  |                |  | 0.558     |  |  |   |  | 
|                                                 | New Taiwan Dollar                         |                  |        | 5,341    |  |                |  | 34.830    |  |  |   |  | 
|                                                 | Thailand Bhat                             |                  |        | 3,228    |  |                |  | 43.490    |  |  |   |  | 
|                                                 | Korean Won                                |                  |        | 3,207    |  |                |  | 1,208.500 |  |  |   |  | 
|                                                 | Swiss Franc                               |                  |        | 3,318    |  |                |  | 1.389     |  |  |   |  | 
|                                                 | Singapore Dollar                          |                  |        | 2,517    |  |                |  | 1.737     |  |  |   |  | 
|                                                 | South African Rand                        |                  |        | 3,252    |  |                |  | 8.965     |  |  |   |  | 
|                                                 | Japanese Yen                              |                  |        | 1,244    |  |                |  | 118.550   |  |  |   |  | 
|                                                 | Norwegian Krona                           |                  |        | 1,649    |  |                |  | 7.035     |  |  |   |  | 
|                                                 | New Zealand Dollar                        |                  |        | 1,143    |  |                |  | 0.517     |  |  |   |  | 
|                                                 | Brazilian Pesos                           |                  |        | 1,848    |  |                |  | 3.625     |  |  |   |  | 
|                                                 | Other (individually less than $1 million) |                  |        | 923      |  |                |  | *         |  |  |   |  | 
|                                                 |                                           |                  |        |          |  |                |  |           |  |  |   |  
|Total                                            |                                           | $                | 44,163 |          |  |                |  |           |  |  |  |  
|                                                 |                                           |                  |        |          |  |                |  |           |  |  |   |  
|Forward currency to be purchased under contract: |                                           |                  |        |          |  |                |  |           |  |  |   |  
|                                                 | British Pound                             |                  | $      | 29,154   |  |                |  | 1.599     |  |  |   |  | 
|                                                 | Other (individually less than $1 million) |                  |        | 733      |  |                |  | *         |  |  |   |  | 
|                                                 |                                           |                  |        |          |  |                |  |           |  |  |   |  
|Total                                            |                                           | $                | 29,887 |          |  |                |  |           |  |  |  |  
|                                                 |                                           |                  |        |          |  |                |  |           |  |  |   |  
|Grand Total                                      |                                           | $                | 74,050 |          |  |                |  |           |  |  |  |  
|                                                 |                                           |                  |        |          |  |                |  |           |  |  |   |  



---



|  |             
|- | ------------
|* | Not material



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

See Note 1 of Notes to Consolidated
Financial Statements.

Factors That May Affect Future
Results



| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not make effective use of the
    proceeds of our substantial cash resources, our financial
    results could suffer and the value of our common stock could
    decline.

Our ability to increase stockholder value is
dependent, in part, on our effective use of the cash proceeds of
the sale of our database business assets to IBM. At
December 31, 2002, as a result of the IBM Transaction and
our continuing operations, we held approximately
$504.8 million in cash, cash equivalents and short-term
investments. We intend to use the proceeds to continue to
operate our business, repurchase shares of our common stock and
to finance any strategic acquisitions. We cannot ensure that
these measures will increase stockholder value.



| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to increase revenue from,
    and expand the market share of our products, our financial
    results will be materially adversely affected.

If we do not increase sales of our enterprise
data integration products, our financial results will be
materially adversely affected. Our revenue is derived almost
entirely from our core data integration products: DataStage,
INTEGRITY, and MetaRecon. In order to increase revenues and grow
our business, we must be

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able to increase sales of these products and our
share of the enterprise data integration market. We cannot
ensure that our current customers will continue to purchase our
data integration product offerings and related services and that
new customers will choose our solutions over our
competitors product offerings.




| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the enterprise data integration market
    declines or does not grow, we may sell fewer products and
    services and our business may be unable to sustain its current
    level of operations.

If the growth rates for the enterprise data
integration market decline for any reason, there will be a
decrease in demand for our products and services, which would
have a material adverse effect on our financial results. We have
invested substantial resources in developing data integration
products and services to compete in this market. The market for
these products and services is evolving, and its growth depends
upon an increasing need to store and manage complex data and
upon broader market acceptance of our products as a solution for
this need. Declining demand for our products and services could
threaten our ability to sustain our present level of operations
and meet our expectations for future growth.



| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | Intense competition could adversely affect
    our ability to sell our products and services.

We may not be able to compete successfully
against current and future competitors which could impair our
ability to sell our products. The market for our products and
services is highly competitive, diverse and subject to rapid
change. In particular, we expect that the technology underlying
our products and services will continue to change rapidly. It is
possible that our products and solutions will be rendered
obsolete by technological advances.

We currently face intense competition from a
number of sources, including several large vendors that develop
and market applications, development tools, decision support
products, consulting services and/or complete database-driven
solutions for the Internet. Our principal competitors in the
enterprise data integration business include in-house customer
programming for extracting and delivering data and vendors of
ETL products that address that part of the data integration
problem, such as ETI, Informatica, Hummingbird and Sagent.
Principal data profiling competitors include Avellino, and
Evoke. Principal data quality competitors include Firstlogic,
Innovative systems, Group One and Trillium. These competitors
may be able to respond more quickly than we can to new or
emerging technologies, evolving markets and changes in customer
requirements. In addition, market consolidations could create
more formidable competitors.



| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Competition may affect the pricing of our
    products or services and changes in product mix may occur,
    either of which may reduce our profit margins.

Existing and future competition or changes in our
product or service offerings or pricing could result in an
immediate reduction in the prices of our products or services.
In addition, a significant change in the mix of software
products and services that we sell, including the mix between
higher margin software and maintenance products and lower margin
consulting and training, could materially adversely affect our
operating results for future periods. In addition, the pricing
strategies of competitors in the software industry have
historically been characterized by aggressive price discounting
to encourage volume purchasing by customers. We may not be able
to compete effectively against competitors who continue to
aggressively discount the prices of their products.



| |                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our financial results are subject to
    fluctuations caused by many factors that could result in our
    failing to achieve anticipated financial results.

Our quarterly and annual financial results have
varied significantly in the past and are likely to continue to
vary in the future due to a number of factors described below
and elsewhere in this Managements Discussion and
Analysis of Financial Conditions and Results of Operations
section, many of which are beyond our control. In particular, if
a large number of the orders that are typically booked at the
end of a quarter are not booked, our net income for that quarter
could be substantially reduced. In addition, the failure to meet
market

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expectations could cause a sharp drop in our
stock price. These and any one or more of the factors listed
below or other factors could cause us not to achieve our revenue
or profitability expectations. These factors include:




| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Changes in demand for our products and services,
    including changes in growth rates in the software industry as a
    whole and in the enterprise data integration market,
|
| |  | The size, timing and contractual terms of large
    orders for our software products and services,                                                                           
|
| |  | Possible delays in or inability to recognize
    revenue as the result of revenue recognition rules,                                                                         
|
| |  | The budgeting cycles of our customers and
    potential customers,                                                                                                           
|
| |  | Any downturn in our customers businesses,
    in the domestic economy or in international economies where our
    customers do substantial business,                        
|
| |  | Changes in our pricing policies resulting from
    competitive pressures, such as aggressive price discounting by
    our competitors, or other factors,                     
|
| |  | Our ability to develop and introduce on a timely
    basis new or enhanced versions of our products and services,                                                            
|
| |  | Unexpected needs for capital expenditures or
    other unanticipated expenses,                                                                                               
|
| |  | Changes in the mix of revenues attributable to
    domestic and international sales, and                                                                                     
|
| |  | Seasonal fluctuations in buying patterns.                                                                                                                                    



| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our recognition of deferred revenue is
    subject to future performance obligations and may not be
    representative of revenues for succeeding periods.

Our deferred revenue was $17.7 million as of
December 31, 2002. The timing and ultimate recognition of
our deferred revenue depends on our performance of various
service obligations. Because of the possibility of customer
changes in development schedules, delays in implementation and
development efforts and the need to satisfactorily perform
product support services, deferred revenue at any particular
date may not be representative of actual revenue for any
succeeding period.



| |                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our common stock has been and likely will
    continue to be subject to substantial price and volume
    fluctuations that may prevent stockholders from reselling their
    shares at or above the prices at which they purchased their
    shares.

Fluctuations in the price and trading volume of
our common stock may prevent stockholders from selling their
shares at or above the prices at which they purchased their
shares. Stock prices and trading volumes for many software
companies fluctuate widely for a number of reasons, including
some reasons that may be unrelated to the companies
businesses or financial results. This market volatility, as well
as general domestic or international economic, market and
political conditions, including threats of terrorism, could
materially adversely affect the market price of our common stock
without regard to our operating performance. In addition, our
operating results may be below the expectations of public market
analysts and investors. The market price of our common stock has
fluctuated significantly in the past and may continue to
fluctuate significantly for a number of reasons, including:



| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | Market uncertainty about our business prospects
    or the prospects for the enterprise data integration market,
|
| |  | Revenues or results of operations that do not
    meet or exceed analysts and investors expectations,         
|
| |  | The introduction of new products or product
    enhancements by us or our competitors,                          
|
| |  | Any challenges integrating people, operations or
    products associated with recent acquisitions,              

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| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | General business conditions in the software
    industry, the technology sector, or in the domestic or
    international economies, and
|
| |  | Uncertainty and economic instability resulting
    from terrorist acts and other acts of violence or war.                              



| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | Our financial success depends upon our
    ability to maintain and leverage relationships with strategic
    partners.

We may not be able to maintain our strategic
relationships or attract sufficient additional strategic
partners who are able to market our products and services
effectively. Our ability to increase the sales of our products
and our future success depends in part upon maintaining and
increasing relationships with strategic partners. In addition to
our direct sales force, we rely on relationships with a variety
of strategic partners, including systems integrators, resellers
and distributors in the United States and abroad. Further, we
have become more reliant upon resellers in international areas
in which we do not have a direct sales team. Our strategic
partners may offer products of several different companies,
including, in some cases, products that compete with our
products. In addition, our strategic partners may acquire
businesses or product lines that compete with our products. We
have limited control, if any, as to whether these strategic
partners devote adequate resources to promoting, selling and
implementing our products. If our strategic partners do not
devote adequate resources for implementation of our products and
services, we will incur substantial additional costs associated
with hiring and training additional qualified technical
personnel to implement solutions for our customers. In addition,
our relationships with our strategic partners may not generate
enough revenue to offset the significant resources used to
develop and support these relationships.



| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to retain our key
    personnel and attract and retain the new personnel necessary to
    grow our businesses, which could materially adversely affect our
    ability to develop and sell our products, support our business
    operations and grow our business.

The competition for experienced, well-qualified
personnel in the software industry is intense. Our future
success depends on retaining the services of key personnel in
all functional areas of our company, including engineering,
sales, marketing, consulting and corporate services. For
instance, we may be unable to continue to develop and support
technologically advanced products and services if we fail to
retain and attract highly qualified engineers, and to market and
sell those products and services if we fail to retain and
attract well-qualified marketing and sales professionals. We may
be unable to retain key employees in all of these areas and we
may not succeed in attracting new employees. If we fail to
retain, attract and motivate key employees, we may be unable to
develop, market and sell new products and services, which could
materially adversely affect our operating and financial results.



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Fluctuations in the value of foreign
    currencies could result in currency transaction
    losses.

Despite efforts to manage foreign exchange risk,
our hedging activities may not adequately protect us against the
risks associated with foreign currency fluctuations,
particularly in hyper-inflationary countries where hedging is
not available or practical. As a consequence, we may incur
losses in connection with fluctuations in foreign currency
exchange rates. Most of our international revenue and expenses
are denominated in local currencies. Due to the substantial
volatility of currency exchange rates, among other factors, we
cannot predict the effect of exchange rate fluctuations on our
future operating results. Although we take into account changes
in exchange rates in our pricing strategy, there would be a time
lapse between any sudden or significant exchange rate movements
and our implementation of a revised pricing structure.

Accordingly, we may have substantial pricing
exposure as a result of foreign exchange volatility during the
period between pricing reviews. In addition, as noted
previously, the sales cycles for our products are relatively
long. Foreign currency fluctuations could, therefore, result in
substantial changes in the financial impact of a specific
transaction between the time of initial customer contact and
revenue recognition. We have a foreign exchange hedging program
that is intended to hedge the value of inter-company accounts
receivable or inter-company accounts payable denominated in
foreign currencies against fluctuations in exchange rates until
such receivables are collected or payables are disbursed.

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| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we do not respond adequately to our
    industrys evolving technology standards or do not continue
    to meet the sophisticated needs of our customers, sales of our
    products and solutions may decline.

Our future success will depend on our ability to
address the increasingly sophisticated needs of our customers by
supporting existing and emerging hardware, software, database
and networking platforms. We will have to develop and introduce
commercially viable enhancements to our existing products and
services on a timely basis to keep pace with technological
developments, evolving industry standards and changing customer
requirements. If we do not enhance our products and services to
meet these evolving needs, we will not sell as many products and
services and our position in existing, emerging or potential
markets could be eroded rapidly by other product advances. In
addition, commercial acceptance of our products and services
also could be adversely affected by critical or negative
statements or reports by brokerage firms, industry and financial
analysts and the media about us or our products or business, or
by the advertising or marketing efforts of competitors, or by
other factors that could adversely affect consumer perception.

Our product development efforts will continue to
require substantial financial and operational investment. We may
not be able to internally develop new products and services
quickly enough to respond to market forces. As a result, we may
have to acquire technology or access to products or services
through mergers and acquisitions, investments and partnering
arrangements, any of which may require us to use significant
financial resources. Alternatively, we may not be able to forge
partnering arrangements or strategic alliances on satisfactory
terms, or at all, with the companies of our choice.



| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our future revenue and our ability to make
    investments in developing our products is substantially
    dependent upon our installed customer base continuing to license
    our products and renew our service agreements.

We depend on our installed customer base for
future revenue from services and licenses of additional
products. If our customers fail to renew their maintenance
agreements, our revenue will decline. Our maintenance agreements
are generally renewable annually at the option of the customers
and there are no minimum payment obligations or obligations to
license additional software. Therefore, current customers may
not necessarily generate significant maintenance revenue in
future periods. In addition, customers may not necessarily
purchase additional products or services. Our services revenue
and maintenance revenue also depends upon the continued use of
these services by our installed customer base. Any downturn in
software license revenue could result in lower services revenue
in current or future quarters.



| |                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Seasonal trends in sales of our software
    products could adversely affect our quarterly operating results,
    and our lengthy sales cycles for products makes our revenues
    susceptible to fluctuations.

Our sales of software products and services have
been affected by seasonal purchasing trends that materially
affect our quarter-to-quarter operating results. We expect these
seasonal trends to continue in the future. Revenue and operating
results in our first quarter are typically lower relative to
other quarters because many customers make purchase decisions
for the fourth quarter based on their calendar year-end
budgeting requirements, and as a new year begins start planning
for, but not implementing, new information technology spending
until later in the year.

Our sales cycles typically take many months to
complete and vary depending on the product or service that is
being sold. The length of the sales cycle may vary depending on
a number of factors over which we have little or no control,
including the size of a potential transaction and the level of
competition that we encounter in our selling activities. The
sales cycle can be further extended for sales made through
resellers and third-party distributors.



| |                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The success of our international operations
    is dependent upon many factors that could adversely affect our
    ability to sell our products internationally and could affect
    our profitability.

International sales represent approximately 45%
of our total revenue. Our international operations are, and any
expanded international operations will be, subject to a variety
of risks associated with conducting

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business internationally that could adversely
affect our ability to sell our products internationally and,
therefore, our profitability, including the following:




| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Difficulties in staffing and managing
    international operations,                                                                                                                       
|
| |  | Problems in collecting accounts receivable,                                                                                                                                               
|
| |  | Longer payment cycles,                                                                                                                                                                    
|
| |  | Fluctuations in currency exchange rates,                                                                                                                                                  
|
| |  | Seasonal reductions in business activity during
    the summer months in Europe and certain other parts of the world,                                                                     
|
| |  | Uncertainties relative to regional, political and
    economic circumstances,                                                                                                             
|
| |  | Recessionary environments in domestic or foreign
    economies and                                                                                                                        
|
| |  | Increases in tariffs, duties, price controls or
    other restrictions on foreign currencies or trade barriers
    imposed by countries, and other changes in applicable foreign
    laws.



| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to protect our intellectual
    property rights, competitors may be able to use our technology
    or trademarks which would weaken our competitive position,
    reduce our revenue and increase costs.

Our business success will continue to be heavily
dependent upon proprietary technology. We rely primarily on a
combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions
to protect our proprietary rights. These means of protecting
proprietary rights may not be adequate, and the inability to
protect intellectual property rights may adversely affect our
business and/or financial condition. We currently hold a number
of United States patents and pending applications. There can be
no assurance that any other patents covering our inventions will
be issued or that any patent, if issued, will provide
sufficiently broad protection or will prove enforceable in
actions against alleged infringements. Our ability to sell our
products and services and to prevent competitors from
misappropriating our proprietary technology and trade names is
dependent upon protecting our intellectual property. Our
products are generally licensed to end users on a
right-to-use basis under a license that restricts
the use of the products for the customers internal
business purposes.

Despite such precautions, it may be possible for
unauthorized third parties to copy aspects of our current or
future products or to obtain and use information that we regard
as proprietary. In addition, we have licensed the source code of
our products to certain customers under certain circumstances
and for restricted uses. We also have entered into source code
escrow agreements with a number of our customers that generally
require release of our source code to the customer in the event
of bankruptcy, insolvency, or discontinuation of our business or
support of a product line, in each case where support and
maintenance of the product line is not assumed by a third party.
We may also be unable to protect our technology because:



| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Competitors may independently develop similar or
    superior technology,                                                                                                                                                         
|
| |  | Policing unauthorized use of software is
    difficult,                                                                                                                                                                           
|
| |  | The laws of some foreign countries do not protect
    proprietary rights in software to the same extent as do the laws
    of the United States,                                                                                  
|
| |  | Shrink-wrap and/or
    click-wrap licenses may be wholly or partially
    unenforceable under the laws of certain jurisdictions, and                                                                                          
|
| |  | Litigation to enforce intellectual property
    rights, to protect trade secrets, or to determine the validity
    and scope of the proprietary rights of others could result in
    substantial costs and diversion of resources.

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| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Our software may have defects and errors,
    which may lead to a loss of revenue or product liability
    claims.

Software products are internally complex and
occasionally contain defects or errors, especially when first
introduced or when new versions or enhancements are released.
Despite extensive testing, we may not detect errors in our new
products, platforms or product enhancements until after we have
commenced commercial shipments. If defects and errors are
discovered in our products, platforms or product enhancements
after commercial release then potential customers may delay or
forego purchases; our reputation in the marketplace may be
damaged; we may incur additional service and warranty costs; and
we may have to divert additional development resources to
correct the defects and errors. If any or all of the foregoing
occur, we may lose revenues or incur higher operating expenses
and lose market share, any of which could severely harm our
financial condition and operating results.



| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | In the future, third parties could, for
    competitive or other reasons, assert that our products infringe
    their intellectual property rights.

In the future, third parties could, for
competitive or other reasons, assert that our products infringe
their intellectual property rights. Any such claims could be
time consuming to defend, result in costly litigation, cause
product shipment delays or require us to enter into royalty or
licensing agreements. Royalty or license agreements may not be
available on acceptable terms or at all. We expect that software
product developers will increasingly be subject to infringement
claims as the number of products and competitors in the software
industry segment grows and the functionality of products in
different industry segments overlaps.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | The loss of our rights to use software
    licensed to us by third parties could harm our
    business.

In order to provide a complete product suite, we
occasionally license software from third parties, and
sub-license this software to our customers. In addition, we
license software programs from third parties and incorporate
these programs into our own software products. By utilizing
third party software in our business, we incur risks that are
not associated with developing software in-house. For example,
these third party providers may discontinue or alter their
operations, terminate their relationship with us, or generally
become unable to fulfill their obligations to us. If any of
these circumstances were to occur, we may be forced to seek
alternative technology that may not be available on commercially
reasonable terms. In the future, we may be forced to obtain
additional third party software licenses to enhance our product
offerings and compete more effectively. We may not be able to
obtain and maintain licensing rights to needed technology on
commercially reasonable terms, which would harm our business and
operating results.



| |                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have substantial real estate lease
    commitments for unoccupied space and restoration obligations,
    and if we are unable to sublet this space on acceptable terms
    our operating results and financial condition could be adversely
    affected.

We are party to real estate leases for
approximately 295,000 square feet that are unoccupied. At
December 31, 2002, we have a restructuring reserve of $14.2
consisting of $12.3 million for lease obligations and
$1.9 million for restoration costs related to the
disposition of this space as of December 31, 2002. In
establishing this reserve, we have assumed that we will be able
to sublet the available space and receive approximately
$11.6 million of sublease income relating to this space,
$2.8 million for properties already sublet and
$8.8 million from properties where a sublet is anticipated.
We may not be able to sublet this space on the assumed terms and
restoration costs may exceed our estimates. If we are unable to
sublet this space on the assumed terms, or if restoration costs
exceed our estimates, there may be an adverse effect on our
operating results of up to $6.1 million resulting from
additional restructuring costs.



| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our inability to rely on the statutory
    safe harbor as a result of the settlement of the
    Securities and Exchange Commission investigation could harm our
    business.

Effective January 11, 2000, we entered into
a settlement with the SEC as a result of an investigation
against us. Pursuant to the settlement, we consented to the
entry by the SEC of an Order Instituting Public

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Administrative Proceedings Pursuant to
Section 8A of the Securities Act of 1933 and
Section 21C of the Securities Exchange Act of 1934, Making
Findings, and Imposing a Cease and Desist Order. Pursuant to the
order, we neither admitted nor denied the findings, except as to
jurisdiction, contained in the order.


The order prohibits us from violating and causing
any violation of the anti-fraud provisions of the federal
securities laws, for example by making materially false and
misleading statements concerning our financial performance. The
order also prohibits us from violating or causing any violation
of the provisions of the federal securities laws requiring us
to: (1) file accurate quarterly and annual reports with the
SEC; (2) maintain accurate accounting books and records;
and (3) maintain adequate internal accounting controls.
Pursuant to the order, we are also required to cooperate in the
SECs continuing investigation of other entities and
persons. In the event that we violate the order, we could be
subject to substantial monetary penalties.

As a consequence of the issuance of the January
2000 order, we were not, for the three year period expiring on
January 11, 2003, able to rely on the safe
harbor for forward-looking statements contained in the
federal securities laws. The safe harbor, among
other things, limits potential legal actions against us in the
event a forward-looking statement concerning our anticipated
performance turns out to be inaccurate, unless it can be proved
that, at the time the statement was made, we actually knew that
the statement was false. If we become a defendant in any private
securities litigation brought under the federal securities laws
pertaining to that three year period, our legal position in the
litigation could be materially adversely affected by our
inability to rely on the safe harbor provisions for
forward-looking statements.



| |                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Provisions in our charter documents may
    discourage potential acquisition bids and prevent changes in our
    management that our stockholders may favor. This could adversely
    affect the market price for our common stock.

Provisions in our charter documents could
discourage potential acquisition proposals and could delay or
prevent a change in control transaction that our stockholders
may favor. The provisions include:



| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | Elimination of the right of stockholders to act
    without holding a meeting,                                            
|
| |  | Certain procedures for nominating directors and
    submitting proposals for consideration at stockholder meetings
    and
|
| |  | A board of directors divided into three classes,
    with each class standing for election once every three years.        

These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the
board of directors and in the policies formulated by the board
of directors and to discourage certain types of transactions
involving an actual or threatened change of control. These
provisions are designed to reduce our vulnerability to an
unsolicited acquisition proposal and, accordingly, could
discourage potential acquisition proposals and could delay or
prevent a change in control. Such provisions are also intended
to discourage certain tactics that may be used in proxy fights
but could, however, have the effect of discouraging others from
making tender offers for shares of our common stock, and
consequently, may also inhibit fluctuations in the market price
of our common stock that could result from actual or rumored
takeover attempts. These provisions may also have the effect of
preventing changes in our management.

In addition, we have adopted a rights agreement,
commonly referred to as a poison pill, that grants
holders of our common stock preferential rights in the event of
an unsolicited takeover attempt. These rights are denied to any
stockholder involved in the takeover attempt which has the
effect of requiring cooperation with our board of directors.
This may also prevent an increase in the market price of our
common stock resulting from actual or rumored takeover attempts.
The rights agreement could also discourage potential acquirers
from making unsolicited acquisition bids.

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| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Provisions in our charter documents with
    respect to undesignated preferred stock may discourage potential
    acquisition bids.

Our board of directors is authorized to issue up
to approximately four million shares of undesignated preferred
stock in one or more series. Our board of directors can fix the
price, rights, preferences, privileges and restrictions of such
preferred stock without any further vote or action by our
stockholders. However, the issuance of shares of preferred stock
may delay or prevent a change in control transaction without
further action by our stockholders. As a result, the market
price of our common stock and the voting and other rights of the
holders of our common stock may be adversely affected. The
issuance of preferred stock with voting and conversion rights
may adversely affect the voting power of the holders of our
common stock, including the loss of voting controls to others.



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Delaware law may inhibit potential
    acquisition bids, which may adversely affect the market price
    for our common stock and prevent changes in our management that
    our stockholders may favor.

We are incorporated in Delaware and are subject
to the anti-takeover provisions of the Delaware General
Corporation Law, which regulates corporate acquisitions.
Delaware law prevents certain Delaware corporations, including
us, whose securities are listed for trading on the NASDAQ
National Market, from engaging, under certain circumstances, in
a business combination with any interested
stockholder for three years following the date that the
stockholder became an interested stockholder. For purposes of
Delaware law, a business combination would include,
among other things, a merger or consolidation involving us and
an interested stockholder and the sale of more than 10% of our
assets. In general, Delaware law defines an interested
stockholder as any entity or person beneficially owning
15% or more of the outstanding voting stock of a corporation and
any entity or person affiliated with or controlling or
controlled by such entity or person. Under Delaware law, a
Delaware corporation may opt out of the
anti-takeover provisions. We have not and do not intend to
opt out of these anti-takeover provisions of
Delaware law.



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our current strategy contemplates future
    acquisitions, which will require us to incur substantial costs
    for which we may never realize the anticipated
    benefits.

Our business strategy contemplates future
acquisitions of complementary companies or technologies. We
cannot ensure that we will be able to implement our growth
strategy, or that this strategy will ultimately be successful.
Any potential acquisition may result in significant transaction
expenses, increased interest and amortization expense, increased
depreciation expense and increased operating expense, any of
which could have a material adverse effect on our operating
results.

Achieving the benefits of any acquisition will
depend in part on our ability to integrate an acquired business
with our business in an efficient manner. Our consolidation of
operations following any acquisition may require significant
attention from our management. The diversion of management
attention and any difficulties encountered in the transition and
integration process could have a material adverse effect on our
ability to achieve expected net sales, operating expenses and
operating results for any acquired business. We cannot ensure
that we will realize any of the anticipated benefits of any
acquisition, and if we fail to realize these anticipated
benefits, our operating performance could suffer.

On November 28, 2001, we completed the
acquisition of Torrent, and on April 3, 2002 we completed
the acquisition of Vality. We consummated each transaction with
the expectation that it would result in mutual benefits
including, among other things, expanded and complementary
product offerings, increased market opportunity, new technology
and the addition of strategic personnel. Achieving the benefits
of the acquisitions will depend, in part, on the continued
integration of our technology, operations and personnel in an
efficient manner so as to minimize the risk that the
acquisitions will result in the loss of market opportunity or
key employees or the diversion of the attention of management.
We cannot assure you that we will be successful. In addition, we
cannot assure you that our business will achieve revenues,
efficiencies or synergies or that the acquisitions will result
in increased earnings for the combined company in any future
period. In addition, if we were to make a cash acquisition of
substantial scale, it could reduce our cash reserves and affect
our liquidity and capital resources.

53



---



##### Table of Contents





| |                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Terrorist attacks, such as the attacks that
    occurred in New York and Washington, D.C. on
    September 11, 2001, and other acts of violence or war, may
    affect the markets in which we operate, our operations and our
    profitability.

Terrorist attacks may negatively disrupt and
negatively impact our operations. We are unable to predict
whether there will be future terrorist attacks against the
United States or United States businesses, or against other
countries or businesses located in those countries. These
attacks may directly impact our physical facilities and those of
our suppliers or customers. Furthermore, these attacks may make
the travel of our employees more difficult and expensive and
ultimately may affect our sales.

Also, as a result of terrorism or for other
reasons, the United States may enter into an armed conflict that
could have a further impact on our sales and our ability to
deliver products to our customers. Political and economic
instability in some regions of the world may also negatively
impact our business generated in those regions. The consequences
of any of these armed conflicts are unpredictable, and we may
not be able to foresee events that could have an adverse effect
on our business.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

The information required by this item is set
forth in the section of Managements Discussion and
Analysis of Financial Condition and Results of Operations
captioned Disclosures About Market Rate Risk.

54



---



##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The information required by this item is set
forth in our Financial Statements and Notes thereto beginning at
page F-1 of this report.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure

None.




PART III

Certain information required by Part III of
this Form 10-K is omitted because we will file a definitive
proxy statement pursuant to Regulation 14A not later than
120 days after the end of the fiscal year covered by this
Form 10-K, and certain information to be included therein
is incorporated herein by reference.






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Certain information regarding executive officers
is included in Part I of this Form 10-K under the section
captioned Executive Officers of the Registrant. The
remaining information required by Item 10 of this
Form 10-K is incorporated by reference to our definitive
proxy statement.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by Item 11 of this
Form 10-K is incorporated herein by reference to our
definitive proxy statement. The information specified in
Item 402(k) and (l) of Regulation S-K and set
forth in our definitive proxy statement is not incorporated by
reference.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The information required by Item 12 of this
Form 10-K is incorporated herein by reference to our
definitive proxy statement.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by Item 13 of
Form 10-K is incorporated herein by reference to our
definitive proxy statement under the section captioned
Certain Relationships and Related Transactions.






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

(a) Evaluation of disclosure controls and
procedures. Based on their evaluation of our disclosure
controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934 (the
Exchange Act)) as of a date within 90 days of
the filing date of this Annual Report on Form 10-K, our
chief executive officer and chief financial officer have
concluded that our disclosure controls and procedures are
designed to ensure that information that we are required to
disclose in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms and are operating in an effective manner.

(b) Changes in internal controls.
There were no significant changes in our internal controls or in
other factors that could significantly affect these controls
subsequent to the date of their most recent evaluation.

55



---



##### Table of Contents






PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

The following are filed as a part of this Annual
Report and included in Item 8:

1.     Financial
Statements

|                                                    |  |     
|--------------------------------------------------- |  | ----
|                                                    |  | Page
|                                                    |  |     
|Report of Independent Auditors  KPMG
    LLP       |  | F-2 
|Consolidated Balance Sheets                         |  | F-3 
|Consolidated Statements of Operations               |  | F-4 
|Consolidated Statements of Cash Flows               |  | F-5 
|Consolidated Statements of Stockholders
    Equity |  | F-6 
|Notes to Consolidated Financial Statements          |  | F-7 

2.     Financial
Statement Schedule

|                                                    |  |    
|--------------------------------------------------- |  | ---
|Schedule II  Valuation and
    Qualifying Accounts |  | S-1

3.     Exhibits

|        |           |               |  |                                                                                                                                                                                                         
|------- | --------- | ------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |              
|No.     |           | Exhibit Title
|        |           |              
|        | 3.1(2)    |               |  | Restated Certificate of Incorporation of the
    Registrant                                                                                                                                             
|        | 3.2(1)    |               |  | Amended and Restated Bylaws of the Registrant                                                                                                                                                           
|        | 3.3(18)   |               |  | Certificate of Designation of Series B
    Convertible Preferred Stock                                                                                                                                  
|        | 4.1(3)    |               |  | First Amended and Restated Rights Agreement,
    dated as of August 12, 1997, between the Registrant and
    BankBoston N.A., including the form of Rights Certificate
    attached thereto as Exhibit A
|        | 4.2(3)    |               |  | Amendment, dated as of November 17, 1997, to
    the First Amended and Restated Rights Agreement between the
    Registrant and BankBoston, N.A.                                                        
|        | 4.3(4)    |               |  | Amendment No. 2 to the First Amended and
    Restated Rights Agreement, dated as of April 26, 2002,
    between the Registrant and EquiServe Trust Company, N.A.                                        
|        | 10.1(5)   |               |  | Amended and Restated Change of Control and
    Severance Agreement, dated as of May 1, 2002, between the
    Registrant and Peter Gyenes                                                                
|        | 10.2(5)   |               |  | Amended and Restated Change of Control and
    Severance Agreement, dated as of May 1, 2002, between the
    Registrant and Peter Fiore                                                                 
|        | 10.3(5)   |               |  | Amended and Restated Change of Control and
    Severance Agreement, dated as of March 8, 2002, between the
    Registrant and Robert C. McBride                                                         
|        | 10.4(5)   |               |  | Amended and Restated Change of Control and
    Severance Agreement, dated as of May 1, 2002, between the
    Registrant and Jason Silvia                                                                
|        | 10.5(1)   |               |  | Form of Indemnity Agreement to which the
    Registrant is a party with each of its directors and executive
    officers                                                                                
|        | 10.6(6)   |               |  | 1989 Outside Directors Stock Option Plan                                                                                                                                                                
|        | 10.7(7)   |               |  | Amendment to the 1989 Outside Directors Stock
    Option Plan                                                                                                                                           
|        | 10.8(8)   |               |  | Form of Nonqualified Stock Option Agreement under
    the Registrants 1989 Outside Directors Stock Option
    Plan                                                                                    
|        | 10.9(9)   |               |  | 1986 Stock Option Plan, as amended                                                                                                                                                                      
|        | 10.10(10) |               |  | 1994 Stock Option and Award Plan                                                                                                                                                                        
|        | 10.11(7)  |               |  | Form of Stock Option Agreement and Performance
    Award Agreement under the Registrants 1994 Stock Option
    and Award Plan                                                                          
|        | 10.12(10) |               |  | Form of Nonqualified Stock Option Agreement under
    the Registrants 1994 Stock Option Plan                                                                                                           

56



---



##### Table of Contents



|        |           |               |  |                                                                                                                                                                                                                                                              
|------- | --------- | ------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |           |              
|No.     |           | Exhibit Title
|        |           |              
|        | 10.13(11) |               |  | 1997 Employee Stock Purchase Plan                                                                                                                                                                                                                            
|        | 10.14(8)  |               |  | Enrollment/ Change Form under the
    Registrants 1997 Employee Stock Purchase Plan                                                                                                                                                                         
|        | 10.15(7)  |               |  | 1997 Non-Statutory Stock Option Plan and form of
    Stock Option Agreement thereunder                                                                                                                                                                       
|        | 10.16(12) |               |  | 1998 Non-Statutory Stock Option Plan, as amended                                                                                                                                                                                                             
|        | 10.17(17) |               |  | Part-Time Employment and Transition Agreement
    between the Registrant and Peter Gyenes                                                                                                                                                                    
|        | 10.18(14) |               |  | Offer of Employment Letter, dated July 31,
    2000, between the Registrant and Peter Gyenes                                                                                                                                                                 
|        | 10.19(15) |               |  | Settlement Agreement, effective January 11,
    2000, between the Registrant and the Securities and Exchange
    Commission                                                                                                                                  
|        | 10.20(2)  |               |  | Offer of Employment Letter, dated June 13,
    2001, between the Registrant and Robert C. McBride                                                                                                                                                            
|        | 10.21(2)  |               |  | Lease, dated May 3, 1994, between VMark
    Software, Inc. and 50 Washington Street
    Associates L.P. for office space at 50 Washington
    Street, Westborough, Massachusetts                                                                             
|        | 10.22(2)  |               |  | Amendment of Lease, dated March 27, 1998,
    between Ardent Software, Inc. (formerly VMark Software, Inc.)
    and Fifty Washington Street Limited Partnership for office space
    at 50 Washington Street, Westborough, Massachusetts                     
|        | 10.23(2)  |               |  | Agreement, dated March 12, 2001, among the
    Registrant, Informix Software, Inc., Ascential Software, Inc.
    and Fifty Washington Street Limited Partnership regarding Lease
    for office space at 50 Washington Street, Westborough,
    Massachusetts
|        | 10.24(16) |               |  | Master Purchase Agreement, dated as of
    April 24, 2001, among Informix Corporation, Informix
    Software, Inc. and International Business Machines Corporation                                                                                           
|        | 10.25(2)  |               |  | Change of Control and Severance Agreement, dated
    as of June 21, 2001, between the Registrant and Robert C.
    McBride                                                                                                                                   
|        | 10.26(2)  |               |  | Offer of Employment Letter, effective
    July 25, 2001, between the Registrant and Scott Semel                                                                                                                                                              
|        | 10.27(2)  |               |  | Form of Offer of Employment Letter for officers
    of the Registrant                                                                                                                                                                                        
|        | 10.28(13) |               |  | Merger Agreement, dated as of March 12,
    2002, among the Registrant, Venus Acquisition Corporation and
    Vality Technology Incorporated                                                                                                                 
|        | 10.29(1)  |               |  | Stock Option Agreement, dated October 17,
    2002, between the Registrant and Peter Gyenes                                                                                                                                                                  
|        | 10.30(1)  |               |  | Amended and Restated 1998 Non-Statutory Stock
    Option Plan                                                                                                                                                                                                
|        | 21.1(1)   |               |  | Subsidiaries of the Registrant                                                                                                                                                                                                                               
|        | 23.1(1)   |               |  | Consent of KPMG LLP, Independent Auditors                                                                                                                                                                                                                    
|        | 24.1      |               |  | Power of Attorney (set forth on signature page)                                                                                                                                                                                                              
|        | 99.1(1)   |               |  | Certifications pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes  Oxley Act of 2002                                                                                                                            



---



| |     |                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Filed herewith                                                                                                                                                                    
|
| | (2) | Incorporated by reference to exhibits filed with
    the Registrants annual report on Form 10-K filed with
    the Commission on April 1, 2002 (File No. 000-15325)              
|
| | (3) | Incorporated by reference to exhibit filed with
    the amendment to the Registrants Registration Statement on
    Form 8-A/ A filed with the Commission on September 3,
    1997
|
| | (4) | Incorporated by reference to exhibit filed with
    Amendment No. 5 to the Registrants Registration
    Statement on Form 8-A/ A filed with the Commission on
    May 1, 2002    
|
| | (5) | Incorporated by reference to exhibit filed with
    the Registrants quarterly report on Form 10-Q filed
    with the Commission on August 14, 2002 (File
    No. 000-15325)      
|
| | (6) | Incorporated by reference to exhibits filed with
    the Registrants Registration Statement on Form S-8
    (File No. 33-31116)                                                  
|
| | (7) | Incorporated by reference to exhibits filed with
    the Registrants annual report on Form 10-K filed with
    the Commission on March 31, 1998 (File No. 000-15325)             

57



---



##### Table of Contents





| |     |                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | (8) | Incorporation by reference to exhibits filed with
    the Registrants Registration Statement on Form S-1
    (333-43991)                            
|
| | (9) | Incorporated by reference to exhibits filed with
    Registrants Registration Statements on Form S-8 (File
    Nos: 33-22862, 33-31117 and 33-50610)



|     |                                                                                                                                                                                
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to exhibits filed with
    the Registrants Registration Statement on Form S-8
    (File No. 333-31369)                                              
|    
|(11) | Incorporated by reference to exhibits filed with
    the Registrants Registration Statement on Form S-8
    (File No. 333-31371)                                              
|    
|(12) | Incorporated by reference to exhibits filed with
    the Registrants annual report on Form 10-K filed with
    the Commission on March 23, 2001 (File No. 000-15325)          
|    
|(13) | Incorporated by reference to exhibits filed with
    the Registrants quarterly report on Form 10-Q filed
    with the Commission on May 15, 2002 (File
    No. 000-15325)     
|    
|(14) | Incorporated by reference to exhibits filed with
    the Registrants quarterly report on Form 10-Q filed
    with the Commission on November 14, 2000 (File
    No. 000-15325)
|    
|(15) | Incorporated by reference to exhibits filed with
    the Registrants current report on Form 8-K filed with
    the Commission on January 19, 2000 (File No. 000-15325)        
|    
|(16) | Incorporated by reference to Annex A to the
    Registrants Definitive Proxy Statement on
    Schedule 14A filed with the Commission on May 10, 2001
    (File No. 000-15325) 
|    
|(17) | Incorporated by reference to exhibits filed with
    the Registrants quarterly report on Form 10-Q filed
    with the Commission on May 15, 2000 (File
    No. 000-15325)     
|    
|(18) | Incorporated by reference to exhibits filed with
    the Registrants current report on Form 8-K filed with
    the Commission on December 4, 1997 (File No. 000-15325)        

(b) Reports on Form 8-K

None

58



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Westborough, Commonwealth of
Massachusetts, on the 27th day of March 2003.



| |                               
| | ------------------------------
| | ASCENTIAL SOFTWARE CORPORATION



| |     |                 
| | --- | ----------------
| | By: | /s/ PETER GYENES

| |                                   
| | ----------------------------------
| |                                   
| | Peter Gyenes                      
| | Chief Executive Officer and       
| | Chairman of the Board of Directors

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below hereby constitutes and
appoints Peter Gyenes and Robert McBride and each one of them,
acting individually and without the other, as his
attorney-in-fact, each with full power of substitution, for him
in any and all capacities, to sign any and all amendments to
this Annual Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying
and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes may do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, as amended, this Annual Report on
Form 10-K has been signed on behalf of the Registrant by
the following persons in the capacities and on the dates
indicated.

|                                             |  |                                                                                                               |  |                |  | 
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                             |  |                                                                                                               |  |               
|Signature                                    |  | Title                                                                                                         |  | Date          
|                                             |  |                                                                                                               |  |               
|                                            
|/s/ PETER GYENESPeter Gyenes                 |  | Chief Executive Officer and Chairman of the Board
    of Directors (Principal Executive Officer)              |  | March 27, 2003
|                                            
|/s/ ROBERT C. MCBRIDERobert C. McBride       |  | Vice President and Chief Financial Officer
    (Principal Financial Officer and Principal Accounting Officer) |  | March 27, 2003
|                                            
|/s/ ROBERT M. MORRILLRobert M. Morrill       |  | Director                                                                                                      |  | March 27, 2003
|                                            
|/s/ JOHN J. GAVIN, JR.John J. Gavin, Jr.     |  | Director                                                                                                      |  | March 27, 2003
|                                            
|/s/ DAVID J. ELLENBERGERDavid J. Ellenberger |  | Director                                                                                                      |  | March 27, 2003
|                                            
|/s/ WILLIAM J. WEYANDWilliam J. Weyand       |  | Director                                                                                                      |  | March 27, 2003

59



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##### Table of Contents



CERTIFICATIONS

I, Peter Gyenes, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Ascential Software
    Corporation;                                                                                                                                                                                                                                                      
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.     The
    registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and have:                                                                                                          



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have indicated
    in this annual report whether there were significant changes in
    internal controls or in other factors that could significantly
    affect internal controls subsequent to the date of our most
    recent evaluation, including any corrective actions with regard
    to significant deficiencies and material weaknesses.



| |                                   
| | ----------------------------------
| | /s/ PETER GYENES                  
| |                                   
| | Peter Gyenes                      
| | Chief Executive Officer and       
| | Chairman of the Board of Directors
| | (Principal Executive Officer)     

Date: March 27, 2003

60



---



##### Table of Contents



I, Robert C. McBride, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Ascential Software
    Corporation;                                                                                                                                                                                                                                                      
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.     The
    registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and have:                                                                                                          



| |                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent functions):



| |                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    



| |                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have indicated
    in this annual report whether there were significant changes in
    internal controls or in other factors that could significantly
    affect internal controls subsequent to the date of our most
    recent evaluation, including any corrective actions with regard
    to significant deficiencies and material weaknesses.



| |                                               
| | ----------------------------------------------
| | /s/ ROBERT C. MCBRIDE                         
| |                                               
| | Robert C. McBride                             
| | Vice President and Chief Financial
    Officer
| | (Principal Financial Officer)                 

Date: March 27, 2003

61



---



##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Financial
Statements

|                                                    |  |     
|--------------------------------------------------- |  | ----
|                                                    |  | Page
|                                                    |  |     
|Report of Independent Auditors  KPMG
    LLP       |  | F-2 
|Consolidated Balance Sheets                         |  | F-3 
|Consolidated Statements of Operations               |  | F-4 
|Consolidated Statements of Cash Flows               |  | F-5 
|Consolidated Statements of Stockholders
    Equity |  | F-6 
|Notes to Consolidated Financial Statements          |  | F-7 

2.     Financial
Statement Schedule

|                                                    |  |    
|--------------------------------------------------- |  | ---
|Schedule II  Valuation and
    Qualifying Accounts |  | S-1

F-1



---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders 

Ascential Software Corporation


We have audited the accompanying consolidated
balance sheets of Ascential Software Corporation and
subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the years
in the three-year period ended December 31, 2002. In
connection with our audits of the consolidated financial
statements, we have also audited the financial statement
schedule listed at S-1. The consolidated financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the consolidated
financial statements and financial statement schedule based on
our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Ascential Software
Corporation and subsidiaries as of December 31, 2002 and
2001 and the consolidated results of their operations and their
cash flows for each of the years in the three-year period ended
December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when
considered in relation to the consolidated financial statements
taken as a whole, presents fairly in all material respects, the
information set forth therein.

As discussed in Note 1 to the consolidated
financial statements, effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standard
No. 142, Goodwill and Other Intangible Assets.



| |             
| | ------------
| | /s/ KPMG LLP

Boston, Massachusetts

January 29, 2003


F-2



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                          |                                                                                                                                                                                   |                            |                                            |         |         |         |         |         |           |           | 
|----------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------- | ------- | ------- | ------- | ------- | --------- | --------- | 
|                                          |                                                                                                                                                                                   |                           
|                                          |                                                                                                                                                                                   | December 31,              
|                                          |                                                                                                                                                                                   |                           
|                                          |                                                                                                                                                                                   | 2002                       |                                            | 2001   
|                                          |                                                                                                                                                                                   |                            |                                            |        
|                                          |                                                                                                                                                                                   |                           
|                                          |                                                                                                                                                                                   | (In thousands, except     
|                                          |                                                                                                                                                                                   | share and per share       
|                                          |                                                                                                                                                                                   | data)                     
|ASSETS                                   
|Current assets                            |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|                                          | Cash and cash equivalents                                                                                                                                                         |                            | $                                          | 216,551 |         |         | $       | 489,307 |          
|                                          | Short-term investments                                                                                                                                                            |                            |                                            | 288,199 |         |         |         | 269,336 |          
|                                          | Accounts receivable, net                                                                                                                                                          |                            |                                            | 27,112  |         |         |         | 29,588  |          
|                                          | Receivable from sale of the database business                                                                                                                                     |                            |                                            | 109,200 |         |         |         |        |          
|                                          | Recoverable income taxes                                                                                                                                                          |                            |                                            | 17,448  |         |         |         | 19,261  |          
|                                          | Deferred taxes                                                                                                                                                                    |                            |                                            |        |         |         |         | 20,832  |          
|                                          | Other current assets                                                                                                                                                              |                            |                                            | 13,688  |         |         |         | 30,690  |          
|                                          |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|                                          |                                                                                                                                                                                   | Total current assets       |                                            |         | 672,198 |         |         |         | 859,014   |          
|                                          |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|Property and equipment, net               |                                                                                                                                                                                   |                            | 5,427                                      |         |         |         | 11,687  |        
|Software costs, net                       |                                                                                                                                                                                   |                            | 14,124                                     |         |         |         | 14,919  |        
|Long-term investments                     |                                                                                                                                                                                   |                            | 966                                        |         |         |         | 1,782   |        
|Goodwill                                  |                                                                                                                                                                                   |                            | 162,670                                    |         |         |         | 68,158  |        
|Intangible assets, net                    |                                                                                                                                                                                   |                            | 11,070                                     |         |         |         | 7,247   |        
|Deferred taxes                            |                                                                                                                                                                                   |                            | 28,515                                     |         |         |         |        |        
|Other assets                              |                                                                                                                                                                                   |                            | 11,280                                     |         |         |         | 13,933  |        
|Receivable from sale of database business |                                                                                                                                                                                   |                            |                                           |         |         |         | 103,000 |        
|                                          |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|                                          |                                                                                                                                                                                   | Total assets               |                                            | $       | 906,250 |         |         | $       | 1,079,740 |          
|                                          |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY 
|Current liabilities                       |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|                                          | Accounts payable                                                                                                                                                                  |                            | $                                          | 8,136   |         |         | $       | 11,681  |          
|                                          | Accrued expenses                                                                                                                                                                  |                            |                                            | 23,137  |         |         |         | 52,344  |          
|                                          | Accrued employee compensation                                                                                                                                                     |                            |                                            | 14,861  |         |         |         | 19,527  |          
|                                          | Income taxes payable                                                                                                                                                              |                            |                                            | 98,916  |         |         |         | 93,482  |          
|                                          | Deferred revenue                                                                                                                                                                  |                            |                                            | 17,666  |         |         |         | 12,055  |          
|                                          | Accrued merger, realignment and other charges                                                                                                                                     |                            |                                            | 15,698  |         |         |         | 35,066  |          
|                                          | Deferred taxes                                                                                                                                                                    |                            |                                            | 33,171  |         |         |         |        |          
|                                          | Other current liabilities                                                                                                                                                         |                            |                                            | 479     |         |         |         | 7,079   |          
|                                          |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|                                          |                                                                                                                                                                                   | Total current liabilities  |                                            |         | 212,064 |         |         |         | 231,234   |          
|                                          |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|Deferred taxes                            |                                                                                                                                                                                   |                            |                                           |         |         |         | 28,710  |        
|Commitments and contingencies (note 8)    |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|Stockholders equity                      |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|                                          | Preferred stock, par value $.01 per
    share  5,000,000 shares authorized, 350,000 shares
    issued, and none outstanding at both December 31, 2002 and
    December 31, 2001. |                            |                                            |        |         |         |         |        |          
|                                          | Common stock, par value $.01 per
    share  500,000,000 shares authorized; 265,445,000 and
    263,792,000 shares issued and outstanding at December 31,
    2002 and 2001       |                            |                                            | 2,655   |         |         |         | 2,638   |          
|                                          | Additional paid-in capital                                                                                                                                                        |                            |                                            | 600,522 |         |         |         | 596,328 |          
|                                          | Treasury stock, 33,971,000 and 7,437,000 shares
    at December 31, 2002 and 2001, at cost                                                                                        |                            |                                            | (99,626 | )       |         |         | (25,464 | )        
|                                          | Retained earnings                                                                                                                                                                 |                            |                                            | 202,243 |         |         |         | 265,816 |          
|                                          | Deferred compensation                                                                                                                                                             |                            |                                            | (235    | )       |         |         | (549    | )        
|                                          | Accumulated other comprehensive loss                                                                                                                                              |                            |                                            | (11,373 | )       |         |         | (18,973 | )        
|                                          |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|                                          |                                                                                                                                                                                   | Total stockholders equity |                                            |         | 694,186 |         |         |         | 819,796   |          
|                                          |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        
|                                          |                                                                                                                                                                                   |                            | Total Liabilities and Stockholders Equity |         | $       | 906,250 |         |         | $         | 1,079,740 | 
|                                          |                                                                                                                                                                                   |                            |                                            |         |         |         |         |        

See Notes to Consolidated Financial Statements.

F-3



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |         |  
|------------------------------------------------------- | ---------------------------------------------- | ------------------------------------- | -------- | ------- | - | ---- | ------- | ------- | - |  | --------- | ------- | -
|                                                        |                                                |                                      
|                                                        |                                                | Years Ended December 31,             
|                                                        |                                                |                                      
|                                                        |                                                | 2002                                  |          | 2001    |   | 2000
|                                                        |                                                |                                       |          |         |   |     
|                                                        |                                                |                                      
|                                                        |                                                | (in thousands, except per share data)
|Net revenues                                            |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|                                                        | Licenses                                       |                                       |          | 59,611  |   |      | $       | 211,736 |   |  |           | 404,421 |  
|                                                        | Services                                       |                                       |          | 53,407  |   |      |         | 269,596 |   |  |           | 524,898 |  
|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|                                                        |                                                |                                       | 113,018  |         |   |      | 481,332 |         |   |  | 929,319   |        
|Costs and expenses                                      |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|                                                        | Cost of software                               |                                       |          | 18,350  |   |      |         | 34,271  |   |  |           | 50,422  |  
|                                                        | Cost of services                               |                                       |          | 33,089  |   |      |         | 107,537 |   |  |           | 184,581 |  
|                                                        | Sales and marketing                            |                                       |          | 73,080  |   |      |         | 207,259 |   |  |           | 402,569 |  
|                                                        | Research and development                       |                                       |          | 24,044  |   |      |         | 87,005  |   |  |           | 166,076 |  
|                                                        | General and administrative                     |                                       |          | 41,054  |   |      |         | 81,561  |   |  |           | 100,027 |  
|                                                        | Write-off of acquired research and development |                                       |          | 1,170   |   |      |         | 5,500   |   |  |           |        |  
|                                                        | Merger, realignment and other charges          |                                       |          | 23,669  |   |      |         | 54,359  |   |  |           | 126,828 |  
|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|                                                        |                                                |                                       | 214,456  |         |   |      | 577,492 |         |   |  | 1,030,503 |        
|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|Operating loss                                          |                                                |                                       | (101,438 | )       |   |      | (96,160 | )       |   |  | (101,184  | )      
|Other income (expense)                                  |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|                                                        | Interest income                                |                                       |          | 20,194  |   |      |         | 24,119  |   |  |           | 14,339  |  
|                                                        | Interest expense                               |                                       |          | (84     | ) |      |         | (172    | ) |  |           | (454    | )
|                                                        | Gain on sale of database business              |                                       |          | 3,040   |   |      |         | 865,675 |   |  |           |        |  
|                                                        | Impairment of long-term investments            |                                       |          | (2,187  | ) |      |         | (10,190 | ) |  |           |        |  
|                                                        | Other, net                                     |                                       |          | (929    | ) |      |         | (972    | ) |  |           | 5,002   |  
|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|Income (loss) before income taxes                       |                                                |                                       | (81,404  | )       |   |      | 782,300 |         |   |  | (82,297   | )      
|                                                        | Income tax expense (benefit)                   |                                       |          | (17,831 | ) |      |         | 157,352 |   |  |           | 16,018  |  
|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|Net income (loss)                                       |                                                |                                       | (63,573  | )       |   |      | 624,948 |         |   |  | (98,315   | )      
|Preferred stock dividend                                |                                                |                                       |         |         |   |      |        |         |   |  | (191      | )      
|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|Net income (loss) applicable to common
    stockholders |                                                |                                       | (63,573  | )       |   |      | 624,948 |         |   |  | (98,506   | )      
|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|Net income (loss) per common share                      |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|                                                        | Basic                                          |                                       |          | (0.26   | ) |      |         | 2.25    |   |  |           | (0.34   | )
|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|                                                        | Diluted                                        |                                       |          | (0.26   | ) |      |         | 2.20    |   |  |           | (0.34   | )
|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|Shares used in per share calculations                   |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|                                                        | Basic                                          |                                       |          | 247,724 |   |      |         | 277,490 |   |  |           | 286,138 |  
|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |        
|                                                        | Diluted                                        |                                       |          | 247,724 |   |      |         | 284,335 |   |  |           | 286,138 |  
|                                                        |                                                |                                       |          |         |   |      |         |         |   |  |           |        

See Notes to Consolidated Financial Statements.

F-4



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                            |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |          |         |         |  
|--------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------------------------------------------------------- | -------- | ------- | -------- | -------- | -------- | ------- | -------- | ------- | -------- | ------- | ------- | -
|                                                                                                                            |                                                                                               |                                                             
|                                                                                                                            |                                                                                               | Years Ended December 31,                                    
|                                                                                                                            |                                                                                               |                                                             
|                                                                                                                            |                                                                                               | 2002                                                         |                                                                              | 2001     |         | 2000    
|                                                                                                                            |                                                                                               |                                                              |                                                                              |          |         |         
|                                                                                                                            |                                                                                               |                                                             
|                                                                                                                            |                                                                                               | (in thousands, except per share data)                       
|Cash flows from operating activities                                                                                        |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|Net income (loss)                                                                                                           |                                                                                               | $                                                            | (63,573                                                                      | )        |         | $        | 624,948  |          |         | $        | (98,315 | )       
|Adjustments to reconcile net income
    (loss) to cash and cash equivalents provided by (used in)
    operating activities: |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|                                                                                                                            | License fees received in advance                                                              |                                                              |                                                                              |         |         |          |          | (8,413   | )       |          |         | (34,506  | )      
|                                                                                                                            | Depreciation and amortization                                                                 |                                                              |                                                                              | 10,013   |         |          |          | 25,730   |         |          |         | 54,471   |        
|                                                                                                                            | Amortization of capitalized software                                                          |                                                              |                                                                              | 6,557    |         |          |          | 14,561   |         |          |         | 21,692   |        
|                                                                                                                            | Write-off of long-term investments                                                            |                                                              |                                                                              | 2,188    |         |          |          | 10,190   |         |          |         |         |        
|                                                                                                                            | Write-off of capitalized software                                                             |                                                              |                                                                              | 5,200    |         |          |          |         |         |          |         |         |        
|                                                                                                                            | Write-off of acquired research and development                                                |                                                              |                                                                              | 1,170    |         |          |          | 5,500    |         |          |         |         |        
|                                                                                                                            | Class action settlement payment                                                               |                                                              |                                                                              |         |         |          |          | (26,200  | )       |          |         |         |        
|                                                                                                                            | Foreign currency transaction losses                                                           |                                                              |                                                                              | 1,561    |         |          |          | 4,332    |         |          |         | 1,012    |        
|                                                                                                                            | Gain on sales of available for sale securities                                                |                                                              |                                                                              |         |         |          |          | (439     | )       |          |         | (2,895   | )      
|                                                                                                                            | Loss on disposal of property and equipment                                                    |                                                              |                                                                              | 800      |         |          |          | 162      |         |          |         | 4,848    |        
|                                                                                                                            | Deferred tax (expense) benefit                                                                |                                                              |                                                                              | (6,252   | )       |          |          | 6,847    |         |          |         | 8,257    |        
|                                                                                                                            | Provisions for losses on accounts receivable                                                  |                                                              |                                                                              | 2,426    |         |          |          | 12,039   |         |          |         | 8,338    |        
|                                                                                                                            | Merger, realignment and other charges                                                         |                                                              |                                                                              | 23,669   |         |          |          | 54,359   |         |          |         | 126,828  |        
|                                                                                                                            | Gain on sale of database business                                                             |                                                              |                                                                              | (3,040   | )       |          |          | (865,675 | )       |          |         |         |        
|                                                                                                                            | Stock-based employee compensation                                                             |                                                              |                                                                              | 245      |         |          |          | 498      |         |          |         | 531      |        
|                                                                                                                            | Changes in operating assets and liabilities, net
    of impact of acquisitions and disposals: |                                                              |                                                                              |          |         |          |          |          |         |          |         |          |        
|                                                                                                                            |                                                                                               | Accounts receivable                                          |                                                                              |          | 396     |          |          |          | 37,650  |          |         |          | 9,339   |        
|                                                                                                                            |                                                                                               | Other current assets                                         |                                                                              |          | 7,513   |          |          |          | (40,063 | )        |         |          | 14,293  |        
|                                                                                                                            |                                                                                               | Accounts payable, accrued expenses and other
    liabilities |                                                                              |          | (81,025 | )        |          |          | (15,780 | )        |         |          | (88,541 | )      
|                                                                                                                            |                                                                                               | Deferred maintenance revenue                                 |                                                                              |          | 1,662   |          |          |          | 10,616  |          |         |          | (10,873 | )      
|                                                                                                                            |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|                                                                                                                            |                                                                                               |                                                              | Net cash and cash equivalents provided by (used
    in) operating activities |          |         | (90,490  | )        |          |         | (149,138 | )       |          |         | 14,479  |  
|                                                                                                                            |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|Cash flows from investing activities                                                                                        |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|Investments of excess cash:                                                                                                 |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|                                                                                                                            | Purchases of available-for-sale securities                                                    |                                                              |                                                                              | (552,994 | )       |          |          | (407,853 | )       |          |         | (125,841 | )      
|                                                                                                                            | Maturities of available-for-sale securities                                                   |                                                              |                                                                              | 341,364  |         |          |          | 137,700  |         |          |         | 87,145   |        
|                                                                                                                            | Sales of available-for-sale securities                                                        |                                                              |                                                                              | 195,965  |         |          |          | 88,893   |         |          |         | 53,363   |        
|Purchases of non-marketable equity securities                                                                               |                                                                                               |                                                              |                                                                             |          |         |          |         |          |         |          | (5,500  | )       
|Proceeds from sales of equity securities                                                                                    |                                                                                               |                                                              |                                                                             |          |         |          | 1,439    |          |         |          | 5,130   |         
|Purchases of property and equipment                                                                                         |                                                                                               |                                                              | (2,950                                                                       | )        |         |          | (17,716  | )        |         |          | (44,616 | )       
|Proceeds from disposal of property and equipment                                                                            |                                                                                               |                                                              |                                                                             |          |         |          | 310      |          |         |          | 166     |         
|Proceeds from sale of database business                                                                                     |                                                                                               |                                                              | 11,000                                                                       |          |         |          | 888,400  |          |         |          |        |         
|Additions to software costs                                                                                                 |                                                                                               |                                                              | (10,962                                                                      | )        |         |          | (11,395  | )        |         |          | (32,782 | )       
|Business combinations, net of cash acquired                                                                                 |                                                                                               |                                                              | (100,473                                                                     | )        |         |          | (37,768  | )        |         |          |        |         
|Other, net                                                                                                                  |                                                                                               |                                                              |                                                                             |          |         |          | (1,362   | )        |         |          | 668     |         
|                                                                                                                            |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|                                                                                                                            |                                                                                               |                                                              | Net cash and cash equivalents provided by (used
    in) investing activities |          |         | (119,050 | )        |          |         | 640,648  |         |          |         | (62,267 | )
|                                                                                                                            |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|Cash flows from financing activities                                                                                        |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|Advances from customers                                                                                                     |                                                                                               |                                                              |                                                                             |          |         |          | 3,418    |          |         |          | 10,733  |         
|Proceeds from issuance of common stock, net                                                                                 |                                                                                               |                                                              | 2,638                                                                        |          |         |          | 13,307   |          |         |          | 37,204  |         
|Acquisition of common stock                                                                                                 |                                                                                               |                                                              | (74,162                                                                      | )        |         |          | (143,023 | )        |         |          | (33,722 | )       
|Payments for structured settlements with resellers                                                                          |                                                                                               |                                                              |                                                                             |          |         |          |         |          |         |          | (152    | )       
|Principal payments on capital leases                                                                                        |                                                                                               |                                                              |                                                                             |          |         |          | (49      | )        |         |          | (1,853  | )       
|                                                                                                                            |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|                                                                                                                            |                                                                                               |                                                              | Net cash and cash equivalents (used in) provided
    by financing activities |          |         | (71,524  | )        |          |         | (126,347 | )       |          |         | 12,210  |  
|                                                                                                                            |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|Effect of exchange rate changes on cash and cash
    equivalents                                                            |                                                                                               |                                                              | 8,308                                                                        |          |         |          | (4,276   | )        |         |          | (6,120  | )       
|                                                                                                                            |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|Increase (decrease) in cash and cash
    equivalents                                                                        |                                                                                               |                                                              | (272,756                                                                     | )        |         |          | 360,887  |          |         |          | (41,698 | )       
|Cash and cash equivalents at beginning of year                                                                              |                                                                                               |                                                              | 489,307                                                                      |          |         |          | 128,420  |          |         |          | 170,118 |         
|                                                                                                                            |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         
|Cash and cash equivalents at end of year                                                                                    |                                                                                               | $                                                            | 216,551                                                                      |          |         | $        | 489,307  |          |         | $        | 128,420 |         
|                                                                                                                            |                                                                                               |                                                              |                                                                              |          |         |          |          |          |         |          |         |         

See Notes to Consolidated Financial Statements.

F-5



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |          |  
|------------------------------------------------------------------------------------------ |  | --------------- | -- | ------------ |  | -------------- | - | ---------- |  | -------------- | ------- | -------- |  | -------- | ----- | -------- |  | ------ | - | -------- |  | --------- | ------- | ------ |  | ------ | -------- | - |  | - | ------- | - |  | - | -------- | - |  | - | -------- | - |  | - | ---- | - |  | - | ------- | - |  | - | -------- | -
|                                                                                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |       
|                                                                                           |  |                 |    |              |  |                |   |            |  | Shares to be   |         |          |  |          |       |          |  |        |   |          |  |           |         |       
|                                                                                           |  |                 |    |              |  |                |   | Issued     |  |                |         |          |  |          |       | Retained |  |        |   | Other    |  |          
|                                                                                           |  | Preferred Stock |    |              |  | for Litigation |   |            |  |                |         | Earnings |  |          |       | Compre-  |  |       
|                                                                                           |  | Series B        |    | Common Stock |  | Settlement     |   | Additional |  | Treasury Stock |         | (Accu-   |  | Deferred |       | hensive  |  |       
|                                                                                           |  |                 |    |              |  |                |   | Paid-In    |  |                |         | mulated  |  | Com-     |       | Income   |  |       
|                                                                                           |  | Shares          |    | Amount       |  | Shares         |   | Amount     |  | Shares         |         | Amount   |  | Capital  |       | Shares   |  | Amount |   | Deficit) |  | pensation |         | (Loss) |  | Totals
|                                                                                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |       
|Balances at December 31, 1999                                                              |  |                 | 7  |              |  | $              |  |            |  |                | 276,574 |          |  | $        | 2,766 |          |  |        |  |          |  | $         | 61,228  |        |  | $      | 632,536  |   |  |   | (980    | ) |  | $ | (2,966   | ) |  | $ | (260,817 | ) |  | $ |     |   |  | $ | (6,528  | ) |  | $ | 426,219  |  
|                                                                                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |          |  
|Net loss                                                                                   |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   | (98,315  | ) |  |   |      |   |  |   |         |   |  |   | (98,315  | )
|Other comprehensive income                                                                 |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   | (13,117 | ) |  |   | (13,117  | )
|Retirement of Ardent treasury stock                                                        |  |                 |    |              |  |                |   |            |  |                | (980    | )        |  |          | (10   | )        |  |        |   |          |  |           |         |        |  |        | (2,956   | ) |  |   | 980     |   |  |   | 2,966    |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |         |  
|Exercise of stock options                                                                  |  |                 |    |              |  |                |   |            |  |                | 7,222   |          |  |          | 72    |          |  |        |   |          |  |           |         |        |  |        | 26,265   |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 26,337   |  
|Common stock issued under employee stock purchase
    plan                                 |  |                 |    |              |  |                |   |            |  |                | 2,043   |          |  |          | 21    |          |  |        |   |          |  |           |         |        |  |        | 9,692    |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 9,713    |  
|Reversal of tax benefit arising from early
    disposition of stock options                |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        | (488     | ) |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | (488     | )
|Exercise of warrants to purchase common stock                                              |  |                 |    |              |  |                |   |            |  |                | 412     |          |  |          | 4     |          |  |        |   |          |  |           |         |        |  |        | 1,068    |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 1,072    |  
|Stock-based compensation expense resulting from
    stock options                          |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        | 531      |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 531      |  
|Repurchase and retirement of common stock                                                  |  |                 |    |              |  |                |   |            |  |                | (6,400  | )        |  |          | (64   | )        |  |        |   |          |  |           |         |        |  |        | (33,658  | ) |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | (33,722  | )
|Repurchase and retirement of unvested Cloudscape
    options and founders stock           |  |                 |    |              |  |                |   |            |  |                | (139    | )        |  |          | (1    | )        |  |        |   |          |  |           |         |        |  |        | (37      | ) |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | (38      | )
|Repayment of Cloudscape shareholder loans                                                  |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        | 120      |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 120      |  
|Conversion of Series B to common stock                                                     |  |                 | (7 | )            |  |                |  |            |  |                | 1,631   |          |  |          | 16    |          |  |        |   |          |  |           |         |        |  |        | (16      | ) |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |         |  
|Accrual of 5% cumulative preferred dividends on
    Series B                               |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        | (191     | ) |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | (191     | )
|                                                                                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2000                                                               |  |                 |   |              |  | $              |  |            |  |                | 280,363 |          |  | $        | 2,804 |          |  |        |  |          |  | $         | 61,228  |        |  | $      | 632,866  |   |  |   |        |   |  | $ |         |   |  | $ | (359,132 | ) |  | $ |     |   |  | $ | (19,645 | ) |  | $ | 318,121  |  
|                                                                                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |          |  
|Net income                                                                                 |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   | 624,948  |   |  |   |      |   |  |   |         |   |  |   | 624,948  |  
|Other comprehensive income                                                                 |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   | 672     |   |  |   | 672      |  
|Exercise of stock options                                                                  |  |                 |    |              |  |                |   |            |  |                | 2,517   |          |  |          | 25    |          |  |        |   |          |  |           |         |        |  |        | 8,773    |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 8,798    |  
|Common stock issued under employee stock purchase
    plan                                 |  |                 |    |              |  |                |   |            |  |                | 1,427   |          |  |          | 14    |          |  |        |   |          |  |           |         |        |  |        | 4,495    |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 4,509    |  
|Tax benefit from issuances under employee stock
    benefit plans                          |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        | 26,928   |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 26,928   |  
|Stock-based compensation expense resulting from
    stock options                          |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        | 4,944    |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 4,944    |  
|Repurchase of common stock                                                                 |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   | (33,999 | ) |  |   | (143,023 | ) |  |   |          |   |  |   |      |   |  |   |         |   |  |   | (143,023 | )
|Retirement of common stock                                                                 |  |                 |    |              |  |                |   |            |  |                | (26,562 | )        |  |          | (266  | )        |  |        |   |          |  |           |         |        |  |        | (117,293 | ) |  |   | 26,562  |   |  |   | 117,559  |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |         |  
|Repurchase and retirement of unvested Cloudscape
    options and founders stock           |  |                 |    |              |  |                |   |            |  |                | (10     | )        |  |          |      |          |  |        |   |          |  |           |         |        |  |        | (3       | ) |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | (3       | )
|Cash payment for Litigation Settlement                                                     |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        | (26,200  | ) |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | (26,200  | )
|Shares issued in Litigation Settlement                                                     |  |                 |    |              |  |                |   |            |  |                | 6,057   |          |  |          | 61    |          |  |        |   |          |  |           | (61,228 | )      |  |        | 61,167   |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |         |  
|Deferred compensation as a result of the Torrent
    acquisition                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   | (549 | ) |  |   |         |   |  |   | (549     | )
|Fair value of stock options exchanged in Torrent
    acquisition                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        | 651      |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 651      |  
|                                                                                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2001                                                               |  |                 |   |              |  | $              |  |            |  |                | 263,792 |          |  | $        | 2,638 |          |  |        |  |          |  | $         |        |        |  | $      | 596,328  |   |  |   | (7,437  | ) |  | $ | (25,464  | ) |  | $ | 265,816  |   |  | $ | (549 | ) |  | $ | (18,973 | ) |  | $ | 819,796  |  
|                                                                                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |          |  
|Net loss                                                                                   |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   | (63,573  | ) |  |   |      |   |  |   |         |   |  |   | (63,573  | )
|Amortization of deferred compensation                                                      |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   | 314  |   |  |   |         |   |  |   | 314      |  
|Other comprehensive income                                                                 |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   | 7,600   |   |  |   | 7,600    |  
|Exercise of stock options                                                                  |  |                 |    |              |  |                |   |            |  |                | 592     |          |  |          | 6     |          |  |        |   |          |  |           |         |        |  |        | 1,243    |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 1,249    |  
|Common stock issued under employee stock purchase
    plan                                 |  |                 |    |              |  |                |   |            |  |                | 761     |          |  |          | 8     |          |  |        |   |          |  |           |         |        |  |        | 1,378    |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 1,386    |  
|Tax benefit from issuances under employee stock
    benefit plans                          |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        | 586      |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 586      |  
|Stock issued to former Vality Chief Executive
    Officer under restricted stock agreement |  |                 |    |              |  |                |   |            |  |                | 300     |          |  |          | 3     |          |  |        |   |          |  |           |         |        |  |        | 987      |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   | 990      |  
|Repurchase of common stock                                                                 |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   | (26,534 | ) |  |   | (74,162  | ) |  |   |          |   |  |   |      |   |  |   |         |   |  |   | (74,162  | )
|                                                                                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |          |  
|Balance at December 31, 2002                                                               |  |                 |   |              |  | $              |  |            |  |                | 265,445 |          |  | $        | 2,655 |          |  |        |  |          |  | $         |        |        |  | $      | 600,522  |   |  | $ | (33,971 | ) |  | $ | (99,626  | ) |  | $ | 202,243  |   |  | $ | (235 | ) |  | $ | (11,373 | ) |  | $ | 694,186  |  
|                                                                                           |  |                 |    |              |  |                |   |            |  |                |         |          |  |          |       |          |  |        |   |          |  |           |         |        |  |        |          |   |  |   |         |   |  |   |          |   |  |   |          |   |  |   |      |   |  |   |         |   |  |   |          |  

See Notes to Consolidated Financial Statements.

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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1  Summary of Significant
Accounting Policies

Organization and Operations.Ascential Software Corporation
(Ascential or the Company) was
incorporated in Delaware in 1986 and, until the third quarter of
2001, operated under the name Informix Corporation.
During the third quarter of 2001, the Company sold to
International Business Machines Corporation (IBM)
substantially all of the assets relating to its database
management systems business, including the name
Informix, for a purchase price of $1.0 billion
in cash (the IBM Transaction  see
Note 14 of these Notes to Consolidated Financial
Statements). In connection with the sale to IBM, the Company
changed its name to Ascential Software Corporation.

Ascential is a global provider of enterprise
integration software and services. Ascential designs, develops,
markets and supports enterprise integration software products
and solutions to allow its worldwide customers, mid-sized and
large organizations and governmental institutions, to turn vast
amounts of disparate, unrefined data into reliable, reusable
information assets. The Company also offers to its customers a
variety of services such as consulting, including implementation
assistance and project planning and deployment, software product
enhancements and support, and education.

The principal geographic markets for the
Companys products are North America, Europe, Asia/
Pacific, and Latin America. Customers include businesses ranging
from medium-sized corporations to Global 2000 companies,
principally in the manufacturing, financial services,
telecommunications, media, retail/wholesale, hospitality, and
government services sectors.

Basis of Presentation.The consolidated financial statements
have been prepared to give retroactive effect to the acquisition
of Ardent Software Inc. (Ardent) on March 1,
2000. The acquisition was accounted for as a pooling of
interests and, accordingly, the consolidated financial
statements for the year ended December 31, 2000, have been
restated as if Ardent and the Company had always been combined.

Use of Estimates.The Companys consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires
that the Company make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent liabilities. On an ongoing
basis, the Company evaluates its estimates, including those
related to revenue recognition, provision for doubtful accounts
and returns, fair value of investments, fair value and useful
lives of goodwill and intangible assets, net realizable value
and useful lives of capitalized software costs, property and
equipment, income taxes, and contingencies and litigation, among
others. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results could differ from the estimates made by
management with respect to these items and other items that
require managements estimates.

Principles of Consolidation.The consolidated financial statements
include the accounts of Ascential Software Corporation and its
wholly-owned subsidiaries. All material intercompany balances
and transactions have been eliminated in consolidation.

Foreign Currency Translation.For foreign operations with the local
currency as the functional currency, assets and liabilities are
translated at year-end exchange rates, and statements of
operations are translated at the average exchange rates during
the year. Exchange gains or losses arising from translation of
such foreign entity financial statements are included in other
comprehensive income (loss), a separate component of
stockholders equity.

For foreign operations with the U.S. dollar as
the functional currency, monetary assets and liabilities are
remeasured at the year-end exchange rates as appropriate and
non-monetary assets and liabilities are remeasured at historical
exchange rates. Statements of operations are remeasured at the
average exchange

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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

rates during the year. Foreign currency
transaction gains and losses are included in other income
(expense), net. The Company recorded net foreign currency
transaction losses of $4.0 million, $4.5 million and
$0.3 million for the years ended December 31, 2002,
2001 and 2000, respectively.

Derivative Financial Instruments.The Company enters into foreign
currency forward exchange contracts to reduce its exposure to
foreign currency risk due to fluctuations in exchange rates
underlying the value of intercompany accounts receivable and
payable denominated in foreign currencies until such receivables
are collected and payables are disbursed. A foreign currency
forward exchange contract obligates the Company to exchange
predetermined amounts of specified foreign currencies at
specified exchange rates on specified dates or to make an
equivalent U.S. dollar payment equal to the value of such
exchange. These foreign currency forward exchange contracts are
denominated in the same currency in which the underlying foreign
currency receivables or payables are denominated and bear a
contract value and maturity date which approximate the value and
expected settlement date of the underlying transactions. As the
Companys contracts are not designated as hedges as defined
in Statement of Financial Accounting Standard (SFAS)
No. 133, Accounting for Derivative Instruments and
Hedging Activities, and are economic hedges in nature for
financial reporting, discounts or premiums (the difference
between the spot exchange rate and the forward exchange rate at
inception of the contract) are recognized immediately in
earnings as a component of other income (expense), net and
changes in market value of the underlying contract are recorded
in earnings as foreign exchange gains or losses. The Company
operates in certain countries in Latin America, Eastern Europe,
and Asia/ Pacific where there are limited forward currency
exchange markets and thus the Company may have unhedged
exposures in these currencies.

Most of the Companys international revenue
and expenses are denominated in local currencies. Due to the
substantial volatility of currency exchange rates, among other
factors, the Company cannot predict the effect of exchange rate
fluctuations on the Companys future operating results.
Although the Company takes into account changes in exchange
rates over time in its pricing strategy, there would be a time
lapse between any sudden or significant exchange rate movements
and our implementation of a revised pricing structure. This
results in substantial pricing exposure due to foreign exchange
volatility during the period between annual pricing reviews. In
addition, the sales cycles for the Companys products is
relatively long, depending on a number of factors including the
level of competition and the size of the transaction.
Notwithstanding the Companys efforts to manage foreign
exchange risk, there can be no assurances that the
Companys hedging activities will adequately protect the
Company against the risks associated with foreign currency
fluctuations.

Revenue Recognition.Revenue consists principally of fees
for licenses of the Companys software products,
maintenance, consulting, and training. The Companys
license arrangements provide for an initial fee for use of the
Companys software products in perpetuity. The Company
licenses its software in multiple element arrangements in which
the customer purchases a combination of software, maintenance,
consulting and training. The Company recognizes revenue using
the residual method in accordance with Statement of Position
(SOP) 97-2, Software Revenue
Recognition, as amended by SOP 98-9, Modification of
SOP 97-2, Software Revenue Recognition with Respect
to Certain Transactions. Under the residual method, revenue
is recognized in a multiple element arrangement in which
Company-specific objective evidence of fair value exists for all
of the undelivered elements in the arrangement, but does not
exist for one or more of the delivered elements in the
arrangement. Company-specific objective evidence of fair value
of maintenance and other services is based on the Companys
customary pricing for such maintenance and/or services when sold
separately. At the outset of the arrangement with the customer,
the Company defers revenue for the fair value of its undelivered
elements (e.g., maintenance, consulting, and training) and
recognizes revenue for the remainder of the arrangement fee
attributable to the elements initially delivered in the
arrangement (i.e., software product) when the basic criteria in
SOP 97-2 have been met. If such evidence of fair value for
each element of the arrangement does not exist, all revenue from
the arrangement is deferred until such time that evidence of
fair value does exist or until all elements of the arrangement
are delivered.

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Under SOP 97-2, revenue attributable to an
element in a customer arrangement is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the
fee is fixed or determinable, collection of the resulting
receivable is probable, and the arrangement does not require
services that are essential to the functionality of the
software. If at the outset of the customer arrangement, the
Company determines that the arrangement fee is not fixed or
determinable or that collection of the resulting receivable is
not probable, revenue is recognized when the arrangement fee
becomes due and payable or when collected, respectively.

The Companys current policies for
recognition of license revenues and services revenues are as
follows:

License Revenue.The
Company recognizes revenue from sales of software licenses to
end users upon persuasive evidence of an arrangement, delivery
of the software to a customer, determination that collection of
a fixed or determinable license fee is considered probable, and
determination that no undelivered services are essential to the
functionality of the software.

If consulting services are essential to the
functionality of the licensed software, then both the license
revenue and the consulting service revenue are recognized under
either the percentage of completion or the completed contract
method of contract accounting. The Companys arrangements
generally do not include services that are essential to the
functionality of the software.

Revenue for transactions with application
vendors, OEMs, and distributors is generally recognized as
earned when the licenses are resold or utilized by the reseller
and all related obligations of the Company have been satisfied.
The Company provides for sales allowances based on specific
transactions to each application vendor, OEM, or distributors
agreement with the Company. The Company accrues royalty revenue
through the end of the reporting period based on reseller
royalty reports or other forms of customer-specific historical
information. In the absence of customer-specific historical
information, royalty revenue is recognized when the
customer-specific objective information becomes available. Any
subsequent changes to previously recognized royalty revenues are
reflected in the period when the updated information is received
from the reseller.

Service Revenue.Maintenance contracts generally call
for the Company to provide technical support and software
updates and upgrades to customers. Maintenance revenue is
recognized ratably over the term of the maintenance contract,
generally on a straight-line basis when all revenue recognition
requirements are met. Other service revenue, primarily training
and consulting, is generally recognized at the time the service
is performed and it is determined that the Company has fulfilled
its obligations resulting from the services contract.

Allowance for Doubtful Accounts.The Company makes judgments as to its
ability to collect outstanding receivables and provides
allowances when collection becomes doubtful. Provisions are made
based upon a specific review of all significant outstanding
invoices. For those invoices not specifically reviewed,
allowances for doubtful accounts are provided for based on
historical collection experience. If the data the Company uses
to calculate the allowance provided for doubtful accounts does
not reflect the future ability to collect outstanding
receivables, additional provisions for doubtful accounts may be
needed and the future results of operations could be materially
affected.

Software Development Costs.The Company accounts for its software
development costs in accordance with SFAS No. 86,
Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed. This statement requires that,
once technological feasibility of a developing product has been
established, all subsequent costs incurred in developing that
product to a commercially acceptable level be capitalized and
amortized ratably over the expected economic life of the
product. The Company uses the completion of a detailed program
design as the milestone in determining technological
feasibility. Software costs also include amounts paid for
purchased software and outside development on products that have
reached technological feasibility. All software costs are
amortized as a cost of software on a straight-line basis over
the remaining estimated economic life of the product, which is
generally estimated to be three years. The Company recorded
amortization of $6.6 million, $14.6 million and
$21.7 million of software costs in 2002,

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

2001 and 2000, respectively, in cost of software.
The Company assesses the recoverability of capitalized software
costs by comparing the cost capitalized for each product to the
net of estimated future gross revenues less the estimated future
cost of completing, maintaining, supporting and disposing of the
product. No impairment charges were booked in 2002, 2001 or 2000
in conjunction with the Companys recoverability
assessments. During 2002, the Company terminated two products
resulting in impairment charges totaling $5.2 million
related to software costs that were previously capitalized (see
Note 15, below, in these Notes to Consolidated Financial
Statements).

The Company accounts for the costs of computer
software developed or obtained for internal use in accordance
with SOP 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, which was
effective for fiscal years beginning after December 15,
1998. This statement requires that certain costs incurred during
a software development project be capitalized. During the years
ended December 31, 2002, 2001 and 2000, the Company
capitalized approximately $0.6 million, $5.9 million
and $3.3 million, respectively, under SOP 98-1. Cost
capitalized prior to July 1, 2001 were related to assets
transferred to IBM as a result of the IBM Transaction. Costs
capitalized in 2002 will be amortized over the estimated useful
life of the software developed, which is generally three years.
During 2000, $2.4 million of software costs previously
capitalized under SOP 98-1 were written off to sales and
marketing expense when the Company determined that it was no
longer probable that the development of a project would be
completed. The net book value of costs capitalized under SOP
98-1 is $0.3 million as of December 31, 2002.

Property and Equipment.Property and equipment are stated at
cost less accumulated depreciation and amortization, which is
calculated using the straight-line method over the estimated
useful lives of the assets. Estimated useful lives of 36 to
48 months are used on computer equipment, and an estimated
useful life of seven years is used for furniture and fixtures.
Depreciation and amortization of leasehold improvements is
computed using the shorter of the remaining lease term or the
useful life of the improvements.

Businesses Acquired.The purchase price of businesses
acquired, accounted for as purchase business combinations, is
allocated to the tangible and identifiable intangible assets
acquired based on their estimated fair values with any amount in
excess of such allocations designated as goodwill. Intangible
assets, generally consisting of customer lists and patented
technology, are amortized on a straight-line basis over their
estimated useful lives, generally 3 years.

In July 2001, the Financial Accounting Standards
Board (FASB) issued SFAS No. 141, Business
Combinations,and SFAS No. 142, Goodwill and Other
Intangible Assets.SFAS No. 141 requires that the
purchase method of accounting be used for all business
combinations initiated after June 30, 2001, as well as all
purchase method business combinations completed after
June 30, 2001. SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least
annually in accordance with the guidance set forth in SFAS
No. 142. Prior to the adoption of SFAS No. 142
goodwill and other intangible assets with indefinite lives were
being amortized over a period of up to 10 years. SFAS
No. 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 144, Accounting
for the Impairment and Disposal of Long-Lived Assets.

Effective July 1, 2001, the Company adopted
certain provisions of SFAS No. 141 and SFAS No. 142,
as required for goodwill and intangible assets acquired in
business combinations initiated after June 30, 2001. The
Company has adopted the remaining provisions of SFAS
No. 141 and SFAS No. 142 effective January 1,
2002. In accordance with applicable provisions of these
statements, goodwill and other intangible assets determined to
have an indefinite useful life that were acquired in a purchase
business combination completed after June 30, 2001 are no
longer amortized, but are evaluated for impairment in accordance
with SFAS No. 142. Effective January 1, 2002, goodwill
and intangible assets acquired in business combinations
completed before June 30, 2001 were not amortized based
upon the Companys adoption of SFAS No. 142.

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

With the adoption of SFAS No. 142, the
Company reassessed the useful lives and residual values of all
acquired intangible assets to make any necessary amortization
period adjustments. Based on that assessment, no adjustments
were made to the amortization period or residual values of other
intangible assets. Prior to the adoption of SFAS No. 142,
the purchase price of businesses acquired, accounted for as
purchase business combinations, was allocated to the tangible
and identifiable intangible assets acquired based on their
estimated fair values with any amount in excess of such
allocations designated as goodwill. Intangible assets, including
goodwill and intangible assets with indefinite lives, were
amortized on a straight-line basis over their estimated useful
lives, which ranged from three to ten years (see Notes 11
and 12, below, of these Notes to Consolidated Financial
Statements).

Impairment of Long-Lived
Assets. SFAS No. 142 requires
that companies no longer amortize goodwill and other intangible
assets with indefinite lives, but instead test goodwill
impairment annually or more frequently if impairment indicators
arise. SFAS No. 142 also requires completion of a two-step
transitional goodwill impairment test within six months from the
date of adoption. Any transitional impairment loss resulting
from the transition must be recognized as a cumulative effect of
a change in accounting principle in the first period of
transition. In connection with completion of the first step of
its transitional analysis, the Company determined that it is
organized as one operating segment which is also the only
reporting unit. Completion of the first step of the
Companys analysis did not indicate impairment as the fair
value of the Company exceeded the carrying amount of its
goodwill and other intangible assets. As the first step, upon
adoption, did not indicate that impairment existed, the second
step, to compare the implied fair value of the reporting unit
goodwill with the carrying amount of the reporting unit
goodwill, was not required.

The Company determined that it would assess the
impairment of goodwill and other intangible assets with
indefinite lives annually in the fourth quarter, or more
frequently if other indicators of impairment arise. Stock market
fluctuations could, at some point in time, be deemed to indicate
that the fair value of the Company is less than its carrying
value. The Company did not record a charge during its annual
impairment assessment as its market value, determined by the
price of its common stock on the evaluation date, exceeded its
carrying value. The Company did not record any related
impairment charge during 2002, as it believes that its stock
market valuation throughout 2002 was based on general factors
that should not trigger an interim evaluation of impairment,
such as recent highly publicized events regarding significant
public companies, overall United States and international
economic conditions, the weakness in United States financial
markets, the threat of the United States going to war and the
ongoing threat of terrorist activities.

In October 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 2001. SFAS No. 144
addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. SFAS No. 144 supersedes
SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, and the accounting and reporting provisions of
Accounting Principles Board (APB) Opinion
No. 30, Reporting the Results of Operations 
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business.
SFAS No. 144 also amends Accounting Research Board
No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for subsidiaries for
which control is likely to be temporary. The Company has adopted
SFAS No. 144 effective January 1, 2002, and the impact
of the adoption did not have a material effect on the
Companys financial statements (see Note 15 in these
Notes to Consolidated Financial Statements).

The Company evaluates long-lived assets,
excluding goodwill and identifiable intangible assets with
indefinite useful lives, for impairment in accordance with SFAS
No. 144 whenever events or changes in circumstances
indicate that the carrying value of an asset may not be
recoverable. Prior to the adoption of SFAS No. 142 and SFAS
No. 144, the Company evaluated long-lived assets, including
goodwill and identifiable intangible assets, for impairment
whenever events or changes in circumstances indicated that the

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

carrying value of an asset would not be
recoverable based on an analysis of undiscounted cash flows
associated with the long-lived asset.

Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future expected undiscounted cash flows attributable to that
asset. The amount of any impairment is measured as the
difference between the carrying value and the fair value of the
impaired asset. Fair value is determined generally based on
discounted cash flows. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to
sell. The Company does not have any long-lived assets it
considers to be impaired.

Stock-Based Compensation.In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure.SFAS
No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensationto provide alternative methods of
transition for entities that elect to voluntarily change to the
fair value based method of accounting for stock based employee
compensation. SFAS No. 148 also requires prominent
disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee
compensation and the effect of the method used on reported
results. The Company implemented SFAS No. 148 effective
December 31, 2002 and has elected to continue to account
for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations
(APB No. 25). Under APB No. 25, the
Company generally recognizes no compensation expense with
respect to such awards granted under the terms of the
Companys various stock option plans as all options granted
under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant.

Pro forma information regarding the net income
(loss) and net income (loss) per share is required by
SFAS No. 148, as if the Company had accounted for its stock
based awards to employees under the fair value method of SFAS
No. 123. The fair value of the Companys stock-based
awards to employees was estimated using a Black-Scholes
option-pricing model.

The fair value of the Companys stock-based
awards was estimated assuming no expected dividends and the
following weighted-average assumptions:

|                        |  |         |     |      |  |      |     |      |  |      |     |      |  |  |     |   |  |  |     |   |  |  |     |  
|----------------------- |  | ------- | --- | ---- |  | ---- | --- | ---- |  | ---- | --- | ---- |  |  | --- | - |  |  | --- | - |  |  | --- | -
|                        |  |         |     |     
|                        |  | Options |     | ESPP
|                        |  |         |     |     
|                        |  | 2002    |     | 2001 |  | 2000 |     | 2002 |  | 2001 |     | 2000
|                        |  |         |     |      |  |      |     |      |  |      |     |     
|Expected life (years)   |  |         | 4.5 |      |  |      | 4.5 |      |  |      | 4.5 |      |  |  | .25 |   |  |  | .25 |   |  |  | .25 |  
|Expected volatility     |  |         | 85  | %    |  |      | 86  | %    |  |      | 90  | %    |  |  | 85  | % |  |  | 86  | % |  |  | 90  | %
|Risk-free interest rate |  |         | 3.5 | %    |  |      | 4.3 | %    |  |      | 5.8 | %    |  |  | 1.4 | % |  |  | 4.2 | % |  |  | 5.9 | %

For pro forma purposes, the estimated fair value
of the Companys stock-based awards is amortized over the
awards vesting period (for options) and the three-month
purchase period (for stock purchases under the

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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

ESPP). The following table illustrates the effect
on net income and earnings per share if the Company had applied
the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation:

|                                                         |                                                                                                                                             |                                    |   |         |   |      |   |         |   |  |   |          |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------- | - | ------- | - | ---- | - | ------- | - |  | - | -------- | -
|                                                         |                                                                                                                                             | 2002                               |   | 2001    |   | 2000
|                                                         |                                                                                                                                             |                                    |   |         |   |     
|                                                         |                                                                                                                                             |                                   
|                                                         |                                                                                                                                             | (In thousands except for per share
|                                                         |                                                                                                                                             | information)                      
|Net income (loss) applicable to common
    stockholders: |                                                                                                                                             |                                    |   |         |   |      |   |         |   |  |   |         
|                                                         | As reported                                                                                                                                 |                                    | $ | (63,573 | ) |      | $ | 624,948 |   |  | $ | (98,506  | )
|Deduct:                                                  |                                                                                                                                             |                                    |   |         |   |      |   |         |   |  |   |         
|                                                         | Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |                                    |   | (28,811 | ) |      |   | (34,023 | ) |  |   | (42,148  | )
|                                                         |                                                                                                                                             |                                    |   |         |   |      |   |         |   |  |   |         
|Net income (loss) applicable to common
    stockholders: |                                                                                                                                             |                                    |   |         |   |      |   |         |   |  |   |         
|                                                         | Pro forma                                                                                                                                   |                                    | $ | (92,384 | ) |      | $ | 590,925 |   |  | $ | (140,654 | )
|                                                         |                                                                                                                                             |                                    |   |         |   |      |   |         |   |  |   |         
|Net income (loss) per common share:                      |                                                                                                                                             |                                    |   |         |   |      |   |         |   |  |   |         
|                                                         | Basic, as reported                                                                                                                          |                                    | $ | (0.26   | ) |      | $ | 2.25    |   |  | $ | (0.34    | )
|                                                         |                                                                                                                                             |                                    |   |         |   |      |   |         |   |  |   |         
|                                                         | Basic, pro forma                                                                                                                            |                                    | $ | (0.37   | ) |      | $ | 2.13    |   |  | $ | (0.49    | )
|                                                         |                                                                                                                                             |                                    |   |         |   |      |   |         |   |  |   |         
|                                                         | Diluted, as reported                                                                                                                        |                                    | $ | (0.26   | ) |      | $ | 2.20    |   |  | $ | (0.34    | )
|                                                         |                                                                                                                                             |                                    |   |         |   |      |   |         |   |  |   |         
|                                                         | Diluted, pro forma                                                                                                                          |                                    | $ | (0.37   | ) |      | $ | 2.11    |   |  | $ | (0.49    | )
|                                                         |                                                                                                                                             |                                    |   |         |   |      |   |         |   |  |   |         

The weighted-average fair value of the options
granted during 2002, 2001 and 2000 were $1.83, $3.09 and $4.74
per share, respectively. The weighted-average fair value of
employee stock purchase rights granted under the 1997 ESPP
during 2002, 2001 and 2000 were $0.95, $1.26 and $1.97 per
share, respectively.

Concentration of Credit Risk.The Company designs, develops,
manufactures, markets, and supports computer software systems to
customers in diversified industries and in diversified
geographic locations. The Company performs ongoing credit
evaluations of its customers financial condition and
generally requires no collateral. For 2002, IBM was responsible
for 10.8% of revenues and no other single customer accounted for
more than 10% of revenues. No single customer accounted for 10%
or more of the consolidated net revenues of the Company in 2001
or 2000.

Cash, Cash Equivalents, Short-Term
Investments, and Long-Term
Investments.The Company considers
liquid investments purchased with an original remaining maturity
of three months or less to be cash equivalents. Investments with
an original remaining maturity of more than three months but
less than twelve months or investments with maturity of more
than twelve months that the Company intends to sell within one
year to fund current operations or acquisitions are considered
to be short-term investments. All other investments are
considered long-term investments. Short-term and long-term
investments are classified as available-for-sale and are carried
at fair value, with the unrealized gains and losses, net of tax,
reported as a component of other comprehensive income (loss).
The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts
to maturity. Such amortization is included in interest income.
Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are
included in other income (expense), net. The cost of securities
sold is based on the specific identification method. Interest on
securities classified as available-for-sale is included in
interest income. The Company also maintains investments in
certain publicly traded marketable equity securities and also
classifies these as available for sale. The Company realized
gross gains of approximately $0.6 million,
$0.4 million and $2.9 million on the sale of
available-for-sale short term investments during 2002, 2001 and
2000, respectively. The Company also realized gross losses of
$2.2 million related to other than temporary

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

declines in the market value of its
available-for-sale marketable equity securities during 2002.
These losses had previously been recognized as a component of
accumulated other comprehensive income.

The Company invests its excess cash in accordance
with its current investment policy, which is approved by the
board of directors. The policy authorizes the investment of
excess cash in government securities, municipal bonds, time
deposits, certificates of deposit with approved financial
institutions, commercial paper rated A-1/ P-1, and other
specific money market instruments of similar liquidity and
credit quality. The Company has not experienced any significant
losses related to these investments.

The Company maintains an investment in equity
instruments of privately held, information technology companies
for business and strategic purposes. These investments are
included in long-term investments and are accounted for under
the cost method when ownership is less than 20% and the Company
does not otherwise have significant influence over the investee.
For these non-marketable investments, the Companys policy
is to regularly review the assumptions underlying the operating
performance and cash flow forecasts in assessing the carrying
values. When the Company determines that a decline in fair value
below the cost basis is other than temporary, the related
investment is written down to fair value. The Company recorded
impairment losses on strategic investments of $10.2 million
in 2001. No impairment losses occurred in 2002 and 2000.

Fair Value of Financial Instruments.Fair values of cash, cash equivalents,
short and long term investments and foreign currency forward
contracts are based on quoted market prices.

Reclassifications.Certain prior period amounts have been
reclassified to conform to the current period presentation.

Supplemental Cash Flow Data.The Company received an income tax
refund in the net amount of $23.3 million in 2002, and paid
income taxes in the net amount of $67.6 million and
$4.3 million during 2001 and 2000, respectively. The
Company paid interest in the amount of $0.1 million,
$0.2 million and $0.5 million during 2002, 2001 and
2000, respectively.

The following table summarizes non-cash charges
that the Company has recorded during the years ended
December 31, 2002, 2001 and 2000:

|                                               |  |               |      |      |  |      |      |  |  |   |      | 
|---------------------------------------------- |  | ------------- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                               |  | 2002          |      | 2001 |  | 2000
|                                               |  |               |      |      |  |     
|                                               |  |              
|                                               |  | (In millions)
|Asset write-offs                               |  | $             | 9.1  |      |  | $    | 14.4 |  |  | $ | 40.0 | 
|Write-off of acquired research and development |  |               | 1.2  |      |  |      | 5.5  |  |  |   |     | 
|Stock based compensation                       |  |               | 1.0  |      |  |      |     |  |  |   |     | 
|Stock option modification expense              |  |               |     |      |  |      | 4.9  |  |  |   |     | 
|                                               |  |               |      |      |  |      |      |  |  |   |      | 
|                                               |  | $             | 11.3 |      |  | $    | 24.8 |  |  | $ | 40.0 | 
|                                               |  |               |      |      |  |      |      |  |  |   |      | 

New Accounting Pronouncements.In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. The purpose of SFAS No. 143 is to
develop consistent accounting of asset retirement obligations
and related costs in the financial statements and provide more
information about future cash outflows, leverage and liquidity
regarding retirement obligations and the gross investment in
long-lived assets. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15,
2002. The Company will implement SFAS No. 143 on
January 1, 2003. The impact of such adoption is not
anticipated to have a material effect on the Companys
financial statements.

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated With Exit or Disposal
Activities. SFAS 146 requires companies to recognize
costs associated with exit or disposal activities when incurred,
rather than as of the date of a commitment to an exit or
disposal plan. The purpose of SFAS No. 146 is to shift the
timing of the recognition of costs associated with exit or
disposal activities to when those costs are incurred and can be
measured at fair value instead of recognizing costs upon the
commitment to a plan to exit an activity or dispose of
long-lived assets. Examples of costs covered by SFAS 146
include lease termination costs and certain employee severance
costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity.
The Company intends to adopt SFAS No. 146 no later than
January 1, 2003. The impact of such adoption is not
anticipated to have a material effect on the Companys
financial statements.

Effective January 1, 2002, the Company
adopted FASB Emerging Issues Task Force (EITF)
01-14, Income Statement Characterization of Reimbursements
Received for Out-of-Pocket Expenses Incurred(EITF 01-14). EITF 01-14 requires
that certain out-of-pocket expenses rebilled to customers be
recorded as revenue versus an offset to the related expense.
EITF 01-14 also requires comparative financial statements
for prior periods to be conformed to this presentation. The
impact of such adoption did not have a material effect on the
Companys financial statements for the year ended
December 31, 2002, as the Company has historically recorded
rebilled expenses as revenue.

Effective January 1, 2002, the Company
adopted the FASBs EITF Topic 01-09, Accounting for
Consideration Given by a Vendor to a Customer or Reseller of the
Vendors Products(EITF 01-09).
EITF 01-09 requires payments to customers or resellers for
sales or marketing expenses to be classified as a component of
revenue. EITF 01-09 also requires comparative financial
statements for prior periods to be conformed to this
presentation. The Company believes the impact of such adoption
did not have a material effect on the Companys financial
statements for the years ended December 31, 2002, 2001 and
2000.

In November 2002, the Financial Accounting
Standards Board issued Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others(the FIN 45),which addresses
the disclosure to be made by a guarantor in its interim and
annual financial statements about its obligations under
guarantees (see Note 8 in these Notes to Consolidated
Financial Statements). FIN 45 also requires the recognition
of a liability by a guarantor at the inception of certain
guarantees.

FIN 45 requires the guarantor to recognize a
liability for the non-contingent component of the guarantee,
which is the obligation to stand ready to perform in the event
that specified triggering events or conditions occur. The
initial measurement of this liability is the fair value of the
guarantee at inception. The recognition of the liability is
required even if it is not probable that payments will be
required under the guarantee or if the guarantee was issued with
a premium payment or as part of a transaction with multiple
elements.

As noted above, the Company has adopted the
disclosure requirements of the FIN 45 and will apply the
recognition and measurement provisions for all guarantees
entered into or modified after December 31, 2002.
Subsequent to December 31, 2002, the Company has not
entered into or modified any guarantees.

F-15



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 2  Balance Sheet
Components

|                             |                                                 |                |        |         |   |   |        |         |  
|---------------------------- | ----------------------------------------------- | -------------- | ------ | ------- | - | - | ------ | ------- | -
|                             |                                                 |               
|                             |                                                 | December 31,  
|                             |                                                 |               
|                             |                                                 | 2002           |        | 2001   
|                             |                                                 |                |        |        
|                             |                                                 |               
|                             |                                                 | (In thousands)
|Accounts receivable, net:    |                                                 |                |        |         |   |   |        |        
|                             | Receivables                                     |                | $      | 30,870  |   |   | $      | 38,039  |  
|                             | Less: allowance for doubtful accounts           |                |        | (3,758  | ) |   |        | (8,451  | )
|                             |                                                 |                |        |         |   |   |        |        
|                             |                                                 |                | 27,112 |         |   | $ | 29,588 |        
|                             |                                                 |                |        |         |   |   |        |        
|Property and equipment, net: |                                                 |                |        |         |   |   |        |        
|                             | Computer equipment                              |                | $      | 22,430  |   |   | $      | 35,479  |  
|                             | Furniture and fixtures                          |                |        | 7,852   |   |   |        | 14,567  |  
|                             | Leasehold improvements                          |                |        | 8,568   |   |   |        | 16,564  |  
|                             | Buildings and other                             |                |        |        |   |   |        | 3,127   |  
|                             |                                                 |                |        |         |   |   |        |        
|                             |                                                 |                | 38,850 |         |   |   | 69,737 |        
|                             | Less: accumulated depreciation and amortization |                |        | (33,423 | ) |   |        | (58,050 | )
|                             |                                                 |                |        |         |   |   |        |        
|                             |                                                 | $              | 5,427  |         |   | $ | 11,687 |        
|                             |                                                 |                |        |         |   |   |        |        
|Software costs, net:         |                                                 |                |        |         |   |   |        |        
|                             | Capitalized software development costs          |                | $      | 29,935  |   |   | $      | 24,560  |  
|                             | Less: accumulated amortization                  |                |        | (15,811 | ) |   |        | (9,641  | )
|                             |                                                 |                |        |         |   |   |        |        
|                             |                                                 | $              | 14,124 |         |   | $ | 14,919 |        
|                             |                                                 |                |        |         |   |   |        |        

Note 3  Financial
Instruments

The following is a summary of available-for-sale
debt and marketable equity securities:

|                                                            |                       |                               |         |            |  |            |       |            |  |   |    |    |   |   |         |         | 
|----------------------------------------------------------- | --------------------- | ----------------------------- | ------- | ---------- |  | ---------- | ----- | ---------- |  | - | -- | -- | - | - | ------- | ------- | 
|                                                            |                       |                              
|                                                            |                       | Available-for-Sale Securities
|                                                            |                       |                              
|                                                            |                       |                               |         | Gross      |  | Gross      |       |           
|                                                            |                       |                               |         | Unrealized |  | Unrealized |       | Estimated 
|                                                            |                       | Cost                          |         | Gains      |  | Losses     |       | Fair Value
|                                                            |                       |                               |         |            |  |            |       |           
|                                                            |                       |                              
|                                                            |                       | (In thousands)               
|December 31, 2002                                           |                       |                               |         |            |  |            |       |            |  |   |    |    |   |   |         |        
|U.S. treasury securities                                    |                       | $                             | 71,266  |            |  | $          | 400   |            |  | $ | (2 | )  |   | $ | 71,664  |        
|Commercial paper, corporate bonds and medium-term
    notes |                       |                               | 88,008  |            |  |            | 1,057 |            |  |   |   |    |   |   | 89,065  |        
|U.S. government agency bonds                                |                       |                               | 148,352 |            |  |            | 1,344 |            |  |   | (1 | )  |   |   | 149,695 |        
|                                                            |                       |                               |         |            |  |            |       |            |  |   |    |    |   |   |         |        
|                                                            | Total debt securities |                               |         | 307,626    |  |            |       | 2,801      |  |   |    | (3 | ) |   |         | 310,424 | 
|Marketable equity securities                                |                       |                               | 216     |            |  |            |      |            |  |   |   |    |   |   | 216     |        
|                                                            |                       |                               |         |            |  |            |       |            |  |   |    |    |   |   |         |        
|                                                            |                       | $                             | 307,842 |            |  | $          | 2,801 |            |  | $ | (3 | )  |   | $ | 310,640 |        
|                                                            |                       |                               |         |            |  |            |       |            |  |   |    |    |   |   |         |        
|Amounts included in cash and cash equivalents               |                       | $                             | 22,225  |            |  | $          |      |            |  | $ |   |    |   | $ | 22,225  |        
|Amounts included in short-term investments                  |                       |                               | 285,401 |            |  |            | 2,801 |            |  |   | (3 | )  |   |   | 288,199 |        
|Amounts included in long-term investments                   |                       |                               | 216     |            |  |            |      |            |  |   |   |    |   |   | 216     |        
|                                                            |                       |                               |         |            |  |            |       |            |  |   |    |    |   |   |         |        
|                                                            |                       | $                             | 307,842 |            |  | $          | 2,801 |            |  | $ | (3 | )  |   | $ | 310,640 |        
|                                                            |                       |                               |         |            |  |            |       |            |  |   |    |    |   |   |         |        

F-16



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                            |                       |                               |         |            |  |            |       |            |  |   |        |        |   |   |         |         | 
|----------------------------------------------------------- | --------------------- | ----------------------------- | ------- | ---------- |  | ---------- | ----- | ---------- |  | - | ------ | ------ | - | - | ------- | ------- | 
|                                                            |                       |                              
|                                                            |                       | Available-for-Sale Securities
|                                                            |                       |                              
|                                                            |                       |                               |         | Gross      |  | Gross      |       |           
|                                                            |                       |                               |         | Unrealized |  | Unrealized |       | Estimated 
|                                                            |                       | Cost                          |         | Gains      |  | Losses     |       | Fair Value
|                                                            |                       |                               |         |            |  |            |       |           
|                                                            |                       |                              
|                                                            |                       | (In thousands)               
|December 31, 2001                                           |                       |                               |         |            |  |            |       |            |  |   |        |        |   |   |         |        
|U.S. treasury securities                                    |                       | $                             | 115,792 |            |  | $          | 665   |            |  | $ | (298   | )      |   | $ | 116,159 |        
|Commercial paper, corporate bonds and medium-term
    notes |                       |                               | 74,163  |            |  |            | 803   |            |  |   | (4     | )      |   |   | 74,962  |        
|Municipal bonds                                             |                       |                               | 255,196 |            |  |            | 59    |            |  |   | (1,080 | )      |   |   | 254,175 |        
|                                                            |                       |                               |         |            |  |            |       |            |  |   |        |        |   |   |         |        
|                                                            | Total debt securities |                               |         | 445,151    |  |            |       | 1,527      |  |   |        | (1,382 | ) |   |         | 445,296 | 
|Marketable equity securities                                |                       |                               | 2,403   |            |  |            |      |            |  |   | (1,371 | )      |   |   | 1,032   |        
|                                                            |                       |                               |         |            |  |            |       |            |  |   |        |        |   |   |         |        
|                                                            |                       | $                             | 447,554 |            |  | $          | 1,527 |            |  | $ | (2,753 | )      |   | $ | 446,328 |        
|                                                            |                       |                               |         |            |  |            |       |            |  |   |        |        |   |   |         |        
|Amounts included in cash and cash equivalents               |                       | $                             | 175,879 |            |  | $          | 82    |            |  | $ | (1     | )      |   | $ | 175,960 |        
|Amounts included in short-term investments                  |                       |                               | 269,272 |            |  |            | 1,445 |            |  |   | (1,381 | )      |   |   | 269,336 |        
|Amounts included in long-term investments                   |                       |                               | 2,403   |            |  |            |      |            |  |   | (1,371 | )      |   |   | 1,032   |        
|                                                            |                       |                               |         |            |  |            |       |            |  |   |        |        |   |   |         |        
|                                                            |                       | $                             | 447,554 |            |  | $          | 1,527 |            |  | $ | (2,753 | )      |   | $ | 446,328 |        
|                                                            |                       |                               |         |            |  |            |       |            |  |   |        |        |   |   |         |        

Maturities of debt securities at market value at
December 31, 2002 are as follows (in thousands):

|                                         |  |  |         | 
|---------------------------------------- |  |  | ------- | 
|Mature in one year or less               |  |  | 139,964 | 
|Mature after one year through five years |  |  | 170,460 | 

Note 4  Derivative Financial
Instruments

The Company enters into foreign currency forward
exchange contracts primarily as an economic hedge against the
value of intercompany accounts receivable or accounts payable
denominated in foreign currencies against fluctuations in
exchange rates until such receivables are collected or payables
are disbursed. The purpose of the Companys foreign
exchange exposure management policy and practices is to attempt
to minimize the impact of exchange rate fluctuations on the
value of the foreign currency denominated assets and liabilities
being hedged. These transactions and other forward foreign
exchange contracts do not meet the accounting rules established
under SFAS No. 133 of recording the unrecognized after-tax
gain or loss portion of the fair value of the contracts in other
comprehensive income (loss) and the Company has not
designated the instruments as hedges. Therefore, the related
fair value of the derivative hedge contract is recognized in
earnings. The adoption of SFAS No. 133 did not have a
significant impact on the Companys financial condition or
results of operations.

The table below summarizes by currency the
contractual amounts of the Companys foreign currency
forward exchange contracts at December 31, 2002 and
December 31, 2001. The information is provided in
U.S. dollar equivalents and presents the notional amount
(contract amount) and the related fair value. As the
Companys foreign currency forward contracts are not
accounted for as hedges, but are derivative financial
instruments and are carried at fair value. Fair value represents
the prevailing financial market information as of
December 31, 2002 and 2001. All contracts mature within
three months. In addition to the contracts listed below, at
December 31, 2002, the Company has accrued, as a component
of accrued liabilities on the consolidated balance sheet, a loss
of $1.7 million related to the fair market value of forward
currency contracts that had closed as of December 31, 2002
but were not settled until January 3, 2003.

F-17



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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                  
| | -----------------
| | Forward Contracts

|                                                 |                                           |                |        |            |  |   |      |     |  
|------------------------------------------------ | ----------------------------------------- | -------------- | ------ | ---------- |  | - | ---- | --- | -
|                                                 |                                           | Contract       |        |           
|                                                 |                                           | Amount         |        | Fair Value
|                                                 |                                           |                |        |           
|                                                 |                                           |               
|                                                 |                                           | (In thousands)
|At December 31, 2002                             |                                           |                |        |            |  |   |      |    
|Forward currency to be sold under contract:      |                                           |                |        |            |  |   |      |    
|                                                 | Euro                                      |                | $      | 10,247     |  |   | $    |    |  
|                                                 | Australian Dollar                         |                |        | 6,246      |  |   |      |    |  
|                                                 | New Taiwan Dollar                         |                |        | 5,341      |  |   |      |    |  
|                                                 | Thailand Bhat                             |                |        | 3,228      |  |   |      |    |  
|                                                 | Korean Won                                |                |        | 3,207      |  |   |      |    |  
|                                                 | Swiss Franc                               |                |        | 3,318      |  |   |      |    |  
|                                                 | Singapore Dollar                          |                |        | 2,517      |  |   |      |    |  
|                                                 | South African Rand                        |                |        | 3,252      |  |   |      |    |  
|                                                 | Japanese Yen                              |                |        | 1,244      |  |   |      |    |  
|                                                 | Norwegian Krone                           |                |        | 1,649      |  |   |      |    |  
|                                                 | New Zealand Dollar                        |                |        | 1,143      |  |   |      |    |  
|                                                 | Brazilian Real                            |                |        | 1,848      |  |   |      |    |  
|                                                 | Other (individually less than $1 million) |                |        | 923        |  |   |      |    |  
|                                                 |                                           |                |        |            |  |   |      |    
|Total                                            |                                           | $              | 44,163 |            |  | $ |     |    
|                                                 |                                           |                |        |            |  |   |      |    
|Forward currency to be purchased under contract: |                                           |                |        |            |  |   |      |    
|                                                 | British Pound                             |                | $      | 29,154     |  |   | $    |    |  
|                                                 | Other (individually less than $1 million) |                |        | 733        |  |   |      |    |  
|                                                 |                                           |                |        |            |  |   |      |    
|Total                                            |                                           | $              | 29,887 |            |  | $ |     |    
|                                                 |                                           |                |        |            |  |   |      |    
|Grand Total                                      |                                           | $              | 74,050 |            |  | $ |     |    
|                                                 |                                           |                |        |            |  |   |      |    
|                                                
|At December 31, 2001                             |                                           |                |        |            |  |   |      |    
|Forward currency to be sold under contract:      |                                           |                |        |            |  |   |      |    
|                                                 | Australian Dollar                         |                | $      | 6,699      |  |   | $    | (60 | )
|                                                 | New Taiwan Dollar                         |                |        | 4,790      |  |   |      | (52 | )
|                                                 | Thailand Bhat                             |                |        | 2,971      |  |   |      | (45 | )
|                                                 | Korean Won                                |                |        | 2,913      |  |   |      | (59 | )
|                                                 | Swiss Franc                               |                |        | 2,478      |  |   |      | (3  | )
|                                                 | Singapore Dollar                          |                |        | 2,319      |  |   |      |    |  
|                                                 | South African Rand                        |                |        | 2,093      |  |   |      | (66 | )
|                                                 | Japanese Yen                              |                |        | 1,343      |  |   |      | 4   |  
|                                                 | Norwegian Krone                           |                |        | 1,198      |  |   |      | (20 | )
|                                                 | Other (individually less than $1 million) |                |        | 1,074      |  |   |      | (14 | )
|                                                 |                                           |                |        |            |  |   |      |    
|Total                                            |                                           | $              | 27,878 |            |  | $ | (315 | )  
|                                                 |                                           |                |        |            |  |   |      |    

F-18



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                 |                                           |                |        |            |  |   |      |    | 
|------------------------------------------------ | ----------------------------------------- | -------------- | ------ | ---------- |  | - | ---- | -- | 
|                                                 |                                           | Contract       |        |           
|                                                 |                                           | Amount         |        | Fair Value
|                                                 |                                           |                |        |           
|                                                 |                                           |               
|                                                 |                                           | (In thousands)
|Forward currency to be purchased under contract: |                                           |                |        |            |  |   |      |   
|                                                 | British Pound                             |                | $      | 20,488     |  |   | $    | 79 | 
|                                                 | Euro                                      |                |        | 2,428      |  |   |      | 9  | 
|                                                 | Other (individually less than $1 million) |                |        | 653        |  |   |      | 5  | 
|                                                 |                                           |                |        |            |  |   |      |   
|Total                                            |                                           | $              | 23,569 |            |  | $ | 93   |   
|                                                 |                                           |                |        |            |  |   |      |   
|Grand Total                                      |                                           | $              | 51,447 |            |  | $ | (222 | ) 
|                                                 |                                           |                |        |            |  |   |      |   

While the contract amounts provide one measure of
the volume of these transactions, they do not represent the
amount of the Companys exposure to credit risk. The amount
of the Companys credit risk exposure (arising from the
possible inabilities of counter parties to meet the terms of
their contracts) is generally limited to the amounts, if any, by
which the counter parties obligations exceed the
obligations of the Company as these contracts can be settled on
a net basis at the option of the Company. The Company controls
credit risk through credit approvals, limits and monitoring
procedures.

As of December 31, 2002 and 2001, other than
foreign currency forward exchange contracts discussed
immediately above, the Company does not currently invest in or
hold any other derivative financial instruments.

Note 5  Stockholders
Equity



| |                
| | ---------------
| | Preferred Stock

In November 1997, the Company sold 50,000 shares
of newly authorized Series B convertible preferred stock
(Series B Preferred), face value $1,000 per
share, for aggregate proceeds of $50.0 million. Such shares
are generally not entitled to vote on corporate matters. In
connection with this original offering, the Company also agreed
to issue a warrant upon conversion of such Series B
Preferred to purchase 20% of the shares of the Companys
common stock, $0.01 par value per share (the Common
Stock).

During 2000, the Company issued to one holder of
Series B Preferred a warrant to purchase up to 326,150
shares of Common Stock at a purchase price of $7.84 per share
and paid such holder cash dividends, which were previously
accrued, in the amount of $932,055. As of December 31, 2002
and 2001, no Series B Preferred was outstanding and
warrants to purchase approximately 2,303,000 shares of Common
Stock were outstanding and exercisable through November 2002, at
which time they expired, at a per share exercise price of $7.84.
All warrants to purchase shares of Common Stock issued in
connection with the Series B Preferred are collectively
referred to as the Series B Warrants.

The fair value of the Series B Warrants was
deemed to be a discount to the conversion price of the
respective equity instruments available to the holders of
Series B Preferred. The discounts were recognized as a
return to the holders of Series B Preferred (similar to a
dividend) over the minimum period during which the holders of
Series B Preferred could realize this return, which was six
months. The discount was accreted to additional paid in capital
in the Companys balance sheet and was disclosed as a
decrease in the amount available to holders of Common Stock on
the face of the Companys statements of operations and for
purposes of computing net income (loss) per share.



| |             
| | ------------
| | Common Stock

During 2001, the Company announced that its board
of directors authorized a $350.0 million stock repurchase
program. The Company may repurchase outstanding shares of its
Common Stock from time to

F-19



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

time in the open market and through privately
negotiated transactions. During 2002 and 2001, the Company
repurchased approximately 26.5 and 34.0 million shares of
Common Stock for an aggregate purchase price of approximately
$74.2 and $143.0 million, respectively. The Company retired
26.6 million shares in 2001 that were repurchased in that
year. As of December 31, 2002, the Company has repurchased
60.5 million shares under the program, at a total cost of
$217.2 million.

Note 6  Net Income (Loss) Per
Common Share

The following table sets forth the computation of
basic and diluted net income (loss) per common share:

|                                           |                                                                                                                               |                                                                    |         |         |         |      |         |         |         |   |         |         |         | 
|------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                           |                                                                                                                               | 2002                                                               |         | 2001    |         | 2000
|                                           |                                                                                                                               |                                                                    |         |         |         |     
|                                           |                                                                                                                               |                                                                   
|                                           |                                                                                                                               | (In thousands, except per share data)                             
|Numerator:                                 |                                                                                                                               |                                                                    |         |         |         |      |         |         |         |   |         |        
|                                           | Net income (loss)                                                                                                             |                                                                    | $       | (63,573 | )       |      | $       | 624,948 |         |   | $       | (98,315 | )      
|                                           | Preferred stock dividends                                                                                                     |                                                                    |         |        |         |      |         |        |         |   |         | (191    | )      
|                                           |                                                                                                                               |                                                                    |         |         |         |      |         |         |         |   |         |        
|                                           | Numerator for basic and diluted net income
    (loss) per common share                                                        |                                                                    |         | (63,573 | )       |      | $       | 624,948 |         |   | $       | (98,506 | )      
|Denominator:                               |                                                                                                                               |                                                                    |         |         |         |      |         |         |         |   |         |        
|                                           | Denominator for basic net income (loss) per
    common share                                                                 |                                                                    |         |         |         |      |         |         |         |   |         |         |        
|                                           |                                                                                                                               | Weighted-average shares outstanding                                |         |         | 247,724 |      |         |         | 275,930 |   |         |         | 280,082 | 
|                                           |                                                                                                                               | Weighted-average shares to be issued for
    litigation settlement |         |         |        |      |         |         | 1,560   |   |         |         | 6,056   | 
|                                           |                                                                                                                               |                                                                    |         |         |         |      |         |         |         |   |         |        
|                                           |                                                                                                                               |                                                                    | 247,724 |         |         |      | 277,490 |         |         |   | 286,138 |        
|                                           |                                                                                                                               |                                                                    |         |         |         |      |         |         |         |   |         |        
|                                           | Effect of dilutive securities:                                                                                                |                                                                    |         |         |         |      |         |         |         |   |         |         |        
|                                           |                                                                                                                               | Employee stock options                                             |         |         |        |      |         |         | 3,648   |   |         |         |        | 
|                                           |                                                                                                                               | Contingently issuable shares for litigation
    settlement         |         |         |        |      |         |         | 3,184   |   |         |         |        | 
|                                           |                                                                                                                               | Common stock warrants                                              |         |         |        |      |         |         | 13      |   |         |         |        | 
|                                           |                                                                                                                               |                                                                    |         |         |         |      |         |         |         |   |         |        
|                                           | Denominator for diluted net income (loss) per
    common share  adjusted weighted-average shares and
    assumed conversions |                                                                    |         | 247,724 |         |      |         | 284,335 |         |   |         | 286,138 |        
|                                           |                                                                                                                               |                                                                    |         |         |         |      |         |         |         |   |         |        
|Basic net income (loss) per common share   |                                                                                                                               | $                                                                  | (0.26   | )       |         | $    | 2.25    |         |         | $ | (0.34   | )      
|                                           |                                                                                                                               |                                                                    |         |         |         |      |         |         |         |   |         |        
|Diluted net income (loss) per common share |                                                                                                                               | $                                                                  | (0.26   | )       |         | $    | 2.20    |         |         | $ | (0.34   | )      
|                                           |                                                                                                                               |                                                                    |         |         |         |      |         |         |         |   |         |        

As part of the Companys settlement in 1999
of various private securities and related litigation arising out
of the restatement of its financial statements, the Company
agreed to issue a minimum of 9.0 million shares
(settlement shares) of Common Stock at a guaranteed
value of $91.0 million (stock price guarantee).
The stock price guarantee is satisfied with respect to any
distribution of settlement shares if the closing price of the
Common Stock averages at least $10.11 per share for ten
consecutive trading days during the six-month period subsequent
to the distribution. The first distribution of settlement shares
occurred in November and December 1999 when the Company issued
approximately 2.9 million settlement shares to the
plaintiffs counsel. The stock price guarantee was
satisfied with respect to this first distribution of settlement
shares. In April 2001, the Company issued the remainder of the
settlement shares. The stock price guarantee was not satisfied
with respect to this final distribution of settlement shares,
and the Company ultimately elected to satisfy the stock price
guarantee by making a payment of $26.2 million in cash in
November 2001. Until the fourth quarter of 2001, the Company
presumed it would satisfy the stock price guarantee by issuing
the

F-20



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

required amount of shares (contingently
issuable shares). Accordingly, the contingently issuable
shares are included as dilutive securities above for the period
from January 1, 2001 to September 30, 2001.

The Company excluded potentially dilutive
securities for each period presented from its diluted net income
(loss) per share calculation because either the exercise
price of the securities exceeded the average fair value of the
Common Stock or the Company had net losses and, therefore, these
securities were not dilutive to the calculation. A summary of
the excluded potential common shares and the related
exercise/conversion features is as follows:

|                                 |                                                            |                                                  |  |        |   |      |  |        |   |  |  |        |     | 
|-------------------------------- | ---------------------------------------------------------- | ------------------------------------------------ |  | ------ | - | ---- |  | ------ | - |  |  | ------ | --- | 
|                                 |                                                            |                                                 
|                                 |                                                            | December 31,                                    
|                                 |                                                            |                                                 
|                                 |                                                            | 2002                                             |  | 2001   |   | 2000
|                                 |                                                            |                                                  |  |        |   |     
|                                 |                                                            |                                                 
|                                 |                                                            | (In thousands)                                  
|Potentially dilutive securities: |                                                            |                                                  |  |        |   |      |  |        |   |  |  |       
|                                 | Stock options                                              |                                                  |  | 28,800 |   |      |  | 38,480 |   |  |  | 47,121 |    
|                                 | Contingently issuable shares for litigation
    settlement |                                                  |  |       |   |      |  |       |   |  |  | 12,730 |    
|                                 | Series B Warrants                                          |                                                  |  |       |   |      |  | 2,303  |   |  |  | 2,303  |    
|                                 | Series B Convertible Preferred Stock                       |                                                  |  |        |   |      |  |        |   |  |  |        |    
|                                 |                                                            | Equivalent common shares upon assumed conversion |  |        |  |      |  |        |  |  |  |        | 887 | 
|                                 | Cloudscape Restricted Common Stock                         |                                                  |  |       |   |      |  |       |   |  |  | 36     |    

Options to purchase shares of the Companys
Common Stock with exercise prices below the average market price
for the year ended December 31, 2002 totaling
0.7 million, have been excluded from the dilutive
calculation as the potential common shares associated with these
options are anti-dilutive due to the net loss for the period.
These options have exercise prices ranging from $0.05 to $2.40
for the year ended December 31, 2002.

The stock options outstanding have per share
exercise prices ranging from $0.05 to $22.25, $0.05 to $28.10,
and $0.05 to $28.10, at December 31, 2002, 2001 and 2000,
respectively. These stock options are exercisable at various
dates through December 2012. Options outstanding during the year
included options to purchase 12.9 million shares of the
Companys Common Stock, the terms of which were extended in
2001 in conjunction with the IBM Transaction. These options were
exercised or expired as of October 29, 2002 and had
exercise prices ranging from $0.20 to $28.10 per share.

The Series B Warrants were issued in
connection with the conversion of certain shares of the
Companys Series B Preferred into shares of Common
Stock in July of 2000. Upon conversion of the Series B
Preferred, the holders received Series B Warrants
exercisable for a number of shares of Common Stock equal to 20%
of the shares of Common Stock into which the shares of
Series B Preferred were converted. These warrants expired
unexercised on November 19, 2002.

Note 7  Employee Benefit
Plans



| |             
| | ------------
| | Option Plans

In February 1989, the Company adopted the 1989
Outside Directors Stock Option Plan (the
1989 Plan), whereby non-employee directors are
automatically granted 20,000 non-qualified stock options upon
election to the board of directors and 15,000 non-qualified
stock options annually thereafter. One-third of the options vest
and become exercisable in each full year of the outside
directors continuous service as a director of the Company.
A total of 1,600,000 shares have been authorized for
issuance under the 1989 Plan, of which 445,000 shares
are reserved for future issuance as of December 31, 2002.

In March 1994, the Company adopted the 1994 Stock
Option and Award Plan (the 1994 Plan).
Incentive stock options, nonqualified stock options, performance
shares, or a combination thereof, can be

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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

granted to employees, at not less than the fair
market value on the date of grant and generally vest in annual
installments over two to four years. The compensation committee
may grant awards, provided that during any fiscal year of the
Company, no participant shall receive stock options exercisable
for more than 500,000 shares of Common Stock or performance
shares covering more than 200,000 shares of Common Stock.
However, the compensation committee may grant options
exercisable for up to 1,000,000 shares of Common Stock
during any fiscal year of the Company in which the individual
first becomes an employee and/or is promoted from a position as
a non-executive officer employee to a position as an executive
officer. In April 2000, the Companys board of directors
approved an amendment to the 1994 Plan whereby the options
are generally not exercisable until one year from the date of
grant. A total of 24,000,000 shares have been authorized
for issuance under the 1994 Plan, of which 7,886,000 shares
are reserved for future issuance as of December 31, 2002.

In July 1997, the Company adopted the 1997
Non-Statutory Stock Option Plan (the
1997 Plan), authorizing the grant of
non-statutory stock options to employees and consultants. Terms
of each option are determined by the board or committee
delegated such duties by the board. A total of
1,700,000 shares have been authorized for issuance under
the 1997 Plan, of which 1,185,000 shares are reserved
for future issuance as of December 31, 2002.

In July 1998, the Company adopted the 1998
Non-Statutory Stock Option Plan (the
1998 Plan). Options can be granted to employees
and consultants with terms designated by the board or committee
delegated such duties by the board. On March 8, 2002, the
board of directors authorized an increase in the number of
shares available for issuance under the 1998 Plan from
15,500,000 shares to 20,500,000 shares, of which
11,110,00 shares are reserved for future issuance as of
December 31, 2002.

As a result of its acquisition of Torrent
Systems, Inc (Torrent) in November 2001, the Company
assumed all unvested outstanding Torrent stock options. Each
Torrent stock option so assumed is subject to the same terms and
conditions as the original grant and generally vests over four
or five years and expires ten years from date of grant. Each
option was adjusted at a ratio of approximately
..3069835 shares of Common Stock for each one share of
Torrent common stock, and the exercise price was adjusted by
dividing the exercise price by approximately .3069835.

As a result of its acquisition of Ardent in March
2000, the Company assumed all outstanding Ardent stock options.
Each Ardent stock option so assumed is subject to the same terms
and conditions as the original grant and generally vests over
four years and expires ten years from the date of grant. Each
option was adjusted at a ratio of 3.5 shares of Common
Stock for each one share of Ardent common stock, and the
exercise price was adjusted by dividing the exercise price
by 3.5.

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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Following is a summary of activity for all stock
option plans for the three years ended December 31, 2002:

|                                 |  |           |             |                |  |   |      | 
|-------------------------------- |  | --------- | ----------- | -------------- |  | - | ---- | 
|                                 |  |           |             | Weighted      
|                                 |  | Number of |             | Average       
|                                 |  | Shares    |             | Exercise Price
|                                 |  |           |             |               
|Outstanding at December 31, 1999 |  |           | 40,108,280  |                |  | $ | 5.77 | 
|Options granted                  |  |           | 24,801,805  |                |  |   | 6.71 | 
|Options exercised                |  |           | (7,222,002  | )              |  |   | 3.64 | 
|Options canceled                 |  |           | (10,567,200 | )              |  |   | 7.50 | 
|                                 |  |           |             |                |  |   |      | 
|Outstanding at December 31, 2000 |  |           | 47,120,883  |                |  |   | 6.20 | 
|Options granted                  |  |           | 7,431,117   |                |  |   | 4.60 | 
|Options exercised                |  |           | (2,517,294  | )              |  |   | 3.49 | 
|Options canceled                 |  |           | (9,906,556  | )              |  |   | 7.97 | 
|                                 |  |           |             |                |  |   |      | 
|Outstanding at December 31, 2001 |  |           | 42,128,150  |                |  |   | 5.66 | 
|Options granted                  |  |           | 9,569,990   |                |  |   | 2.77 | 
|Options exercised                |  |           | (590,681    | )              |  |   | 2.10 | 
|Options canceled                 |  |           | (22,307,489 | )              |  |   | 6.18 | 
|                                 |  |           |             |                |  |   |      | 
|Outstanding at December 31, 2002 |  |           | 28,799,970  |                |  | $ | 4.37 | 
|                                 |  |           |             |                |  |   |      | 

The following table summarizes information about
options outstanding at December 31, 2002:

|                         |  |                     |            |                     |  |          |      |              |  |          |       |  |  |  |            |  |  |   |       | 
|------------------------ |  | ------------------- | ---------- | ------------------- |  | -------- | ---- | ------------ |  | -------- | ----- |  |  |  | ---------- |  |  | - | ----- | 
|                         |  |                     |            |                    
|                         |  | Options Outstanding |            | Options Exercisable
|                         |  |                     |            |                    
|                         |  | Number              |            | Weighted            |  |          |      | Number       |  |         
|                         |  | Outstanding         |            | Average             |  | Weighted |      | Exercisable  |  | Weighted
|                         |  | as of               |            | Remaining           |  | Average  |      | as of        |  | Average 
|                         |  | December 31,        |            | Contractual         |  | Exercise |      | December 31, |  | Exercise
|Range of Exercise Prices |  | 2002                |            | Life                |  | Price    |      | 2002         |  | Price   
|                         |  |                     |            |                     |  |          |      |              |  |         
|$0.05 to $1.13           |  |                     | 205,290    |                     |  |          | 6.63 |              |  | $        | 0.86  |  |  |  | 111,590    |  |  | $ | 0.63  | 
|$1.63 to $2.40           |  |                     | 5,497,591  |                     |  |          | 8.24 |              |  |          | 2.21  |  |  |  | 1,583,846  |  |  |   | 2.00  | 
|$2.50 to $3.00           |  |                     | 5,911,805  |                     |  |          | 7.67 |              |  |          | 2.89  |  |  |  | 2,399,892  |  |  |   | 2.88  | 
|$3.07 to $4.37           |  |                     | 4,946,260  |                     |  |          | 8.63 |              |  |          | 3.72  |  |  |  | 1,471,250  |  |  |   | 3.86  | 
|$4.50 to $5.36           |  |                     | 9,187,587  |                     |  |          | 7.61 |              |  |          | 5.00  |  |  |  | 6,228,630  |  |  |   | 5.02  | 
|$5.53 to $8.13           |  |                     | 1,304,469  |                     |  |          | 6.67 |              |  |          | 6.85  |  |  |  | 1,055,896  |  |  |   | 6.80  | 
|$8.38 to $12.50          |  |                     | 902,593    |                     |  |          | 6.75 |              |  |          | 9.82  |  |  |  | 730,797    |  |  |   | 9.87  | 
|$14.06 to $22.25         |  |                     | 844,375    |                     |  |          | 6.91 |              |  |          | 17.03 |  |  |  | 638,326    |  |  |   | 17.10 | 
|                         |  |                     |            |                     |  |          |      |              |  |          |       |  |  |  |            |  |  |   |       | 
|$0.05 to $22.25          |  |                     | 28,799,970 |                     |  |          | 7.82 |              |  | $        | 4.37  |  |  |  | 14,220,227 |  |  | $ | 5.09  | 
|                         |  |                     |            |                     |  |          |      |              |  |          |       |  |  |  |            |  |  |   |       | 

At December 31, 2001 and 2000, respectively,
27,644,879 and 16,969,304 options were exercisable in connection
with all stock option plans.



| |                             
| | ----------------------------
| | Employee Stock Purchase Plan

In May 1997, the Companys stockholders
approved the 1997 Employee Stock Purchase Plan (the
1997 ESPP). The Company had reserved
4,000,000 shares of Common Stock for issuance under the
1997 ESPP. In June 2000, the plan was amended to authorize an
additional 4,000,000 shares of Common Stock for issuance
under the 1997 ESPP resulting in total authorization of
8,000,000 shares of Common Stock. The 1997 ESPP
permits eligible employees to purchase Common Stock through
payroll deductions of up to 10 percent of an
employees compensation, including commissions, overtime,
bonuses and other incentive

F-23



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

compensation. The price of Common Stock purchased
under the 1997 ESPP is equal to 85 percent of the lower of
the fair market value of the Common Stock at the beginning or at
the end of each calendar quarter in which an eligible employee
participates. The 1997 ESPP qualifies as an employee stock
purchase plan under Section 423 of the Internal Revenue
Code of 1986, as amended. During 2002, 2001 and 2000, the
Company issued approximately 761,000 shares,
1,427,000 shares and 2,043,000 shares, respectively,
under the 1997 ESPP. Shares available for grant under the
ESPP were 1,133,000 at December 31, 2002.



| |            
| | -----------
| | 401(k) Plan

The Company has a 401(k) plan covering
substantially all of its U.S. employees. Under this plan,
participating employees may defer up to 15 percent of their
pre-tax earnings, subject to the Internal Revenue Service annual
contribution limits. The Company matches 50 percent of each
employees contribution up to a maximum of $2,500. The
Companys matching contributions to this 401(k) plan for
2002, 2001 and 2000 were $1.0 million, $3.8 million
and $4.9 million, respectively.



| |                       
| | ----------------------
| | Other Retirement Plans

The Company maintains a split dollar
life insurance arrangement with respect to three current and
certain former executive officers and employees, assumed in its
acquisition of Ardent. Pursuant to these arrangements, the
recipients may borrow against the excess cash surrender values
of their policies over cumulative paid-in premiums. The Company
is entitled to recover the amount of premiums paid by the
Company upon termination of the policy or death of the
recipient. Following the passage of the Sarbanes-Oxley Act of
2002, the Company has ceased paying premiums on policies held by
its executive officers. The Company has established an
investment account, the future value of which is sufficient to
pay the annual remaining premiums which are due on various dates
through 2006. The Company has no plans to expand these
arrangements or offer similar arrangements to additional
executive officers or employees.

The Company accounts for these policies as a
defined contribution plan and expenses premiums on the policies
as incurred, which represents the compensation element of the
plan. In addition, since the Company controls its share of the
cash surrender value of the policies at all times, it accounts
for any changes in cash surrender value in accordance with the
guidance provided in Financial Accounting Standards Board
Technical Bulletin No. 85-4, Accounting for Purchases of
Life Insurance. Accordingly, increases or decreases in cash
surrender value are recognized each period and the asset
recorded on the Companys books represents the lesser of
the Companys share of cash surrender value or the
cumulative premiums paid on the policies. The investment account
is recorded at the current market value. The total of the cash
surrender value and the investment account is included in other
long term assets and was $7.4 million and $7.7 million
at December 31, 2002 and 2001, respectively.

Note 8  Commitments and
Contingencies

Rent.The Company
leases certain of its office facilities and equipment under
non-cancelable operating leases and total rent expense,
excluding amounts charged to Accrued merger, realignment
and other charges, was $8.6 million,
$23.5 million and $44.0 million in 2002, 2001 and
2000, respectively.

F-24



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Future minimum payments by year and in the
aggregate, under non-cancelable operating leases, excluding the
assigned lease mentioned below but including amounts which will
be charged to Accrued merger, realignment and other
charges (see Note 16 in these Notes to Consolidated
Financial Statements), as of December 31, 2002, are as
follows (in thousands):

|                                |  |   |        |  
|------------------------------- |  | - | ------ | -
|Year Ending December 31         |  |  
|                                |  |  
|2003                            |  | $ | 14,088 |  
|2004                            |  |   | 10,635 |  
|2005                            |  |   | 7,346  |  
|2006                            |  |   | 5,423  |  
|2007                            |  |   | 4,043  |  
|Thereafter                      |  |   | 4,163  |  
|                                |  |   |        |  
|Total payments                  |  |   | 45,698 |  
|Non-cancellable sublease income |  |   | (2,770 | )
|                                |  |   |        |  
|Total payments, net             |  | $ | 42,928 |  
|                                |  |   |        |  

Guarantees.Effective December 31, 2002, the
Company adopted the disclosure provisions of FIN 45 which
addresses the disclosure to be made by a guarantor in its
interim and annual financial statements about its obligations
under guarantees (see Note 1 in these Notes to Consolidated
Financial Statements). The Companys guarantees consist of
a contingent liability for the assignment of a facility lease,
indemnification agreements and standby letters of credit.

In November 1996, the Company leased
approximately 200,000 square feet of office space in Santa
Clara, California. The lease term extends through March 2013 and
the remaining minimum lease payments amount to approximately
$58.9 million. In the fourth quarter of 1997, the Company
assigned the lease to Network Associates, Inc., an unrelated
third party. The Company remains contingently liable for minimum
lease payments under this assignment.

As part of the IBM Transaction, the Company has
agreed to indemnify IBM for certain representations and
warranties that have been made under the terms of the
IBM Transaction agreements. IBM had retained
$100.0 million of the sale proceeds as a holdback to
satisfy any indemnification obligations that might arise for any
representations or warranties made by the Company as part of the
IBM Transaction. The agreement with IBM provided that the
Company would indemnify IBM and its affiliates against any loss,
claim, damage, liability or other expense incurred in connection
with (i) any failure of any representation or warranty of
the Company to be true and correct in all respects provided,
however, that any such liability, in the aggregate, exceeds on a
cumulative basis $10.0 million (and only to the extent of
any such excess); (ii) any breach of any obligation of the
Company; (iii) any of the Excluded Liabilities, as defined
in the agreement; or (iv) the operation or ownership of the
Excluded Assets, as defined in the agreement. The Company
received the $100.0 million holdback payment from IBM, plus
accrued interest receivable, in January 2003. No indemnification
claims have been made from the time that the Company received
the holdback payment through the date of this filing.
Indemnification obligations of the Company with respect to
certain representations and warranties under the agreement with
IBM will terminate on July 1, 2003 (see Note 14 of
these Notes to Consolidated Financial Statements).

The Company is obligated to indemnify current and
prior directors, officers and certain employees for various
matters arising from their actions during the period they were
employed by or associated with the Company. The Companys
indemnification obligations are defined by indemnification
agreements and the Companys charter and by-laws. The
Company is insured for certain costs and losses that could be
incurred by

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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

virtue of its indemnification obligations. The
Company may be entitled to seek reimbursement from such
individuals for these payments if certain conditions are
satisfied.

In May 2002, the Company entered into a standby
letter of credit that expires by May 2006 which guarantees
$0.7 million of potential tax payments related to certain
payments made to one of the former officers of the Company.
These potential tax payments, which have been fully reserved,
relate to severance paid to that former officer in accordance
with a change in control agreement that was triggered by the
IBM Transaction (see Note 14 in these Notes to Consolidated
Financial Statements). Payment under the standby letter of
credit would be due upon final assessment of this tax liability.

The Company was also required to enter into
standby letters of credit to guarantee approximately
$0.6 million of lease payments for certain facilities in
Europe. These guarantees do not have expiration dates and would
allow landlords to obtain lease payments from the Companys
bank if the Company defaulted on its lease payment obligations.

The Company generally offers a 90 day
warranty with respect to its products and indemnification with
respect to infringement of third party intellectual property.
Historically, the Company has recorded minimal costs related to
warranties and indemnities; therefore there is no liability
recorded on the Companys Consolidated Balance Sheet
associated with such warranties or indemnification obligations.

Note 9  Business
Segments

During the first quarter of 2001, in conjunction
with its 2000 strategic realignment, the Company began operating
under two segments that reported to the Companys chief
executive officer (the Chief Operating Decision
Maker). The first segment, Ascential Software, develops
and markets enterprise data integration software and related
services worldwide. The second segment, Informix Software,
provided database management systems for data warehousing,
transaction processing, and e-business applications. The
Company or Ascential Software
Corporation refers to Ascential Software and Informix
Software on a combined basis beginning in 2001. By
December 31, 2000, the Company had defined and allocated
personnel among the management, selling, marketing, research and
development and service organizations for the two operating
businesses. Prior to this occurrence, the Company had not
achieved sufficient separation of the employees and
infrastructure of the two operating businesses to properly
measure the results of the operations on a stand-alone basis.
Accordingly, although separate revenue information is disclosed
for the two operating businesses on a historical basis, there is
no disclosure of separate historical operating results for
periods prior to December 31, 2001. The Company could only
evaluate segment operating performance in 2001 based on net
revenues, and certain operating expenses. Beginning in 2002,
segment operating performance is evaluated primarily on income
before income taxes.

As discussed in Note 14 in these Notes to
Consolidated Financial Statements, the Company completed the IBM
Transaction during the third quarter of 2001. Accordingly, the
Company no longer derives revenue from the Informix Software
segment and the only remaining operating segment subsequent to
the sale is Ascential Software. Expenses continued to be
incurred by the Informix Software segment related to the winding
down of issues with respect to the sale of that business.

F-26



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Below is a summary of the results of operations
based on the two operating businesses for the years ended
December 31, 2002, 2001 and 2000:

|              |                                          |           |   |           |   |       |   |         |   |  |   |           |  
|------------- | ---------------------------------------- | --------- | - | --------- | - | ----- | - | ------- | - |  | - | --------- | -
|              |                                          | Ascential |   | Informix  |   |      
|              |                                          | Software  |   | Software  |   | Total
|              |                                          |           |   |           |   |      
|2002          |                                          |           |   |           |   |       |   |         |   |  |   |          
|Net revenues: |                                          |           |   |           |   |       |   |         |   |  |   |          
|              | Net revenues from unaffiliated customers |           | $ | 113,018   |   |       | $ |        |   |  | $ | 113,018   |  
|              | Operating loss                           |           |   | (78,522   | ) |       |   | (22,916 | ) |  |   | (101,438  | )
|              | Loss before income taxes                 |           |   | (64,032   | ) |       |   | (17,372 | ) |  |   | (81,404   | )
|              | Depreciation and amortization            |           |   | (10,013   | ) |       |   |        |   |  |   | (10,013   | )
|              | Identifiable assets at December 31, 2002 |           |   | 910,729   |   |       |   |        |   |  |   | 910,729   |  
|              | Capital expenditures                     |           |   | 2,950     |   |       |   |        |   |  |   | 2,950     |  
|2001          |                                          |           |   |           |   |       |   |         |   |  |   |          
|              | Net revenues from unaffiliated customers |           | $ | 123,980   |   |       | $ | 357,352 |   |  | $ | 481,332   |  
|              | Operating income (loss)                  |           |   | (105,290  | ) |       |   | 9,130   |   |  |   | (96,160   | )
|              | Identifiable assets at December 31, 2001 |           |   | 1,079,740 |   |       |   |        |   |  |   | 1,079,740 |  
|2000          |                                          |           |   |           |   |       |   |         |   |  |   |          
|              | Net revenues from unaffiliated customers |           | $ | 121,728   |   |       | $ | 807,591 |   |  | $ | 929,319   |  

F-27



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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Revenue from external customers for each group of
similar products and services offered by Ascential Software and
Informix Software are summarized below by year (in millions):

|                                                                                                |                                   |      |         |        |  |      |         |         |  |   |         |         | 
|----------------------------------------------------------------------------------------------- | --------------------------------- | ---- | ------- | ------ |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                                                                |                                   | 2002 |         | 2001   |  | 2000
|                                                                                                |                                   |      |         |        |  |     
|Ascential Software                                                                              |                                   |      |         |        |  |      |         |         |  |   |         |        
|License revenues                                                                                |                                   | $    | 59,611  |        |  | $    | 62,417  |         |  | $ | 66,699  |        
|Service revenues:                                                                               |                                   |      |         |        |  |      |         |         |  |   |         |        
|                                                                                                | Maintenance revenues              |      |         | 29,962 |  |      |         | 29,197  |  |   |         | 20,104  | 
|                                                                                                | Consulting and education revenues |      |         | 23,445 |  |      |         | 32,366  |  |   |         | 34,925  | 
|                                                                                                |                                   |      |         |        |  |      |         |         |  |   |         |        
|Total service revenues                                                                          |                                   |      | 53,407  |        |  |      | 61,563  |         |  |   | 55,029  |        
|                                                                                                |                                   |      |         |        |  |      |         |         |  |   |         |        
|Total revenues  Ascential Software                                                             |                                   | $    | 113,018 |        |  | $    | 123,980 |         |  | $ | 121,728 |        
|Informix Software                                                                               |                                   |      |         |        |  |      |         |         |  |   |         |        
|License revenues                                                                                |                                   | $    |        |        |  | $    | 149,319 |         |  | $ | 337,722 |        
|Service revenues:                                                                               |                                   |      |         |        |  |      |         |         |  |   |         |        
|                                                                                                | Maintenance revenues              |      |         |       |  |      |         | 183,729 |  |   |         | 392,368 | 
|                                                                                                | Consulting and education revenues |      |         |       |  |      |         | 24,304  |  |   |         | 77,501  | 
|                                                                                                |                                   |      |         |        |  |      |         |         |  |   |         |        
|Total service revenues                                                                          |                                   |      |        |        |  |      | 208,033 |         |  |   | 469,869 |        
|                                                                                                |                                   |      |         |        |  |      |         |         |  |   |         |        
|Total revenues  Informix Software                                                              |                                   | $    |        |        |  | $    | 357,352 |         |  | $ | 807,591 |        
|Ascential Software Corporation (Combined total
    of Informix Software and Ascential Software) |                                   |      |         |        |  |      |         |         |  |   |         |        
|License revenues                                                                                |                                   | $    | 59,611  |        |  | $    | 211,736 |         |  | $ | 404,421 |        
|Service revenues:                                                                               |                                   |      |         |        |  |      |         |         |  |   |         |        
|                                                                                                | Maintenance revenues              |      |         | 29,962 |  |      |         | 212,926 |  |   |         | 412,472 | 
|                                                                                                | Consulting and education revenues |      |         | 23,445 |  |      |         | 56,670  |  |   |         | 112,426 | 
|                                                                                                |                                   |      |         |        |  |      |         |         |  |   |         |        
|Total service revenues                                                                          |                                   |      | 53,407  |        |  |      | 269,596 |         |  |   | 524,898 |        
|                                                                                                |                                   |      |         |        |  |      |         |         |  |   |         |        
|Total revenues                                                                                  |                                   | $    | 113,018 |        |  | $    | 481,332 |         |  | $ | 929,319 |        
|                                                                                                |                                   |      |         |        |  |      |         |         |  |   |         |        

Prior to 2001, the Company operated under four
reportable operating segments that reported to the Chief
Operating Decision Maker. These reportable operating segments,
North America, Europe, Asia/ Pacific and Latin America, were
organized, managed and analyzed geographically and operated in
one industry segment: the development and marketing of
information management software and related services. The
Company has evaluated operating segment performance based
primarily on net revenues and certain operating expenses. The
Companys products are marketed internationally through the
Companys subsidiaries and through application resellers,
OEMs and distributors.

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Financial information for the Companys
North America, Europe, Asia/ Pacific and Latin America operating
segments is summarized below by year:

|      |                                          |                |   |           |   |              |   |         |   |          |   |         |   |  |   |        |   |  |   |          |   |  |   |           |  
|----- | ---------------------------------------- | -------------- | - | --------- | - | ------------ | - | ------- | - | -------- | - | ------- | - |  | - | ------ | - |  | - | -------- | - |  | - | --------- | -
|      |                                          | North          |   |           |   |              |   | Latin   |   |          |   |        
|      |                                          | America(3)     |   | Europe    |   | Asia/Pacific |   | America |   | Other(4) |   | Total  
|      |                                          |                |   |           |   |              |   |         |   |          |   |        
|      |                                          |               
|      |                                          | (In thousands)
|2002: |                                          |                |   |           |   |              |   |         |   |          |   |         |   |  |   |        |   |  |   |          |   |  |   |          
|      | Net revenues from unaffiliated customers |                |   | 71,140    |   |              |   | 28,634  |   |          |   | 10,383  |   |  |   | 2,861  |   |  |   |         |   |  |   | 113,018   |  
|      | Transfers between segments(1)            |                |   | (9,289    | ) |              |   | 5,274   |   |          |   | 3,137   |   |  |   | 878    |   |  |   |         |   |  |   |          |  
|      | Total net revenues                       |                |   | 61,851    |   |              |   | 33,908  |   |          |   | 13,520  |   |  |   | 3,739  |   |  |   |         |   |  |   | 113,018   |  
|      | Operating loss(2)                        |                |   | (66,770   | ) |              |   | (27,648 | ) |          |   | (4,560  | ) |  |   | (2,406 | ) |  |   | (54      | ) |  |   | (101,438  | )
|      | Identifiable assets at December 31       |                |   | 902,110   |   |              |   | 264,944 |   |          |   | 1,967   |   |  |   | 808    |   |  |   | (259,100 | ) |  |   | 910,729   |  
|      | Depreciation and amortization expense    |                |   | 8,557     |   |              |   | 960     |   |          |   | 404     |   |  |   | 92     |   |  |   |         |   |  |   | 10,013    |  
|      | Capital expenditures                     |                |   | 1,947     |   |              |   | 340     |   |          |   | 663     |   |  |   |       |   |  |   |         |   |  |   | 2,950     |  
|2001: |                                          |                |   |           |   |              |   |         |   |          |   |         |   |  |   |        |   |  |   |          |   |  |   |          
|      | Net revenues from unaffiliated customers |                | $ | 259,787   |   |              | $ | 141,689 |   |          | $ | 45,994  |   |  | $ | 33,862 |   |  | $ |         |   |  | $ | 481,332   |  
|      | Transfers between segments(1)            |                |   | (11,323   | ) |              |   | 6,215   |   |          |   | 1,994   |   |  |   | 3,114  |   |  |   |         |   |  |   |          |  
|      |                                          |                |   |           |   |              |   |         |   |          |   |         |   |  |   |        |   |  |   |          |   |  |   |          
|      | Total net revenues                       |                |   | 248,464   |   |              |   | 147,904 |   |          |   | 47,988  |   |  |   | 36,976 |   |  |   |         |   |  |   | 481,332   |  
|      | Operating loss(2)                        |                |   | (57,836   | ) |              |   | (26,213 | ) |          |   | (7,122  | ) |  |   | (5,255 | ) |  |   | 266      |   |  |   | (96,160   | )
|      | Identifiable assets at December 31       |                |   | 1,037,885 |   |              |   | 252,060 |   |          |   | 15,120  |   |  |   | 4,866  |   |  |   | (230,191 | ) |  | $ | 1,079,740 |  
|      | Depreciation and amortization expense    |                |   | 20,860    |   |              |   | 2,715   |   |          |   | 1,440   |   |  |   | 715    |   |  |   |         |   |  |   | 25,730    |  
|      | Capital expenditures                     |                |   | 14,753    |   |              |   | 2,288   |   |          |   | 235     |   |  |   | 440    |   |  |   |         |   |  |   | 17,716    |  
|2000: |                                          |                |   |           |   |              |   |         |   |          |   |         |   |  |   |        |   |  |   |          |   |  |   |          
|      | Net revenues from unaffiliated customers |                | $ | 481,973   |   |              | $ | 278,534 |   |          | $ | 99,429  |   |  | $ | 69,383 |   |  | $ |         |   |  | $ | 929,319   |  
|      | Transfers between segments(1)            |                |   | (25,191   | ) |              |   | 9,808   |   |          |   | 8,866   |   |  |   | 6,517  |   |  |   |         |   |  |   |          |  
|      |                                          |                |   |           |   |              |   |         |   |          |   |         |   |  |   |        |   |  |   |          |   |  |   |          
|      | Total net revenues                       |                |   | 456,782   |   |              |   | 288,342 |   |          |   | 108,295 |   |  |   | 75,900 |   |  |   |         |   |  |   | 929,319   |  
|      | Operating income (loss)(2)               |                |   | (149,647  | ) |              |   | 53,936  |   |          |   | (7,219  | ) |  |   | 1,628  |   |  |   | 118      |   |  |   | (101,184  | )
|      | Identifiable assets at December 31       |                |   | 653,565   |   |              |   | 177,003 |   |          |   | 32,018  |   |  |   | 13,348 |   |  |   | (220,053 | ) |  |   | 655,881   |  
|      | Depreciation and amortization expense    |                |   | 42,945    |   |              |   | 7,332   |   |          |   | 2,853   |   |  |   | 1,341  |   |  |   |         |   |  |   | 54,471    |  
|      | Capital expenditures                     |                |   | 32,258    |   |              |   | 9,246   |   |          |   | 1,995   |   |  |   | 1,117  |   |  |   |         |   |  |   | 44,616    |  



---



|    |                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company allocates revenue to operating
    segments depending on the location of the country where the
    order is placed, the location of the country where the license
    is installed or service is delivered, the type of revenue
    (license or service) and whether the sale was through a reseller
    or to an end user.

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The accounting policies of the segments are the
same as those described above in Note 1 to these Notes to the
Consolidated Financial Statements.



|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|(2) | Operating income (loss) excludes the effect
    of transfers between segments.                                          
|   
|(3) | North American revenues consist primarily of
    revenues from the United States, the Companys country of
    domicile.
|   
|(4) | Represents consolidating adjustments such as
    elimination of intercompany transactions or balances.                  

The reconciliation of the operating income
(loss) of the Companys reportable operating segments
to the Companys income (loss) before income taxes is
as follows:

|                                                             |  |                |          |      |  |      |         |   |  |   |          |  
|------------------------------------------------------------ |  | -------------- | -------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                                             |  | 2002           |          | 2001 |  | 2000
|                                                             |  |                |          |      |  |     
|                                                             |  |               
|                                                             |  | (In thousands)
|Operating income (loss) of reportable
    operating segments |  | $              | (101,438 | )    |  | $    | (96,426 | ) |  | $ | (101,302 | )
|Consolidating adjustments                                    |  |                |         |      |  |      | 266     |   |  |   | 118      |  
|Other income, net                                            |  |                | 20,034   |      |  |      | 878,460 |   |  |   | 18,887   |  
|                                                             |  |                |          |      |  |      |         |   |  |   |          |  
|Income (loss) before income taxes                            |  | $              | (81,404  | )    |  | $    | 782,300 |   |  | $ | (82,297  | )
|                                                             |  |                |          |      |  |      |         |   |  |   |          |  

In addition to the segment information above,
information as to the Companys operations in different
geographical areas is as follows:

|                            |                     |               |     |      |  |   |      |     | 
|--------------------------- | ------------------- | ------------- | --- | ---- |  | - | ---- | --- | 
|                            |                     | 2002          |     | 2001
|                            |                     |               |     |     
|                            |                     |              
|                            |                     | (In millions)
|Property and equipment, net |                     |               |     |      |  |   |      |    
|North America               |                     |               |     |      |  |   |      |    
|                            | United States       |               | $   | 3.9  |  |   | $    | 7.9 | 
|                            | Other               |               |     | 0.1  |  |   |      | 0.3 | 
|                            |                     |               |     |      |  |   |      |    
|                            | North America total |               |     | 4.0  |  |   |      | 8.2 | 
|Europe                      |                     |               | 0.9 |      |  |   | 3.0  |    
|Asia/ Pacific               |                     |               | 0.5 |      |  |   | 0.2  |    
|Latin America               |                     |               | 0.0 |      |  |   | 0.3  |    
|                            |                     |               |     |      |  |   |      |    
|                            |                     | $             | 5.4 |      |  | $ | 11.7 |    
|                            |                     |               |     |      |  |   |      |    

In the above table, Europe includes primarily
Great Britain, France, Germany, and Italy; Asia/ Pacific
includes primarily Australia, Korea, and Japan; and Latin
America includes primarily Mexico, Brazil, and Argentina.

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 10  Income
Taxes

The provision for income taxes applicable to
income (loss) before income taxes consists of the following:

|                                                                                                    |         |                |         |         |   |      |         |        |  |   |        |       | 
|--------------------------------------------------------------------------------------------------- | ------- | -------------- | ------- | ------- | - | ---- | ------- | ------ |  | - | ------ | ----- | 
|                                                                                                    |         | 2002           |         | 2001    |   | 2000
|                                                                                                    |         |                |         |         |   |     
|                                                                                                    |         |               
|                                                                                                    |         | (In thousands)
|Currently payable (receivable):                                                                     |         |                |         |         |   |      |         |        |  |   |        |      
|                                                                                                    | Federal |                |         | (13,656 | ) |      | $       | 84,930 |  |   | $      |      | 
|                                                                                                    | State   |                |         | 120     |   |      |         | 13,648 |  |   |        | 50    | 
|                                                                                                    | Foreign |                |         | 1,341   |   |      |         | 22,415 |  |   |        | 7,711 | 
|                                                                                                    |         |                |         |         |   |      |         |        |  |   |        |      
|                                                                                                    |         |                | (12,195 | )       |   |      | 120,993 |        |  |   | 7,761  |      
|Reduction in goodwill for the tax benefit from
    utilization of acquired companys tax attributes |         |                | 30      |         |   |      | 2,584   |        |  |   |       |      
|Charge equivalent to the federal and state tax
    benefit related to employee stock options        |         |                | 586     |         |   |      | 26,928  |        |  |   |       |      
|Deferred:                                                                                           |         |                |         |         |   |      |         |        |  |   |        |      
|                                                                                                    | Federal |                |         | (1,530  | ) |      |         | 4,642  |  |   |        | 3,211 | 
|                                                                                                    | State   |                |         | (4,722  | ) |      |         | 2,205  |  |   |        |      | 
|                                                                                                    | Foreign |                |         |        |   |      |         |       |  |   |        | 5,046 | 
|                                                                                                    |         |                |         |         |   |      |         |        |  |   |        |      
|                                                                                                    |         |                | (6,252  | )       |   |      | 6,847   |        |  |   | 8,257  |      
|                                                                                                    |         |                |         |         |   |      |         |        |  |   |        |      
|                                                                                                    |         | $              | (17,831 | )       |   | $    | 157,352 |        |  | $ | 16,018 |      
|                                                                                                    |         |                |         |         |   |      |         |        |  |   |        |      

Income (loss) before income taxes consists
of the following:

|         |  |                |         |      |  |      |         |  |  |   |          |  
|-------- |  | -------------- | ------- | ---- |  | ---- | ------- |  |  | - | -------- | -
|         |  | 2002           |         | 2001 |  | 2000
|         |  |                |         |      |  |     
|         |  |               
|         |  | (In thousands)
|Domestic |  | $              | (51,019 | )    |  | $    | 622,857 |  |  | $ | (152,876 | )
|Foreign  |  |                | (30,385 | )    |  |      | 159,443 |  |  |   | 70,579   |  
|         |  |                |         |      |  |      |         |  |  |   |          |  
|         |  | $              | (81,404 | )    |  | $    | 782,300 |  |  | $ | (82,297  | )
|         |  |                |         |      |  |      |         |  |  |   |          |  

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The provision for income taxes differs from the
amount computed by applying the federal statutory income tax
rate to income (loss) before income taxes. The sources and
tax effects of the differences are as follows:

|                                                             |                                                                |                |         |         |   |        |       |         |   |        |          |         |  |  |       |      |   |   |         |        |  |  |       |       |   
|------------------------------------------------------------ | -------------------------------------------------------------- | -------------- | ------- | ------- | - | ------ | ----- | ------- | - | ------ | -------- | ------- |  |  | ----- | ---- | - | - | ------- | ------ |  |  | ----- | ----- | --
|                                                             |                                                                |                |         |         |   |       
|                                                             |                                                                | 2002           |         | 2001    |   | 2000  
|                                                             |                                                                |                |         |         |   |       
|                                                             |                                                                | Amount         |         | Percent |   | Amount |       | Percent |   | Amount |          | Percent
|                                                             |                                                                |                |         |         |   |        |       |         |   |        |          |        
|                                                             |                                                                |               
|                                                             |                                                                | (In thousands)
|Computed tax expense (benefit) at federal
    statutory rate |                                                                | $              | (28,492 | )       |   |        | 35.0  | %       |   | $      | 273,805  |         |  |  | 35.0  | %    |   | $ | (28,804 | )      |  |  | 35.0  | %    
|Valuation allowance                                          |                                                                |                | 26,945  |         |   |        | (33.1 | )       |   |        | (149,469 | )       |  |  | (19.1 | )    |   |   | 46,854  |        |  |  | (56.9 | )    
|State income taxes, net of federal tax benefit               |                                                                |                | (4,571  | )       |   |        | 5.6   |         |   |        | 34,121   |         |  |  | 4.4   |      |   |   | 50      |        |  |  | (0.1  | )    
|Foreign withholding taxes not currently creditable           |                                                                |                | 977     |         |   |        | (1.2  | )       |   |        | 3,649    |         |  |  | 0.5   |      |   |   | 3,672   |        |  |  | (4.5  | )    
|Foreign tax credits                                          |                                                                |                |        |         |   |        |      |         |   |        | (11,805  | )       |  |  | (1.5  | )    |   |   |        |        |  |  |      |      
|Foreign taxes, net                                           |                                                                |                | (1,958  | )       |   |        | 2.4   |         |   |        | (33,391  | )       |  |  | (4.3  | )    |   |   | (20,078 | )      |  |  | 24.4  |      
|Non-deductible charges                                       |                                                                |                |        |         |   |        |      |         |   |        | 39,398   |         |  |  | 5.0   |      |   |   | 15,750  |        |  |  | (19.1 | )    
|Prior year tax benefits utilized                             |                                                                |                | (12,608 | )       |   |        | 15.5  |         |   |        |         |         |  |  |      |      |   |   |        |        |  |  |      |      
|Other, net                                                   |                                                                |                | 1,876   |         |   |        | (2.3  | )       |   |        | 1,044    |         |  |  | 0.1   |      |   |   | (1,426  | )      |  |  | 1.7   |      
|                                                             |                                                                |                |         |         |   |        |       |         |   |        |          |         |  |  |       |      |   |   |         |        |  |  |       |      
|                                                             | Total income tax expense (benefit), and effective
    tax rate |                | $       | (17,831 | ) |        |       | 21.9    | % |        | $        | 157,352 |  |  |       | 20.1 | % |   | $       | 16,018 |  |  |       | (19.5 | )%
|                                                             |                                                                |                |         |         |   |        |       |         |   |        |          |         |  |  |       |      |   |   |         |        |  |  |       |      

Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets
and liabilities for financial statement purposes and the amounts
used for income tax purposes. Deferred taxes are not provided on
the undistributed earnings of approximately $169.7 million
of subsidiaries operating outside the U.S. that have been or are
intended to be permanently reinvested. The amount of

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

unrecognized deferred tax liability on the
undistributed earnings cannot be practicably determined at this
time. Significant components of the Companys deferred tax
assets and liabilities are as follows:

|                          |                                                 |                |   |         |   |  |   |         |  
|------------------------- | ----------------------------------------------- | -------------- | - | ------- | - |  | - | ------- | -
|                          |                                                 | 2002           |   | 2001   
|                          |                                                 |                |   |        
|                          |                                                 |               
|                          |                                                 | (In thousands)
|Deferred Tax Assets:      |                                                 |                |   |         |   |  |   |        
|                          | Reserves and accrued expenses                   |                | $ | 5,883   |   |  | $ | 8,911   |  
|                          | Deferred revenue                                |                |   | 269     |   |  |   | 454     |  
|                          | Foreign net operating loss carryforwards        |                |   | 29,786  |   |  |   | 13,035  |  
|                          | Domestic net operating loss carryforwards       |                |   | 51,239  |   |  |   | 45,346  |  
|                          | Foreign tax credits                             |                |   | 8,281   |   |  |   | 9,108   |  
|                          | R&D and AMT credit carryforwards                |                |   | 36,709  |   |  |   | 22,831  |  
|                          | Acquisition and restructuring reserves          |                |   | 10,718  |   |  |   | 14,066  |  
|                          | Other                                           |                |   | 1,158   |   |  |   |        |  
|                          |                                                 |                |   |         |   |  |   |        
|                          | Total deferred tax assets                       |                |   | 144,043 |   |  |   | 113,751 |  
|                          | Valuation allowance for deferred tax assets     |                |   | (97,125 | ) |  |   | (73,180 | )
|                          |                                                 |                |   |         |   |  |   |        
|                          | Deferred tax assets, net of valuation allowance |                |   | 46,918  |   |  |   | 40,571  |  
|                          |                                                 |                |   |         |   |  |   |        
|Deferred Tax Liabilities: |                                                 |                |   |         |   |  |   |        
|                          | Capitalized software                            |                |   | (6,238  | ) |  |   | (6,504  | )
|                          | Deferred gain                                   |                |   | (38,503 | ) |  |   | (33,571 | )
|                          | Acquisition reserves                            |                |   | (4,635  | ) |  |   | (3,651  | )
|                          | Other                                           |                |   | (2,197  | ) |  |   | (4,723  | )
|                          |                                                 |                |   |         |   |  |   |        
|                          | Total deferred tax liabilities                  |                |   | (51,573 | ) |  |   | (48,449 | )
|                          |                                                 |                |   |         |   |  |   |        
|                          | Net deferred tax liabilities                    |                | $ | (4,655  | ) |  | $ | (7,878  | )
|                          |                                                 |                |   |         |   |  |   |        

At December 31, 2002, the Company had
approximately $74.5 million and $117.2 million of
foreign and federal net operating loss carryforwards,
respectively. The foreign net operating loss carryforwards
expire at various dates beginning in 2003 with some of the
losses having an indefinite carryforward period. The federal net
operating loss carryforwards expire at various dates from 2004
through 2021. At December 31, 2002, the Company had
approximately $41.6 million of various federal tax credit
carryforwards that will expire at various dates from 2003
through 2021. Utilization of a substantial amount of the loss
and credit carryforwards are subject to an annual limitation
imposed by change in ownership provisions of United States
Internal Revenue Code Section 382.

The valuation allowance was increased by
$23.9 million in 2002 and was decreased by
$177.3 million in 2001. In assessing the realizability of
deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment.
The Company believes that it is more likely than not the
deferred tax assets at December 31, 2002, net of the
valuation allowance, will be realized as a result of the
reversal of existing taxable temporary differences.

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Subsequently recognizable tax benefits relating
to the valuation allowance for deferred tax assets at
December 31, 2002 will be as follows:

|                                                 |  |   |        | 
|------------------------------------------------ |  | - | ------ | 
|Income tax benefit from continuing operations    |  | $ | 62,954 | 
|Goodwill and other non-current intangible assets |  |   | 34,171 | 
|                                                 |  |   |        | 
|Total                                            |  | $ | 97,125 | 
|                                                 |  |   |        | 

Note 11  Goodwill and Other
Intangible Assets

The Company adopted certain provisions of SFAS
No. 141 and 142 effective July 1, 2001, and adopted
the remaining provisions with respect to goodwill and intangible
assets determined to have indefinite useful lives acquired in a
purchase business combination, as of January 1, 2002. As a
result, the Company ceased amortizing goodwill beginning
January 1, 2002, and evaluates goodwill for impairment in
accordance with SFAS No. 142 (see Note 1, of these Notes to
Consolidated Financial Statements). The changes in the carrying
amount of goodwill for the year ended December 31, 2002 are
as follows (in thousands):

|                                  |  |                   |         | 
|--------------------------------- |  | ----------------- | ------- | 
|                                  |  | Year Ended       
|                                  |  | December 31, 2002
|                                  |  |                  
|Beginning balances                |  | $                 | 68,158  | 
|Additions from Vality acquisition |  |                   | 93,388  | 
|Adjustments                       |  |                   | 1,124   | 
|                                  |  |                   |         | 
|Balance as of December 31, 2002   |  | $                 | 162,670 | 
|                                  |  |                   |         | 

During 2002, the Company recorded
$93.4 million of goodwill related to the acquisition of
Vality Technology, Inc. (Vality). During 2002, the
Company also recorded a $0.9 million related to the
adjustment of deferred taxes and $0.2 million related to
the adjustment of deferred compensation recorded through the
Companys acquisition of Torrent in November 2001 (see
Note 12 to theses Notes to Consolidated Financial
Statements).

Other intangible assets amounted to
$11.1 million (net of accumulated amortization of
$6.9 million) and $7.2 million (net of accumulated
amortization of $2.2 million) at December 31, 2002 and
December 31, 2001, respectively. These intangible assets
consist primarily of customer lists and patented technology
acquired through business combinations, and the Company is
amortizing these assets over their estimated useful lives,
generally three years. There are no expected residual values
related to these intangible assets. Amortization expense for the
years ended December 31, 2002, 2001 and 2000 was
$4.6 million, $1.8 million and $5.1 million,
respectively. Estimated future amortization expense, assuming no
future impairment charges or acquisitions, would be as follows
(in thousands):

|                                    |  |              |        | 
|----------------------------------- |  | ------------ | ------ | 
|                                    |  | Amortization
|Year                                |  | Expense     
|                                    |  |             
|2003                                |  | $            | 5,162  | 
|2004                                |  |              | 4,763  | 
|2005                                |  |              | 1,028  | 
|2006                                |  |              | 117    | 
|                                    |  |              |        | 
|Estimated total future amortization |  | $            | 11,070 | 
|                                    |  |              |        | 

The following table reconciles the prior two
years operating income (loss) and net income (loss) to
their respective balances adjusted to exclude amortization
expense of goodwill, and amortization expense of

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

workforce-in-place which was reclassified as
goodwill with the Companys adoption of SFAS 142. The
current period results are presented for comparative purposes:

|                                                   |  |                                      |          |      |  |      |         |   |  |   |          |  
|-------------------------------------------------- |  | ------------------------------------ | -------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                                   |  |                                     
|                                                   |  | Years Ended December 31,            
|                                                   |  |                                     
|                                                   |  | 2002                                 |          | 2001 |  | 2000
|                                                   |  |                                      |          |      |  |     
|                                                   |  |                                     
|                                                   |  | (In thousands except per share data)
|Operating Loss                                     |  |                                      |          |      |  |      |         |   |  |   |          |  
|Operating loss                                     |  | $                                    | (101,438 | )    |  | $    | (96,160 | ) |  | $ | (101,184 | )
|Add-back: goodwill amortization                    |  |                                      |         |      |  |      | 7,030   |   |  |   | 11,216   |  
|                                                   |  |                                      |          |      |  |      |         |   |  |   |          |  
|Adjusted operating loss                            |  | $                                    | (101,438 | )    |  | $    | (89,130 | ) |  | $ | (89,968  | )
|                                                   |  |                                      |          |      |  |      |         |   |  |   |          |  
|Net income (loss)                                  |  |                                      |          |      |  |      |         |   |  |   |          |  
|Reported net income (loss)                         |  | $                                    | (63,573  | )    |  | $    | 624,948 |   |  | $ | (98,506  | )
|Add-back: goodwill amortization, net of tax effect |  |                                      |         |      |  |      | 7,030   |   |  |   | 11,216   |  
|                                                   |  |                                      |          |      |  |      |         |   |  |   |          |  
|Adjusted net income (loss)                         |  | $                                    | (63,573  | )    |  | $    | 631,978 |   |  | $ | (87,290  | )
|                                                   |  |                                      |          |      |  |      |         |   |  |   |          |  
|Basic Earnings Per Share                           |  |                                      |          |      |  |      |         |   |  |   |          |  
|Reported net income (loss)                         |  | $                                    | (0.26    | )    |  | $    | 2.25    |   |  | $ | (0.34    | )
|Goodwill amortization, net of tax effect           |  |                                      |         |      |  |      | 0.03    |   |  |   | 0.03     |  
|                                                   |  |                                      |          |      |  |      |         |   |  |   |          |  
|Adjusted net income (loss)                         |  | $                                    | (0.26    | )    |  | $    | 2.28    |   |  | $ | (0.31    | )
|                                                   |  |                                      |          |      |  |      |         |   |  |   |          |  
|Diluted Earnings Per Share                         |  |                                      |          |      |  |      |         |   |  |   |          |  
|Reported net income (loss)                         |  | $                                    | (0.26    | )    |  | $    | 2.20    |   |  | $ | (0.34    | )
|Goodwill amortization, net of tax effect           |  |                                      |         |      |  |      | 0.02    |   |  |   | 0.03     |  
|                                                   |  |                                      |          |      |  |      |         |   |  |   |          |  
|Adjusted net income (loss)                         |  | $                                    | (0.26    | )    |  | $    | 2.22    |   |  | $ | (0.31    | )
|                                                   |  |                                      |          |      |  |      |         |   |  |   |          |  

Note 12  Business
Combinations



| |                                     
| | ------------------------------------
| | Pooling-of-interests
    combination

On March 1, 2000, the Company completed its
acquisition of Ardent, a provider of data integration
infrastructure software for data warehouse, business
intelligence, and e-business applications. In the acquisition,
the former shareholders of Ardent received 3.5 shares of Common
Stock in exchange for each outstanding share of Ardent common
stock held by such shareholder (the Ardent Merger).
An aggregate of 70,437,000 shares of Common Stock were issued
pursuant to the Ardent Merger, and an aggregate of 17,174,000
options to purchase Ardent common stock were assumed by the
Company. The Ardent Merger was accounted for as a
pooling-of-interests combination and, accordingly, the
consolidated financial statements for periods prior to the
combination have been restated to include the accounts and
results of operations of Ardent and all intercompany
transactions have been eliminated.

No adjustments were necessary to conform to
accounting policies of the combined entities.

Purchase
combinations

On April 3, 2002, the Company acquired
Vality, a private company that specialized in enterprise data
quality management. The results of Valitys operations have
been included in the consolidated financial statements since the
date of the acquisition. The Company expects that this
acquisition will enable the Company to create a market leading
offering that integrates ETL (extraction, transformation, and
load), metadata management, and data quality and data cleansing
technologies. As of December 31, 2002, the Company has paid
the net amount of $94.2 million to acquire Vality, which
consists of $91.4 million paid to

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

acquire 100% of the outstanding common and
preferred shares of Vality and vested stock options, and
$2.8 million for transaction costs, which is net of
$7.0 million of cash acquired from Vality. The acquisition
was accounted for using the purchase method of accounting, and a
summary of the purchase price for the acquisition is as follows
(in millions):

|                                                                                |  |   |      | 
|------------------------------------------------------------------------------- |  | - | ---- | 
|Cash paid to acquire stock and options (less cash
    acquired of $7.0 million) |  | $ | 91.4 | 
|Cash paid for transaction costs                                                 |  |   | 2.8  | 
|Accrued amount payable to stockholders and option
    holders                   |  |   | 0.3  | 
|Accrued merger costs                                                            |  |   | 3.8  | 
|                                                                                |  |   |      | 
|Total                                                                           |  | $ | 98.3 | 
|                                                                                |  |   |      | 

The purchase price was allocated as follows:

|                                              |                         |   |      |       | 
|--------------------------------------------- | ----------------------- | - | ---- | ----- | 
|Net liabilities assumed, net of cash acquired |                         | $ | (2.9 | )    
|Deferred income taxes                         |                         |   | (1.9 | )    
|Intangible assets:                            |                         |   |      |      
|                                              | Existing technology     |   |      | 8.2   | 
|                                              | Covenant not to compete |   |      | 0.3   | 
|                                              | Goodwill                |   |      | 93.4  | 
|                                              |                         |   |      |      
|                                              | Total intangible assets |   |      | 101.9 | 
|In-process research and development           |                         |   | 1.2  |      
|                                              |                         |   |      |      
|Total                                         |                         | $ | 98.3 |      
|                                              |                         |   |      |      

The portion of the purchase price allocated to
in-process research and development costs (IPRD) in
the Vality acquisition was $1.2 million, or approximately
1% of the total purchase price. The value allocated to the
project identified as in process was charged to operations in
the second quarter of 2002.

The remaining identified intangible assets
acquired, including, without limitation, technology and
covenants not to compete between the Company and certain former
members of senior management of Vality, were assigned fair
values based upon an independent appraisal and amounted to
$8.5 million in the aggregate. The Company believes that
these identified intangible assets have no residual value. The
excess of the purchase price over the identified tangible and
intangible assets was recorded as goodwill and amounted to
approximately $93.4 million. The Company is in the process
of completing the purchase price allocation which may be subject
to refinement. As part of this refinement, during the three
months ended December 31, 2002, the Company recorded an
increase to accrued merger costs to reserve for future lease
obligations related to a lease for a facility the Company exited
as part of the acquisition, and has not been able to sublet. The
existing technology is being amortized over three years and the
covenant not to compete is being amortized over one year. In
accordance with current accounting standards, the goodwill is
not being amortized and will be tested for impairment as
required by SFAS No. 142 (See Note 11 of these Notes
to Consolidated Financial Statements). The Company anticipates
that none of the $101.9 million of the intangible assets
recorded in connection with the Vality acquisition will be
deductible for income tax purposes.

On November 28, 2001, the Company acquired
Torrent, a provider of highly scalable parallel processing
infrastructure software for the development and execution of
data warehousing, business intelligence and analytical
applications. Under terms of the acquisition, the Company paid
$44.1 million, of which $6.3 million was paid in 2002,
to acquire all outstanding common and preferred shares of
Torrent. In addition, the Company issued options to purchase
216,000 shares of Common Stock in exchange for outstanding
options to

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

purchase Torrent common stock. The acquisition
was accounted for using the purchase method of accounting, and a
summary of the purchase price for the acquisition is as follows
(in millions):

|                                              |  |   |      | 
|--------------------------------------------- |  | - | ---- | 
|Cash paid to acquire stock and options        |  | $ | 37.8 | 
|Accrued amount payable to former stockholders |  |   | 6.3  | 
|Accrued merger costs                          |  |   | 1.8  | 
|Fair value of stock options exchanged         |  |   | 0.7  | 
|                                              |  |   |      | 
|Total                                         |  | $ | 46.6 | 
|                                              |  |   |      | 

The purchase price was allocated as follows:

|                                              |                                                    |   |      |      | 
|--------------------------------------------- | -------------------------------------------------- | - | ---- | ---- | 
|Net liabilities assumed, net of cash acquired |                                                    | $ | (3.2 | )   
|Intangible assets:                            |                                                    |   |      |     
|                                              | Existing technology                                |   |      | 4.1  | 
|                                              | Customer list                                      |   |      | 1.1  | 
|                                              | Deferred compensation from exchanged stock options |   |      | 0.6  | 
|                                              | Goodwill                                           |   |      | 38.5 | 
|                                              |                                                    |   |      |     
|                                              | Total intangible assets                            |   |      | 44.3 | 
|In-process research and development           |                                                    |   | 5.5  |     
|                                              |                                                    |   |      |     
|Total                                         |                                                    | $ | 46.6 |     
|                                              |                                                    |   |      |     

The portion of the purchase price allocated to
in-process research and development costs in the Torrent
acquisition was $5.5 million, or approximately 11% of the
total purchase price. The value allocated to the project
identified as IPRD was charged to operations in the fourth
quarter of 2001.

The remaining identified intangible assets
acquired were assigned fair values based upon an independent
appraisal and amounted to $5.2 million. The excess of the
purchase price over the identified tangible and intangible
assets was recorded as goodwill and amounted to approximately
$38.5 million. Total intangible assets acquired of
approximately $44.3 million are included in
Intangible assets in the accompanying consolidated
balance sheets. The existing technology and customer list are
being amortized over three years. In accordance with current
accounting standards, the goodwill is not being amortized and is
tested for impairment on a periodic basis.

The following table represents the unaudited pro
forma results of operations of the Company for the fiscal years
ended December 31, 2002, 2001, and 2000, respectively, as
if the acquisitions of Torrent and Vality had occurred as of the
beginning of the applicable fiscal year. The pro forma financial
information below includes IPRD charges of $1.2 million and
$5.5 million in 2002 and 2001, respectively. The pro forma
financial information has been prepared for comparative purposes
only and does not necessarily reflect the results of operations
that would have occurred had these three companies constituted a
single entity during such periods.

|                                    |  |                                           |         |      |  |      |          |   |  |   |          |  
|----------------------------------- |  | ----------------------------------------- | ------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                    |  |                                          
|                                    |  | Year Ended December 31,                  
|                                    |  |                                          
|                                    |  | 2002                                      |         | 2001 |  | 2000
|                                    |  |                                           |         |      |  |     
|                                    |  |                                          
|                                    |  | (In thousands, except for per share data)
|Net revenues                        |  | $                                         | 116,968 |      |  | $    | 502,668  |   |  | $ | 956,399  |  
|Net income (loss)                   |  | $                                         | (83,591 | )    |  |      | (615,219 | ) |  |   | (105,460 | )
|Diluted net income (loss) per share |  | $                                         | (0.26   | )    |  | $    | 2.16     |   |  | $ | (0.37    | )

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 13  Litigation

On May 26, 1999, the Company entered into a
memorandum of understanding regarding the settlement of pending
private securities and related litigation against the Company,
including a federal class action, a derivative action, and a
state class action. In November 1999, the settlement was
approved by the applicable federal and state courts. The
settlement resolved all material litigation arising out of the
restatement of the Companys financial statements that was
publicly announced in November 1997. In accordance with the
terms of the memorandum of understanding, the Company paid
approximately $3.2 million in cash during the second
quarter of 1999, and an additional amount of approximately
$13.8 million of insurance proceeds was contributed
directly by certain of the Companys insurance carriers on
behalf of certain of the Companys current and former
officers and directors. As part of the settlement, the Company
also agreed to contribute a minimum of 9.0 million shares
of Common Stock, which was required to provide a guaranteed
value of $91.0 million for a maximum term of one year from
the date of the final approval of the settlement by the courts.
The first distributions of shares of Common Stock occurred in
November and December of 1999 when the Company issued
approximately 2.9 million shares to the plaintiffs
counsel. The stock price guarantee was satisfied with respect to
the first distributions of settlement shares. In April 2001, the
Company issued the remaining 6.1 million of the minimum
9.0 million shares to be issued under the settlement.
Pursuant to the terms of the settlement, the Company paid an
additional amount of $26.2 million in cash in November 2001
to satisfy the stock price guarantee with respect to the
remaining 6.1 million shares issued under the settlement.
The Companys former independent auditors, Ernst &
Young LLP, paid $34.0 million in cash. The total amount of
the settlement was $142.0 million.

In July 1997, the Securities and Exchange
Commission (the SEC) issued a formal order of
private investigation of the Company and certain unidentified
other entities and persons with respect to non-specified
accounting matters, public disclosures and trading activity in
the Companys securities. During the course of the
investigation, the Company learned that the investigation
concerned the events leading to the restatement of the
Companys financial statements, including fiscal years
1994, 1995 and 1996, that was publicly announced in November
1997. The Company has entered into a settlement with the SEC
regarding the investigation. Pursuant to the settlement, the
Company consented to the entry by the SEC of an Order
Instituting Public Administrative Proceedings Pursuant to
Section 8A of the Securities Act of 1933 and
Section 21C of the Securities Exchange Act of 1934, Making
Findings, and Imposing a Cease and Desist Order (the
Order). The Order was issued by the SEC on
January 11, 2000. Pursuant to the Order, the Company
neither admitted nor denied the findings, except as to
jurisdiction, contained in the Order. The Order directs the
Company to cease and desist from committing or causing any
violation, and any future violation, of Section 17(a) of
the Securities Act of 1933 (Securities Act),
Sections 10(b), 13(a) and 13(b) of the Exchange Act and
Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 under the
Exchange Act. Pursuant to the Order, the Company is also
required to cooperate in the SECs continuing investigation
of other entities and persons.

EXPO 2000 filed an action against Ascential
Software GmbH (the Companys German subsidiary) in the
Hanover, Germany district court in September 1998 seeking
recovery of approximately $6.0 million, plus interest, for
breach of a sponsorship contract signed in 1997. The Company
filed a counterclaim for breach of contract, seeking recovery of
approximately $3.1 million. In August 1999, the court
entered a judgment against the Company in the amount of
approximately $6.0 million, although approximately
$2.1 million of the judgment was conditioned upon the
return of certain software by EXPO 2000. The Company filed an
appeal and reserved approximately $3.1 million for the
expected outcome of the appeal. In April 2001, the German
appellate court set aside the lower courts judgment and
issued a judgment in favor of the Company in the amount of
approximately $2.5 million. On June 5, 2001 EXPO filed
an appeal to the German Federal High Court in Civil Matters. The
German Federal High Court decided on May 14, 2002 that the
appeal of EXPO would not be accepted. Therefore, the judgment of
the Higher Regional Court is final and EXPO was ordered to pay
Ascential Software GmbH the sum of approximately
$3.0 million including 5% interest from

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

January 19, 1999. This amount was paid to
Ascential Software GmbH during the second quarter of fiscal 2002
and is recorded, net of $0.3 million of associated tax, in
Other income, net for the year ended
December 31, 2002. In addition, the Company reversed its
prior $3.1 million accrual that was recorded in August 1999
and recorded a $2.8 million decrease, adjusted for foreign
currency fluctuations, to General and administrative
expense for the year ended December 31, 2002.

The Company is a defendant in one action filed
against Unidata, Inc., a company that the Company merged with in
1998 (Unidata), in May 1996 in the U.S. District
Court for the Western District of Washington, and was previously
a defendant in another action filed in September 1996 in the
U.S. District Court for the District of Colorado. The plaintiff,
a company controlled by a former stockholder of Unidata and a
distributor of its products in certain parts of Asia, alleged in
both actions the improper distribution of certain Unidata
products in the plaintiffs exclusive territory and
asserted damages of approximately $30.0 million (among
other relief) under claims for fraud, breach of contract, unfair
competition, racketeering and corruption, and trademark and
copyright infringement. Unidata denied the allegations against
it in its answers to the complaints. In the Colorado action,
Unidata moved that the matter be resolved by arbitration in
accordance with its distribution agreement with the plaintiff.
In May 1999, the U.S. District Court for the District of
Colorado issued an order compelling arbitration and in September
2000, the arbitrator issued an award against the Company for
$3.5 million plus attorneys fees and expenses
estimated to be approximately $0.8 million.

The Company was also joined as a party in an
action in China filed against Unidata, its former distributor
and a customer, by the same plaintiff who filed the U.S. actions
against Unidata and a related company. This action, filed in the
Guangdong Provincial Peoples Superior Court in China,
arose out of the same facts at issue in the U.S. actions. The
Company entered into a settlement agreement with the plaintiff
pursuant to which, among other things, as each of the actions
was dismissed, the underlying license terminated, certain
intellectual property rights were assigned to the Company by the
plaintiff, and the Company was obligated to pay into escrow, and
then have released from escrow to the plaintiff, certain amounts
totaling approximately $16.0 million to settle all claims
in all pending litigation, with the exception of potential
claims for indemnity between the Company and other co-defendants
relating to attorneys fees and related amounts, if any,
paid in settlement. Subsequently, the China and Denver actions
were dismissed; the plaintiffs claims in the Washington
State action were dismissed; the license agreement was
terminated; and the intellectual property rights were assigned
to the Company as of the end of the second quarter of fiscal
2002 and the full amount escrowed was released to plaintiff.
During the year ended December 31, 2002, the Company paid
into escrow the entire amount of the settlement of approximately
$16.0 million.

At the end of October 2002, the Company
instituted an arbitration proceeding with the American
Arbitration Association in Kansas City against Sprint/ United
Management Company (Sprint) for non-payment of
$6.5 million (the Sprint Indebtedness) due and
owing under an agreement between Informix Software and Sprint
dated effective March 31, 2000 (the Sprint
Agreement). IBM had been providing services covered by the
Sprint Agreement to Sprint pursuant to an agreement between IBM
and the Company (the operating agreement) signed at
the time of the IBM Transaction. The Company instituted the
arbitration proceeding because Sprint declined to pay any part
of the Sprint Indebtedness. The Company and Sprint executed a
settlement agreement, dated as of December 24, 2002,
resulting in the termination of the Sprint Agreement, dismissal
of all claims, and payment by Sprint to the Company of
$4.0 million. Pursuant to the terms of the operating
agreement, the Company in turn remitted that $4.0 million
payment to IBM on December 30, 2002.

On May 30, 2002, Informatica Corporation
(Informatica) filed an action against a former
employee of the Company in the United States District Court for
the Northern District of California. The complaint alleged,
among other things, that the employee, previously employed by
Informatica as a district sales manager, misappropriated trade
secrets, principally contact information regarding potential
customers, and

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

unlawfully used that information to benefit the
Company once he joined the Company as a regional sales manager
in January 2002. Informatica sought a temporary restraining
order, which the employee successfully opposed at a hearing held
on June 5, 2002. On June 24, 2002, the employee
answered the complaint, in which he denied all material
allegations. The employees employment by the Company ended
on July 5, 2002 after the Company discovered that the
employee had retained certain information from his prior
employment. On July 19, 2002, Informatica served an amended
complaint in which it named the Company as a defendant in the
action. The amended complaint alleged misappropriation of trade
secrets, unfair competition, intentional interference with
prospective economic advantage and violation of federal
copyright law, and sought injunctive relief, unspecified damages
and attorneys fees. On August 2, 2002, the Company
served its answer to the amended complaint, in which it denied
these claims. A motion by Informatica for a preliminary
injunction to enjoin the Company from, among other things, using
confidential information brought by the employee to the Company,
was heard on December 20, 2002. The court denied
Informaticas preliminary injunction motion. The Company
has produced information to Informatica which the Company
believes shows there is no merit to Informaticas claims
against the Company. Among other things, the Company does not
believe that the information retained by the employee
constitutes protectable trade secrets or that any material harm
to Informatica can be demonstrated. In January 2003, Informatica
amended its complaint to add claims against a second Ascential
employee previously employed by Informatica, and against the
Company with respect to actions allegedly taken by such second
employee. The second employees employment by the Company
ended on March 5, 2003. The Company filed an answer to the
amended complaint, denying all material allegations. The Company
intends to defend itself vigorously.

On August 8, 2001, eNet30, Inc.
(eNet30) filed suit against the Company in Nevada
state court based on a consulting agreement. eNet30 alleges
claims for breach of contract, breach of the covenant of good
faith and fair dealing, and rescission, and seeks the return of
approximately $0.6 million previously paid to the Company.
On September 11, 2001, the case was removed to the United
States District Court for the District of Nevada, and on
October 22, 2001, the Company filed its answer and
counterclaims against eNet30 for breach of contract, bad faith
and unfair dealing, and unjust enrichment. In May 2002, eNet30
modified its claims to allege that it is entitled to additional
damages based upon allegations of fraud and fraudulent
inducement. The Company believes that eNet30s claims are
without merit and intends to vigorously defend the suit. On
March 28, 2002 eNet30 declared bankruptcy and a trial date
has not yet been set.

From time to time, in the ordinary course of
business, the Company is involved in various other legal
proceedings and claims, including but not limited to those
related to the operations of the former database business and/or
asserted by former employees of the Company relating to their
employment or compensation by the Company. The Company does not
believe that any of these other proceedings and claims will have
a material adverse effect on the Companys business or
financial condition.

Note 14  Sale of the Database
Business Assets

Holdback.On
July 1, 2001, the Company completed the initial closing of
the IBM Transaction, which consisted of the sale to IBM of
substantially all of the assets and certain liabilities of the
Companys database business for $1.0 billion in cash.
The IBM Transaction was completed on August 1, 2001, upon
the closing of the sale of the assets related to the database
business in the nine remaining countries that were not closed on
July 1, 2001. As part of the IBM Transaction, IBM retained
$100.0 million of the sale proceeds as a holdback (the
Holdback) to satisfy the indemnification obligations
that might arise under the IBM Transaction purchase agreement
(the MPA). The MPA provided that the Company would
indemnify IBM and its affiliates against any loss, claim,
damage, liability or other expense incurred in connection with
(i) any failure of any representation or warranty of the
Company to be true and correct in all respects provided,
however, that any such liability, in the aggregate, exceeds on a
cumulative basis $10.0 million (and only to the extent of
any such excess); (ii) any breach of any obligation of the
Company; (iii) any of the Excluded Liabilities, as defined
in the MPA; or (iv) the operation or ownership of the
Excluded Assets, as defined in the MPA. The

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

MPA provided that IBM would retain the Holdback
until January 1, 2003 except for any funds necessary to
provide for any claims made prior to that date. The MPA also
provided that the Company would receive interest from
July 1, 2001 to the payment date of the Holdback. In
January 2003, IBM released the full amount of the Holdback to
the Company, in the amount of $109.3 million, which
includes accrued interest. Indemnification obligations of the
Company with respect to certain representations and warranties
under the MPA will terminate on July 1, 2003.

The Holdback was recorded as a gain on the sale
of the database business assets during the third quarter of 2001
because at that time the Company believed, beyond a reasonable
doubt, that the entire $100.0 million was realizable.
Accordingly, the Company concluded that it was appropriate to
recognize the Holdback amount in the gain and accrue any losses
of the Holdback amount when such losses became probable and
estimable under SFAS 5, Accounting for
Contingencies. The Holdback and accrued interest are
included in Receivable from sale of database
business on the accompanying consolidated balance sheets
as a component of current assets at December 31, 2002 as
the amount was scheduled to be received within one year from the
date of the balance sheet.

In December 2002, the Company paid to IBM
$4.0 million recovered on behalf of IBM from Sprint, one of
the Companys former customers. The Company also paid IBM,
in December 2002, $3.2 million to resolve informal matters
raised by IBM related to the IBM Transaction, which was recorded
as a decrement to Gain on sale of database business, net
of adjustments. In conjunction with this transaction, the
Company reconfirmed its continuing obligation to indemnify IBM
for future claims raised pursuant to the MPA and IBM stated that
it was unaware of any such claims at that time. From and after
that time through the date of this filing, IBM has not submitted
any claims pursuant to the indemnification provisions of the MPA.

Working Capital Adjustment.Under the terms of the MPA, the
Company was obligated to transfer $124.0 million in net
working capital to IBM from the database business operations
(the Working Capital Adjustment) as of July 1,
2001. Working Capital was defined in the MPA as the sum of
(i) net accounts receivable and (ii) prepaid expenses;
minus (a) ordinary course trade payables and
(b) accrued ordinary course expenses (other than any such
expenses incurred in connection with former employees, officer,
directors, or independent contractors). These items were a
subset of all the various assets and liabilities of the database
business that transferred to IBM upon the closing of the IBM
Transaction.

If the net working capital transferred to IBM on
the closing date exceeded $124.0 million, IBM would pay the
Company 50% of the excess over $124.0 million. If the net
working capital transferred to IBM was less than
$124.0 million, the Company would pay IBM an amount equal
to the shortfall. As of December 31, 2001, the Company
expected to be reimbursed at least $3.7 million from IBM,
which it estimated to be the minimum net working capital
adjustment. Accordingly, the Company had recognized the minimum
net working capital adjustment of $3.7 million in the gain
resulting from the IBM Transaction. On March 29, 2002, the
Company was paid $11.0 million by IBM as final settlement
of the net working capital adjustment. Accordingly, the Company
recorded the incremental $7.3 million received in
Gain on sale of database business, net of
adjustments during 2002.

Gain Adjustment.During 2002, the Company also recorded
a gain adjustment of $0.3 million primarily to decrease the
long-term assets sold to IBM and a $1.4 million loss to
Gain on sale of database business, net. The
$1.4 million loss consists of $0.9 million of accrued
professional and administrative fees required to dissolve
subsidiaries rendered inactive as a consequence of the IBM
Transaction and $0.5 million to adjust the segmentation of
accounts receivable sold to IBM as part of the sale of the
database business assets.

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

As a result of the IBM Transaction, the Company
has recorded a cumulative gain, after transaction costs and
related charges, but excluding income taxes, of
$868.7 million through December 31, 2002. The
following table sets forth the components of the gain (in
millions):

|                                                                                           |  |   |         |  
|------------------------------------------------------------------------------------------ |  | - | ------- | -
|Cash proceeds received from IBM                                                            |  | $ | 900.0   |  
|IBM holdback                                                                               |  |   | 100.0   |  
|                                                                                           |  |   |         |  
|Gross sale proceeds                                                                        |  |   | 1,000.0 |  
|Deferred revenue adjustment                                                                |  |   | (11.6   | )
|Employeerelated accrual adjustment                                                        |  |   | (13.2   | )
|Minimum net working capital adjustment                                                     |  |   | 3.7     |  
|                                                                                           |  |   |         |  
|Adjusted sale proceeds                                                                     |  |   | 978.9   |  
|Net assets transferred to IBM                                                              |  |   | (71.3   | )
|Transaction costs and related charges                                                      |  |   | (41.9   | )
|                                                                                           |  |   |         |  
|Gain resulting from the IBM Transaction through
    December 31, 2001                      |  |   | 865.7   |  
|Final net working capital adjustment                                                       |  |   | 7.3     |  
|Long-term asset segmentation                                                               |  |   | 0.3     |  
|Payment of informal claims                                                                 |  |   | (3.2    | )
|Accrued costs to dissolve subsidiaries                                                     |  |   | (0.9    | )
|Adjustment of accounts receivable segmentation                                             |  |   | (0.5    | )
|                                                                                           |  |   |         |  
|Gain, net of adjustments, resulting from the IBM
    Transaction through December 31, 2002 |  | $ | 868.7   |  
|                                                                                           |  |   |         |  

The database business and the Companys
ongoing operations were in the same line of business, and the
database business did not represent a separate major line
of business or class of customer. Both sold information
management software to medium-sized and large enterprises. In
addition, the product offerings of the two businesses worked
together to form an information management system. The customers
of the Companys ongoing business needed a database in
order for the Companys products to perform; therefore, the
target markets for the two businesses were the same. In
addition, the assets, results of operations, and activities of
the database business could not be clearly distinguished from
the other assets, results of operations and activities of the
Company prior to 2001. As such, the sale of the database
business assets to IBM represented the sale of a product line
rather than the disposal of a business segment.

Accrued IBM Transaction Costs.As a result of the IBM Transaction,
the Company recorded a $41.9 million charge during 2001 to
accrue for costs associated with the sale of the database
business assets. The following table sets forth the components
of the accrued transaction costs and related charges incurred
during the twelve months ended December 31, 2002 (in
millions):

|                                                                               |  |              |      |             |  |          |      |              |  |   |      |   |  |   |     | 
|------------------------------------------------------------------------------ |  | ------------ | ---- | ----------- |  | -------- | ---- | ------------ |  | - | ---- | - |  | - | --- | 
|                                                                               |  | Accrual      |      |             |  |          |      | Accrual     
|                                                                               |  | Balance      |      |             |  |          |      | Balance     
|                                                                               |  | December 31, |      | Charges/    |  | Cash     |      | December 31,
|                                                                               |  | 2001         |      | Adjustments |  | Payments |      | 2002        
|                                                                               |  |              |      |             |  |          |      |             
|Professional fees                                                              |  | $            | 3.0  |             |  | $        | 2.1  |              |  | $ | (3.9 | ) |  | $ | 1.2 | 
|Severance and employment-related costs                                         |  |              | 10.3 |             |  |          | (0.9 | )            |  |   | (5.0 | ) |  |   | 4.4 | 
|Other Charges                                                                  |  |              | 0.7  |             |  |          | (0.3 | )            |  |   | (0.4 | ) |  |   |    | 
|                                                                               |  |              |      |             |  |          |      |              |  |   |      |   |  |   |     | 
|Accrued transaction costs and related charges
    included in accrued expenses |  | $            | 14.0 |             |  | $        | 0.9  |              |  | $ | (9.3 | ) |  | $ | 5.6 | 
|                                                                               |  |              |      |             |  |          |      |              |  |   |      |   |  |   |     | 

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Professional fees primarily consist of fees for
investment bankers, attorneys and accountants for services
provided related to the IBM Transaction. Severance and
employment-related charges primarily consist of
(i) severance payments and related taxes for approximately
30 sales and marketing employees and 70 general and
administrative employees of the database business who did not
join IBM after the IBM Transaction, and (ii) a
$4.7 million charge that related to the modification of
vesting and exercise terms of stock options for certain
terminated executives and for database employees who joined IBM.
As discussed above, during the third quarter of 2002 the Company
accrued $0.9 million of professional and administrative
fees required to dissolve subsidiaries made inactive as a
consequence of the IBM Transaction. During 2002, the Company
reversed $0.9 million of accrued severance and related
costs, as certain employees terminated employment voluntarily,
reversed $0.3 million of accrued transfer taxes, as the
Company was ultimately required to pay less than what was
originally estimated, and accrued $1.2 million of
professional fees to reflect an increase in estimated costs to
reorganize the Company related to the IBM Transaction. As of
December 31, 2002, severance payments and related taxes had
been paid to terminate approximately 81 employees. The remaining
accrual balance of $4.4 million, which includes severance
and related taxes, is expected be paid on various dates
extending through 2006. The remaining accrual balance of
$1.2 million for professional fees is expected be paid by
June 30, 2003.

Transition Services and Other.The Company and IBM are providing
certain transition services to each other for a limited period
of time following the closing of the IBM Transaction. These
services mainly consist of the performance of certain
administrative functions, hosting systems and the provision of
office space in shared facilities of which one of the parties is
the primary leaseholder. To facilitate the provision of these
services, at the time of the IBM Transaction, the Company and
IBM entered into reciprocal transitional service agreements,
under which both parties provide and utilize transitional
services at agreed upon rates that the Company believes
represent the fair value of such services. During the year ended
December 31, 2002, the Company provided to IBM and
purchased from IBM transitional services amounting to
$3.8 million and $2.5 million, respectively. During
the year ended December 31, 2001, the Company provided
transitional services to IBM totaling $2.6 million and
purchased transitional services from IBM totaling
$4.1 million. The provision for shared administrative
functions and office space in shared facilities ended during the
second quarter of 2002. Effective December 31, 2002, the
provision of shared infrastructure cost was substantially
completed, except with respect to certain software support
functions that have been extended through March 31, 2003.

During the three months ended March 31,
2002, the Company paid IBM $13.2 million to fund the transfer of
certain employee related accruals, $2.9 million to buy out
certain lease obligations, $2.0 million to pay for the
transfer of certain long-term assets and $2.4 million for
royalties and other obligations owed to IBM. In conjunction with
the payments made to IBM, IBM paid the Company
$21.6 million to fund certain severance costs,
$11.0 million to settle the net working capital adjustment
under the Agreement and $0.8 million for taxes and other
fees.

Note 15  Termination of the Content
Management Product Line

On January 22, 2002, the Companys
board of directors endorsed the decision to divest the
Companys content management product line because it did
not align with the Companys strategic goals. The net
assets of the product line were available for immediate sale and
an investment bank was engaged to assist in the divestiture
process. At the time, the Company intended to complete the
divestiture as soon as possible and, in any event, within one
year of the Companys decision to sell the product line.

As of March 31, 2002, the Company believed
that the actions taken by the Company met the criteria under
SFAS No. 144 for classification of a disposal group as
Assets held for sale and Liabilities
associated with assets held for sale and used this
presentation on the balance sheet in the report filed on
Form 10-Q for the three months ended March 31, 2002.
Accordingly, the Company ceased amortizing capitalized software

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

costs as of January 22, 2002. The Company
has included the operating results of this product line for the
year ended December 31, 2002, as a component of
Operating loss in the Condensed Consolidated
Statement of Operations. The Company was unable to distinguish
certain historical financial information associated with this
product line prior to January 2002; accordingly, the Company has
not presented historical results as discontinued operations in
accordance with the provisions of SFAS No. 144. The assets
related to the content management product line were evaluated by
the Company and were carried at cost, which was less than the
estimated fair market value net of costs to sell. As of
May 15, 2002, the Company did not expect to record a loss
on the divestiture of its content management product line.

During June 2002, the Company ceased efforts to
find a buyer for its content management product line as no
interested buyers had been identified. During the three months
ended June 30, 2002, in conjunction with its decision to
cease efforts to find a buyer, the Company terminated associated
operations, except for completion of previously committed
consulting and support contracts, and recorded charges totaling
$7.3 million consisting of $4.5 million categorized as
Cost of software for the impairment of software
costs previously capitalized and charges totaling
$2.8 million as Merger, realignment, and other
charges. The $2.8 million of Merger,
realignment, and other charges includes $1.4 million
of severance costs, $0.8 million of equipment impairment
costs and $0.6 million of other exit costs. During the
three months ended September 30, 2002, the Company recorded
additional charges totaling $0.5 million as Merger,
realignment, and other charges comprised of
$0.3 million of severance costs and $0.2 million of
other exit costs. The components of these charges are discussed
in detail below (see Note 16 in these Notes to Consolidated
Financial Statements). In addition, the Company recorded
$1.7 million in bad debt expense for the year ended
December 31, 2002 related to the write off of accounts
receivable balances that were deemed uncollectible as a result
of the termination of this product line.

Note 16  Accrued Merger,
Realignment and Other Charges

The following table summarizes the components of
the accrued merger, realignment and other charges at
December 31, 2002 and 2001, respectively (in millions):

|                                                 |  |      |      |      |  |   |      | 
|------------------------------------------------ |  | ---- | ---- | ---- |  | - | ---- | 
|                                                 |  | 2002 |      | 2001
|                                                 |  |      |      |     
|Third quarter 2002 realignment                   |  | $    | 1.5  |      |  | $ |     | 
|Second quarter 2002 realignment                  |  |      |     |      |  |   |     | 
|Third quarter 2001 Realignment                   |  |      |     |      |  |   | 3.8  | 
|Facility reserves resulting from IBM Transaction |  |      | 13.0 |      |  |   | 25.0 | 
|2000 strategic realignment                       |  |      | 0.7  |      |  |   | 5.2  | 
|Ardent merger and other                          |  |      | 0.5  |      |  |   | 1.1  | 
|                                                 |  |      |      |      |  |   |      | 
|                                                 |  | $    | 15.7 |      |  | $ | 35.1 | 
|                                                 |  |      |      |      |  |   |      | 

The following section summarizes, by quarter, the
net merger, realignment and other expense of $23.7 million
for the year ended December 31, 2002, of which
$20.1 million will be paid in cash.

During the three months ended December 31,
2002, the Company recorded $4.7 million of Merger,
realignment and other charges, $2.3 million related
to its third quarter 2002 realignment plan, $2.0 million
related to revised assumptions for facility and equipment
charges resulting from the IBM Transaction, $0.2 million
related to revised assumptions for facility charges resulting
from the 2000 strategic realignment and $0.2 million in
other facility exit costs. The Company also reversed
$0.4 million of other exit costs related primarily to the
$50.0 million merger reserve recorded in 2000 in
conjunction with the acquisition of Ardent that is no longer
required. The net impact of these activities was a
$4.3 million charge recorded to the Merger,
realignment and other line of the Companys
consolidated statements of operations.

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

During the three months ended September 30,
2002, the Company recorded $8.2 million of Merger,
realignment and other charges, $7.8 million related
to its third quarter 2002 realignment plan and $0.4 million
related to revised assumptions for facility and equipment
charges resulting from the IBM Transaction. The Company also
reversed $0.5 million related to the facility and equipment
charges resulting from the IBM Transaction for a reserve on a
facility lease deposit that was refunded in full. The net impact
of these activities was a $7.7 million charge recorded to
the Merger, realignment and other line of the
Companys consolidated statements of operations.

During the three months ended June 30, 2002,
the Company recorded $7.7 million of Merger,
realignment and other charges related to its second
quarter 2002 realignment plan and reversed $0.4 million
related to accrued severance payments that were originally
recorded as part of its third quarter of 2001 realignment plan
as certain employees voluntarily terminated employment, and
reversed $0.3 of an accrual related to the Facility and
Equipment charges resulting from the IBM Transaction due to
revised assumptions utilized in estimating facility exit costs.
The net impact of these activities was a $7.0 million
charge recorded to the Merger, realignment and other
line of the Companys consolidated statements of operations.

During the three months ended March 31,
2002, the Company recorded $4.7 million of Merger,
realignment and other charges. This $4.7 million
charge consisted of $2.2 million of facility and equipment
charges resulting from the IBM Transaction, as described below.
The remaining balance of $2.5 million consisted of
$1.6 million of severance and associated benefits,
$0.8 million of facilities costs and $0.1 million of
other exit costs that were incurred and paid during the first
three months of 2002.

The components of the Companys net merger,
realignment and other charges are outlined below.

Third Quarter
2002 Realignment

During the three months ended September 30,
2002, the Company approved a plan to further realign its
infrastructure by reducing its workforce. The Company also
identified certain assets associated with vacated facilities and
headcount reductions that no longer had value at
September 30, 2002. This plan relates to a continuing
effort to reduce the Companys infrastructure costs, the
IBM Transaction (see Note 14 in these Notes to Consolidated
Financial Statements), and the termination of its content
management product line (see Note 15 in these Notes to
Consolidated Financial Statements). As a result, the Company
recorded $10.1 million of Merger, realignment and
other charges during the six months ended
December 31, 2002. This $10.1 million charge consisted
of $6.6 million to reduce the Companys infrastructure
costs, $3.0 million related to the IBM Transaction and
$0.5 million related to the termination of its content
management product line. The $6.6 million charge related to
realigning the Companys infrastructure to reduce costs
consists of $6.5 million to terminate 142 employees and
$0.1 million of other exit costs. The $3.0 million
charge related to exiting facilities in connection with the IBM
Transaction consists of $2.7 million to write-off abandoned
fixed assets, primarily at vacated facilities and $0.3 of
additional facility lease costs. The $0.5 million charge
related to the termination of the content management product
line consists of $0.3 million to terminate
17 employees and $0.2 million of other exit costs. The
159 employees being terminated as part of the third quarter 2002
realignment includes approximately 98 sales and marketing
employees, 17 general and administrative employees,
12 research and development employees, and
32 professional services employees. The following

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

table sets forth the significant components of
the charge recognized and activity occurring during the year
ended December 31, 2002, as well as accrued balance
remaining at December 31, 2002 (in millions):

|                                                   |  |         |      |          |  |          |      |              |  |   |      |   |  |   |     | 
|-------------------------------------------------- |  | ------- | ---- | -------- |  | -------- | ---- | ------------ |  | - | ---- | - |  | - | --- | 
|                                                   |  |         |      |          |  |          |      | Balance at  
|                                                   |  |         |      |          |  |          |      | December 31,
|                                                   |  | Charges |      | Non-Cash |  | Payments |      | 2002        
|                                                   |  |         |      |          |  |          |      |             
|Severance and employment costs                     |  | $       | 6.8  |          |  | $        |     |              |  | $ | (5.5 | ) |  | $ | 1.3 | 
|Facility lease costs                               |  |         | 0.3  |          |  |          | (0.1 | )            |  |   | (0.2 | ) |  |   |    | 
|Other exit costs                                   |  |         | 0.3  |          |  |          |     |              |  |   | (0.1 | ) |  |   | .2  | 
|                                                   |  |         |      |          |  |          |      |              |  |   |      |   |  |   |     | 
|Total accrued merger realignment and other charges |  |         | 7.4  |          |  |          | (0.1 | )            |  |   | (5.8 | ) |  |   | 1.5 | 
|Abandoned fixed assets                             |  |         | 2.7  |          |  |          | (2.7 | )            |  |   |     |   |  |   |    | 
|                                                   |  |         |      |          |  |          |      |              |  |   |      |   |  |   |     | 
|                                                   |  | $       | 10.1 |          |  | $        | (2.8 | )            |  | $ | (5.8 | ) |  | $ | 1.5 | 
|                                                   |  |         |      |          |  |          |      |              |  |   |      |   |  |   |     | 

The unpaid severance balance of $1.3 million
as of December 31, 2002 is expected to be paid by
September 30, 2003 and relates primarily to bi-monthly
severance payments for employees who have already been
terminated and severance payments for employees who, barring
unforeseen circumstances, are expected to be terminated by the
end of September 30, 2003.

Second
Quarter 2002 Realignment

During the three months ended June 30, 2002,
the Company approved plans to terminate its content management
product line (see Note 15 in these Notes to Consolidated
Financial Statements), and realign its infrastructure by
reducing its workforce and closing facilities in order to reduce
costs. In addition, the Company terminated 91 employees
subsequent to the April 3, 2002 acquisition of Vality. As a
result, the Company recorded $7.7 million of Merger,
realignment and other charges during the period. This
$7.7 million charge consisted of $4.1 million of
charges during the period related to the integration of Vality,
$2.8 million to terminate operations related to the
Companys content management product line, and $0.8 of
additional costs associated with the wind down of the database
business. The $4.1 million charge to integrate Vality
consisted of $4.0 million to terminate 91 Ascential
employees and $0.1 million of other costs. The
$2.8 million charge related to its content management
product line consisted of $1.4 million in severance costs
to terminate 52 employees, $0.8 million in computer
equipment impairments, $0.4 million of professional fees
incurred in the attempt to sell the product line and $0.2
million of other exit costs. The 143 employees terminated
included 60 sales and marketing employees, nine general and
administrative employees, 27 research and development employees,
and 47 professional services employees. The $0.8 million of
costs associated with the database business were comprised of
$0.4 million of facilities costs, $0.3 million of
severance costs, and $0.1 million of other costs. The
following table sets forth the significant components of the
charge recognized during the year ended December 31, 2002
and the accrued balance remaining at December 31, 2002 (in
millions):

|                               |  |         |     |          |  |          |      |              |  |   |      |   |  |   |   | 
|------------------------------ |  | ------- | --- | -------- |  | -------- | ---- | ------------ |  | - | ---- | - |  | - | - | 
|                               |  |         |     |          |  |          |      | Balance at  
|                               |  |         |     |          |  |          |      | December 31,
|                               |  | Charges |     | Non-Cash |  | Payments |      | 2002        
|                               |  |         |     |          |  |          |      |             
|Severance and employment costs |  | $       | 5.7 |          |  | $        |     |              |  | $ | (5.7 | ) |  | $ |  | 
|Write-off computer equipment   |  |         | 0.8 |          |  |          | (0.8 | )            |  |   |     |   |  |   |  | 
|Facility lease costs           |  |         | 0.4 |          |  |          |     |              |  |   | (0.4 | ) |  |   |  | 
|Professional fees              |  |         | 0.4 |          |  |          |     |              |  |   | (0.4 | ) |  |   |  | 
|Other exit costs               |  |         | 0.4 |          |  |          |     |              |  |   | (0.4 | ) |  |   |  | 
|                               |  |         |     |          |  |          |      |              |  |   |      |   |  |   |   | 
|                               |  | $       | 7.7 |          |  | $        | (0.8 | )            |  | $ | (6.9 | ) |  | $ |  | 
|                               |  |         |     |          |  |          |      |              |  |   |      |   |  |   |   | 

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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

First Quarter
2002 Realignment

During the three months ended March 31,
2002, the Company approved plans to continue to reduce costs
from its Informix Software business due to the IBM Transaction
and consolidate certain offices in Europe. As a result the
Company recorded $2.5 million of Merger, realignment
and other charges consisting of $1.6 million of
severance and employment related costs to terminate 35 sales and
marketing employees, $0.8 million for lease management and
other lease obligation costs and $0.1 million of other exit
costs.

The following table sets forth the significant
components of the charge recognized during the year ended
December 31, 2002 and the accrued balance remaining at
December 31, 2002 (in millions):

|                               |  |         |     |          |  |              |      |   |  |   |   | 
|------------------------------ |  | ------- | --- | -------- |  | ------------ | ---- | - |  | - | - | 
|                               |  |         |     |          |  | Balance at  
|                               |  |         |     |          |  | December 31,
|                               |  | Charges |     | Payments |  | 2002        
|                               |  |         |     |          |  |             
|Severance and employment costs |  | $       | 1.6 |          |  | $            | (1.6 | ) |  | $ |  | 
|Facility lease costs           |  |         | 0.8 |          |  |              | (0.8 | ) |  |   |  | 
|Other exit costs               |  |         | 0.1 |          |  |              | (0.1 | ) |  |   |  | 
|                               |  |         |     |          |  |              |      |   |  |   |   | 
|                               |  | $       | 2.5 |          |  | $            | (2.5 | ) |  | $ |  | 
|                               |  |         |     |          |  |              |      |   |  |   |   | 

Third Quarter
2001 Realignment

During the quarter ended September 30, 2001,
the Company approved plans to reduce its worldwide headcount and
as a result recorded a $12.0 million charge to
Merger, realignment and other in 2001. The worldwide
workforce reduction started in the third quarter of 2001 and has
included a reduction of approximately 180 sales and marketing
employees, 20 general and administrative employees, 10 research
and development employees and 50 professional services and
manufacturing employees. As a result, the Company recorded
realignment and other charges of $12.0 million. The
following table sets forth the accrual activity for the year
ended December 31, 2002 (in millions):

|                               |  |              |     |             |  |          |      |              |  |   |      |   |  |   |   | 
|------------------------------ |  | ------------ | --- | ----------- |  | -------- | ---- | ------------ |  | - | ---- | - |  | - | - | 
|                               |  | Accrual      |     |             |  |          |      | Accrual     
|                               |  | Balance at   |     |             |  |          |      | Balance at  
|                               |  | December 31, |     | Charges/    |  | Cash     |      | December 31,
|                               |  | 2001         |     | Adjustments |  | Payments |      | 2002        
|                               |  |              |     |             |  |          |      |             
|Severance and employment costs |  | $            | 3.8 |             |  | $        | (0.4 | )            |  | $ | (3.4 | ) |  | $ |  | 
|                               |  |              |     |             |  |          |      |              |  |   |      |   |  |   |   | 

Severance and employment-related costs primarily
consisted of termination compensation and related benefits for
employees. During the quarter ended June 30, 2002, the
Company reversed $0.4 million of the accrual related to
approximately 18 employees, as it was no longer required. As of
December 31, 2002, termination compensation and related
benefits had been paid to terminate 242 employees.

Facility and
Equipment Charges resulting from IBM Transaction

As a result of the IBM Transaction (see Note 14
in these Notes to Consolidated Financial Statements) the Company
no longer required as much facility space and recorded a
$35.3 million charge to Merger, realignment and
other during 2001 for facilities and equipment costs
related to the Companys vacant, or partially vacant,
facilities at December 31, 2001. This charge was comprised
of a reserve for residual lease obligations and restoration
costs and write-offs related to leasehold improvements and other
fixed assets at

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ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

these vacated, and partially vacated, facilities.
The following table summarizes the accrual activity for the year
ended December 31, 2002 (in millions):

|                                                 |  |              |      |             |  |          |     |              |  |   |       |   |  |   |      | 
|------------------------------------------------ |  | ------------ | ---- | ----------- |  | -------- | --- | ------------ |  | - | ----- | - |  | - | ---- | 
|                                                 |  | Accrual      |      |             |  |          |     | Accrual     
|                                                 |  | Balance at   |      |             |  |          |     | Balance at  
|                                                 |  | December 31, |      | Charges/    |  | Cash     |     | December 31,
|                                                 |  | 2001         |      | Adjustments |  | Payments |     | 2002        
|                                                 |  |              |      |             |  |          |     |             
|Residual lease obligations and restoration costs |  | $            | 25.0 |             |  | $        | 4.3 |              |  | $ | (16.3 | ) |  | $ | 13.0 | 
|                                                 |  |              |      |             |  |          |     |              |  |   |       |   |  |   |      | 

The $13.0 million of residual lease
obligations is comprised of $11.5 million of lease-related
payments that the Company estimates it will make from the date
of the Companys exit from each facility to the end of the
corresponding lease term, net of rental payments from IBM or
other sublessees, and $1.5 million of estimated
restoration costs for facilities that the Company has either
exited or finalized plans to exit. The unpaid residual lease
obligations and restoration costs of $13.0 million at
December 31, 2002 relates to facilities that the Company
has exited or plans to exit at December 31, 2002 and expire
from 2002 through 2008.

On March 31, 2002, the Company paid IBM
$2.9 million for a release from lease obligations in seven
facilities located in the United States and the United Kingdom
while assuming additional lease obligations for two facilities
in Ireland and Germany. The result of the negotiated release was
a reduction in the Companys accrual for previously
estimated lease obligations for the seven facilities by an
aggregate of $7.0 million while increasing its previously
estimated obligation by $2.0 million for the facilities in
Ireland and Germany, resulting in a $5.0 million net
reduction in the total charge.

During the year ended December 31, 2002, the
Company revised the assumptions used to calculate the estimate
of residual lease obligations and restoration costs for its
other remaining properties that resulted in $9.3 million of
adjustments to the Companys facilities accrual. The
majority of the adjustment relates to decreasing market prices
for sublease rental receipts, difficulty in obtaining sublease
tenants, primarily in the United States and Europe, and
additional costs arising from negotiations to exit facilities
prior to the end of the lease term. In total, barring unforeseen
circumstances, the Company estimated it will receive
$11.6 million of sublease income, $2.8 million for
properties already sublet and $8.8 million from properties
where a sublet is anticipated. The Companys sublease
estimates assume that no subtenants will default on rental
payments and that the Company will be able to obtain subtenants
at local market rates where market conditions are considered
favorable. Sublease assumptions also include a vacancy period
from the time the Company vacates the facility to the time the
subtenant begins to pay rent. The following sets forth the
components of the charges recorded to Merger, realignment
and other charges during the year ended December 31,
2002 (in millions):

|                                                                                           |  |              |      |  
|------------------------------------------------------------------------------------------ |  | ------------ | ---- | -
|                                                                                           |  | Year Ended  
|                                                                                           |  | December 31,
|                                                                                           |  | 2002        
|                                                                                           |  |             
|Release of lease obligations                                                               |  | $            | (7.0 | )
|Additional assumed lease obligations                                                       |  |              | 2.0  |  
|Revision of assumptions to reflect current market
    conditions and negotiated exit costs |  |              | 9.3  |  
|                                                                                           |  |              |      |  
|Net charge                                                                                 |  | $            | 4.3  |  
|                                                                                           |  |              |      |  

The Company may need to record additional
adjustments or charges in the future due to changes in estimates
arising from the size and quantity of its facilities that are
being exited and the volatility of the real estate markets in
which the Companys facilities are located. As of
December 31, 2002, barring unforeseen circumstances, the
Company does not expect future charges related to undiscounted
lease obligations,

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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

excluding estimated sublease income, and
restoration costs, to exceed $6.1 million, the maximum
remaining unaccrued obligation under existing contractual lease
terms.

2000
Strategic Realignment

During the quarter ended September 30, 2000,
the Company approved plans to realign its operations by
establishing two operating businesses and as a result recorded a
charge of $86.9 million to Merger, realignment and
other in 2000. The strategic realignment included a
refinement of the Companys product strategy, consolidation
of facilities and operations to improve efficiency and a
reduction in worldwide headcount of approximately 310 sales and
marketing employees, 120 general and administrative employees,
260 research and development employees and 100 professional
services and manufacturing employees. During 2002 the Company
recorded $0.2 million of additional costs to exit a
facility in the United States arising from negotiations to
terminate the lease prior to the end of the lease term.

The following sets forth the accrual activity for
the year ended December 31, 2002 (in millions):

|                                               |  |              |     |         |  |          |     |              |  |   |      |   |  |   |     | 
|---------------------------------------------- |  | ------------ | --- | ------- |  | -------- | --- | ------------ |  | - | ---- | - |  | - | --- | 
|                                               |  | Accrual at   |     |         |  |          |     | Accrual at  
|                                               |  | December 31, |     |         |  | Cash     |     | December 31,
|                                               |  | 2001         |     | Charges |  | Payments |     | 2002        
|                                               |  |              |     |         |  |          |     |             
|Severance and employment-related costs         |  | $            | 0.1 |         |  | $        |    |              |  | $ | (0.1 | ) |  | $ |    | 
|Facilities and equipment costs                 |  |              | 2.1 |         |  |          | 0.2 |              |  |   | (1.6 | ) |  |   | 0.7 | 
|Costs to exit various commitments and programs |  |              | 3.0 |         |  |          |    |              |  |   | (3.0 | ) |  |   |    | 
|                                               |  |              |     |         |  |          |     |              |  |   |      |   |  |   |     | 
|                                               |  | $            | 5.2 |         |  | $        | 0.2 |              |  | $ | (4.7 | ) |  | $ | 0.7 | 
|                                               |  |              |     |         |  |          |     |              |  |   |      |   |  |   |     | 

The remaining accrual balance at
December 31, 2002 consists of $0.6 million for lease
obligations and $0.1 million of restoration costs for a
redundant facility and will be paid by June 30, 2003.

Ardent Merger
and Other

As a result of the merger with Ardent Software,
Inc. in March 2000 and various merger and realignment activities
that occurred prior to 2000, the Company had recorded charges of
$59.7 million to Merger, realignment and other
arising from decisions to exit certain facilities. During 2002
the Company reversed $0.4 million of other exit costs
associated with the Ardent acquisition as they were no longer
needed. As of December 31, 2002, approximately
$0.5 million of facility exit costs remained unpaid. Of the
$0.5 million in facility exist costs, $0.3 million are
for residual lease obligations and $0.2 million for
restoration costs on idle facilities that expire at various
dates through 2004.

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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 17  Comprehensive
Income

The following table sets forth the calculation of
other comprehensive income (loss) for the years ended
December 31, 2002, 2001 and 2000 (in thousands):

|                                   |                                                                                                                                                        |                          |         |       |  |      |         |        |   |   |          |        |  
|---------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------ | ------- | ----- |  | ---- | ------- | ------ | - | - | -------- | ------ | -
|                                   |                                                                                                                                                        |                         
|                                   |                                                                                                                                                        | Years Ended December 31,
|                                   |                                                                                                                                                        |                         
|                                   |                                                                                                                                                        | 2002                     |         | 2001  |  | 2000
|                                   |                                                                                                                                                        |                          |         |       |  |     
|Net income (loss)                  |                                                                                                                                                        | $                        | (65,573 | )     |  | $    | 624,948 |        |   | $ | (98,315  | )     
|Other comprehensive income (loss): |                                                                                                                                                        |                          |         |       |  |      |         |        |   |   |          |       
|                                   | Unrealized gains (losses) on
    available-for-sale securities, net of income taxes of $1,119,
    $0, and $3,211 in 2002, 2001 and 2000, respectively |                          |         | 1,366 |  |      |         | (1,831 | ) |   |          | (4,437 | )
|                                   | Reclassification adjustment for realized losses
    (gains) included in net income (loss)                                                              |                          |         | 1,602 |  |      |         | 3,369  |   |   |          | (2,895 | )
|                                   | Change in accumulated foreign currency
    translation adjustment                                                                                      |                          |         | 4,632 |  |      |         | (866   | ) |   |          | (5,785 | )
|                                   |                                                                                                                                                        |                          |         |       |  |      |         |        |   |   |          |       
|                                   |                                                                                                                                                        | $                        | (57,973 | )     |  | $    | 625,620 |        |   | $ | (111,432 | )     
|                                   |                                                                                                                                                        |                          |         |       |  |      |         |        |   |   |          |       

Other comprehensive income on the balance sheet
is comprised of:

|                                                                                                                     |  |                         |         |      |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | - | ------- | -
|                                                                                                                     |  |                        
|                                                                                                                     |  | Year Ended December 31,
|                                                                                                                     |  |                        
|                                                                                                                     |  | 2002                    |         | 2001
|                                                                                                                     |  |                         |         |     
|Cumulative foreign exchange translation adjustment                                                                   |  | $                       | (13,052 | )    |  | $ | (17,684 | )
|Unrealized gains (losses) on available for sales
    securities, net of taxes of $1,119 in 2002, and $  in
    2001 |  |                         | 1,679   |      |  |   | (1,289  | )
|                                                                                                                     |  |                         |         |      |  |   |         |  
|                                                                                                                     |  | $                       | (11,373 | )    |  | $ | (18,973 | )
|                                                                                                                     |  |                         |         |      |  |   |         |  

Note 18  Quarterly Operating
Results (unaudited)

|                             |                               |                                       |   |                |       |               |   |                |       |   |   |         |       |   |   |         |       |  
|---------------------------- | ----------------------------- | ------------------------------------- | - | -------------- | ----- | ------------- | - | -------------- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                             |                               | First Quarter                         |   | Second Quarter |       | Third Quarter |   | Fourth Quarter
|                             |                               |                                       |   |                |       |               |   |               
|                             |                               |                                      
|                             |                               | (In thousands, except per share data)
|Year ended December 31, 2002 |                               |                                       |   |                |       |               |   |                |       |   |   |         |       |   |   |        
|                             | Net revenues                  |                                       | $ | 20,793         |       |               | $ | 27,962         |       |   | $ | 30,212  |       |   | $ | 34,051  |      
|                             | Gross profit                  |                                       |   | 9,634          |       |               |   | 11,474         |       |   |   | 17,473  |       |   |   | 22,998  |      
|                             | Net loss                      |                                       | $ | (16,520        | )     |               | $ | (20,628        | )     |   | $ | (16,257 | )     |   | $ | (10,168 | )    
|                             |                               |                                       |   |                |       |               |   |                |       |   |   |         |       |   |   |        
|                             | Net loss per common share(1): |                                       |   |                |       |               |   |                |       |   |   |         |       |   |   |         |      
|                             |                               | Basic                                 |   | $              | (0.06 | )             |   | $              | (0.08 | ) |   | $       | (0.07 | ) |   | $       | (0.04 | )
|                             |                               |                                       |   |                |       |               |   |                |       |   |   |         |       |   |   |        
|                             |                               | Diluted                               |   | $              | (0.06 | )             |   | $              | (0.08 | ) |   | $       | (0.07 | ) |   | $       | (0.04 | )
|                             |                               |                                       |   |                |       |               |   |                |       |   |   |         |       |   |   |        
|Year ended December 31, 2001 |                               |                                       |   |                |       |               |   |                |       |   |   |         |       |   |   |        
|                             | Net revenues                  |                                       | $ | 217,057        |       |               | $ | 208,598        |       |   | $ | 28,505  |       |   | $ | 27,172  |      
|                             | Gross profit                  |                                       |   | 162,262        |       |               |   | 152,009        |       |   |   | 11,851  |       |   |   | 13,402  |      
|                             | Net income (loss)             |                                       | $ | 14,049         |       |               | $ | (9,279         | )     |   | $ | 645,663 |       |   | $ | (25,485 | )    
|                             |                               |                                       |   |                |       |               |   |                |       |   |   |         |       |   |   |        

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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                       |         |                                       |   |                |  |               |   |                |   |  |   |      |  |  |   |       |  
|-------------------------------------- | ------- | ------------------------------------- | - | -------------- |  | ------------- | - | -------------- | - |  | - | ---- |  |  | - | ----- | -
|                                       |         | First Quarter                         |   | Second Quarter |  | Third Quarter |   | Fourth Quarter
|                                       |         |                                       |   |                |  |               |   |               
|                                       |         |                                      
|                                       |         | (In thousands, except per share data)
|Net income (loss) per common share(1): |         |                                       |   |                |  |               |   |                |   |  |   |      |  |  |   |      
|                                       | Basic   |                                       | $ | 0.05           |  |               | $ | (0.03          | ) |  | $ | 2.32 |  |  | $ | (0.10 | )
|                                       |         |                                       |   |                |  |               |   |                |   |  |   |      |  |  |   |      
|                                       | Diluted |                                       | $ | 0.05           |  |               | $ | (0.03          | ) |  | $ | 2.26 |  |  | $ | (0.10 | )
|                                       |         |                                       |   |                |  |               |   |                |   |  |   |      |  |  |   |      



---



|    |                                                         
|--- | --------------------------------------------------------
|(1) | Amounts may vary from annual totals due to
    rounding.

During the closing for the quarter ended
December 31, 2001, the Company discovered errors in
previously reported net income for the three-month period ended
September 30, 2001. The errors relate to:
(1) $1.2 million of tangible assets that IBM purchased
that were included on the Companys balance sheet at
September 30, 2001 and that were identified and transferred
to IBM during the fourth quarter of 2001; and
(2) $4.5 million of additional obligations relating to
facilities that the Company has either permanently exited or has
plans to permanently exit resulting from the IBM Transaction. As
a result, previously reported net income, and basic and diluted
earnings per share of $651.4 million, $2.34 and $2.28,
respectively, for the quarter ended September 30, 2001 have
been restated to $645.7 million, $2.32 and $2.26,
respectively.

In addition, in the 2001 year-end financial
statements, the Company reclassified $21.4 million of
facilities and equipment costs related to the IBM Transaction
from the Gain on sale of database business line item to the
Merger, realignment and other charges line item. (See
Note 14 to Notes to Consolidated Financial Statements).

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##### Table of Contents



ASCENTIAL SOFTWARE CORPORATION


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

ASCENTIAL SOFTWARE CORPORATION

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

|                                |  |                |        |            |  |            |        |               |  |          |       |            |  |   |        |  |  |   |        |   |  |   |        | 
|------------------------------- |  | -------------- | ------ | ---------- |  | ---------- | ------ | ------------- |  | -------- | ----- | ---------- |  | - | ------ |  |  | - | ------ | - |  | - | ------ | 
|                                |  |                |        |            |  |            |        |               |  |         
|                                |  |                |        | Additions  |  |            |        |               |  |         
|                                |  |                |        |            |  |            |        |               |  |         
|                                |  | Balance at     |        | Charged to |  |            |        |               |  |          |       | Balance at
|                                |  | Beginning      |        | Costs and  |  | Charged to |        |               |  |          |       | End of    
|                                |  | of Period      |        | Expenses   |  | Revenues   |        | Deductions(1) |  | Other(2) |       | Year      
|                                |  |                |        |            |  |            |        |               |  |          |       |           
|                                |  |               
|                                |  | (In thousands)
|Allowance for Doubtful Accounts |  |                |        |            |  |            |        |               |  |          |       |            |  |   |        |  |  |   |        |   |  |   |        | 
|Year ended December 31, 2002    |  | $              | 8,451  |            |  | $          | 2,426  |               |  | $        | 47    |            |  | $ | 7,166  |  |  | $ |       |   |  | $ | 3,758  | 
|Year ended December 31, 2001    |  | $              | 14,234 |            |  | $          | 12,039 |               |  | $        | 1,179 |            |  | $ | 10,521 |  |  | $ | (8,480 | ) |  | $ | 8,451  | 
|Year ended December 31, 2000    |  |                | 16,881 |            |  |            | 8,338  |               |  |          | 6,640 |            |  |   | 17,625 |  |  |   |       |   |  |   | 14,234 | 



---



|    |                                                               
|--- | --------------------------------------------------------------
|(1) | Uncollectible accounts written off, net of
    recoveries     
|   
|(2) | Allowance for doubtful accounts transferred to
    IBM in 2001

S-1