**UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549**

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**FORM 10-Q**

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

**For the quarterly period ended September 30, 2002**

**OR**

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

**For the transition period from ________to _________**

**Commission file number 0-20725**

**SIEBEL SYSTEMS, INC.**
(Exact name of Registrant as specified in its charter)



|**Delaware**                                                   | **94-3187233**                      
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number)

**2207 Bridgepointe ParkwaySan Mateo, CA   94404**(Address of principal executive offices, including zip code)

**(650) 477-5000**(Registrant's telephone number, including area code)







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

The number of shares outstanding of the registrant's common stock, par value
      $.001 per share, as of October 17, 2002, was 484,556,908.







**SIEBEL SYSTEMS, INC.
                                    FORM 10-Q
                 For the Quarterly Period Ended September 30, 2002
                               Table of Contents**

**Part I.  Financial Information**



|ITEM 1.   Financial Statements                                                                                                                       | Page
|---------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                                                                     |     
|Consolidated Balance Sheets as of
          
December 31, 2001 and September 30, 2002                                                                | 3   
|                                                                                                                                                     |     
|Consolidated Statements of Operations and Comprehensive Income (Loss)
          
    for the three and nine months ended September 30, 2001 and 2002 | 4   
|                                                                                                                                                     |     
|Consolidated Statements of Cash Flows
          
    for the nine months ended September 30, 2001 and 2002                                           | 5   
|                                                                                                                                                     |     
|Notes to Consolidated Financial Statements                                                                                                           | 6   
|                                                                                                                                                     |     
|ITEM 2.   Management's Discussion and Analysis of Financial
                      Condition and Results of Operations                                | 21  
|                                                                                                                                                     |     
|ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk                                                                                 | 48  
|                                                                                                                                                     |     
|ITEM 4. Evaluation of Disclosure Controls and Procedures                                                                                             | 49  
|                                                                                                                                                     |     

**Part II.  Other Information**



|ITEM 1.   Legal Proceedings                | 49
|------------------------------------------ | --
|                                           |   
|ITEM 6.   Exhibits and Reports on Form 8-K | 50
|                                           |   
|**Signatures**                             | 51
|                                           |   
|**Certifications**                         | 52

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**Part I.  Financial Information**

**Item 1.  Financial Statements.**

**SIEBEL SYSTEMS, INC.****Consolidated Balance Sheets
               (in thousands; unaudited)**

`December 31,  September 30,
                                                                               2001          2002
                                                                           ------------  ------------
Assets

Current assets:
   Cash and cash equivalents...........................................   $    799,090  $    773,126
   Short-term investments..............................................        857,565     1,294,139
                                                                           ------------  ------------
          Total cash, cash equivalents, and short-term investments.....      1,656,655     2,067,265

   Marketable equity securities........................................          8,254         3,935
   Accounts receivable, net............................................        396,297       287,151
   Deferred income taxes...............................................         58,131        56,590
   Prepaids and other..................................................         70,766        62,532
                                                                           ------------  ------------
          Total current assets.........................................      2,190,103     2,477,473

Property and equipment, net............................................        353,242       299,456
Goodwill...............................................................         72,869        78,824
Intangible assets, net.................................................         19,000        12,313
Other assets...........................................................         56,905        40,936
Deferred income taxes..................................................         52,725        52,725
                                                                           ------------  ------------
          Total assets.................................................   $  2,744,844  $  2,961,727
                                                                           ============  ============

Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable....................................................   $     14,395  $     22,646
   Accrued expenses....................................................        350,282       287,475
   Option settlement obligations.......................................             --        23,408
   Restructuring obligations...........................................             --        26,529
   Deferred revenue....................................................        241,017       250,657
                                                                           ------------  ------------
          Total current liabilities....................................        605,694       610,715

Restructuring obligations, less current portion........................             --        50,171
Capital lease obligations, less current portion........................          3,048        18,352
Convertible subordinated debentures....................................        300,000       300,000
                                                                           ------------  ------------
          Total liabilities............................................        908,742       979,238
                                                                           ------------  ------------

Commitments and contingencies

Stockholders' equity:
  Common stock; $0.001 par value; 2,000,000 shares authorized;
     466,950 and 478,218 shares issued and outstanding, respectively...            467           478
  Additional paid-in capital...........................................      1,357,422     1,451,842
  Option settlement shares issuable....................................             --        31,471
  Notes receivable from stockholders...................................           (422)           --
  Deferred compensation................................................         (8,362)       (3,427)
  Accumulated other comprehensive income...............................          6,174        18,984
  Retained earnings....................................................        480,823       483,141
                                                                           ------------  ------------
          Total stockholders' equity...................................      1,836,102     1,982,489
                                                                           ------------  ------------
          Total liabilities and stockholders' equity...................   $  2,744,844  $  2,961,727
                                                                           ============  ============`

See accompanying notes to consolidated financial statements.

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**SIEBEL SYSTEMS, INC.****Consolidated Statements of Operations and Comprehensive Income (Loss)
               (in thousands, except per share data; unaudited)**

`Three Months Ended     Nine Months Ended
                                                                September 30,          September 30,
                                                           ---------------------  ----------------------
                                                             2001        2002        2001        2002
                                                           ---------  ----------  ----------  ----------
Revenues:
   Software.............................................  $ 193,473  $  126,834  $  815,413  $  542,990
   Professional services, maintenance and other.........    244,417     230,328     781,379     697,581
                                                           ---------  ----------  ----------  ----------
       Total revenues...................................    437,890     357,162   1,596,792   1,240,571
                                                           ---------  ----------  ----------  ----------
Cost of revenues:
   Software.............................................      3,405       6,011      12,228      16,588
   Professional services, maintenance and other.........    144,875     135,912     477,083     381,245
                                                           ---------  ----------  ----------  ----------
       Total cost of revenues...........................    148,280     141,923     489,311     397,833
                                                           ---------  ----------  ----------  ----------
       Gross margin.....................................    289,610     215,239   1,107,481     842,738
                                                           ---------  ----------  ----------  ----------
Operating expenses:
   Product development..................................     52,422      59,102     150,030     158,469
   Sales and marketing..................................    155,298     148,454     560,635     464,447
   General and administrative...........................     36,943      53,002     133,551     137,547
   Restructuring-related expenses.......................         --     109,383          --     109,383
                                                           ---------  ----------  ----------  ----------
       Total operating expenses.........................    244,663     369,941     844,216     869,846
                                                           ---------  ----------  ----------  ----------
       Operating income (loss)..........................     44,947    (154,702)    263,265     (27,108)
Other income, net.......................................     10,921      10,831      36,216      30,731
                                                           ---------  ----------  ----------  ----------
       Income (loss) before income taxes................     55,868    (143,871)    299,481       3,623
Income taxes (benefit)..................................     20,671     (51,793)    110,806       1,305
                                                           ---------  ----------  ----------  ----------
       Net income (loss) ...............................  $  35,197  $  (92,078) $  188,675  $    2,318
                                                           =========  ==========  ==========  ==========

Diluted net income (loss) per share.....................  $    0.07  $    (0.19) $     0.36  $     0.00
                                                           =========  ==========  ==========  ==========
Basic net income (loss) per share.......................  $    0.08  $    (0.19) $     0.41  $     0.00
                                                           =========  ==========  ==========  ==========

Shares used in diluted share computation................    516,282     477,660     520,402     523,580
                                                           =========  ==========  ==========  ==========
Shares used in basic share computation..................    460,756     477,660     454,762     473,565
                                                           =========  ==========  ==========  ==========
Comprehensive income (loss):
Net income (loss).......................................  $  35,197  $  (92,078) $  188,675  $    2,318
Other comprehensive income (loss), net of tax:
   Foreign currency translation adjustments.............      7,986      (2,401)      1,317      10,138
   Realized (gain) loss previously recognized in other
      comprehensive income..............................       (944)     (5,020)     (2,718)     (9,750)
   Unrealized gain (loss) on investments................      7,140       8,846       5,123      12,422
                                                           ---------  ----------  ----------  ----------
       Other comprehensive income (loss)................     14,182       1,425       3,722      12,810
                                                           ---------  ----------  ----------  ----------
       Total comprehensive income (loss)................  $  49,379  $  (90,653) $  192,397  $   15,128
                                                           =========  ==========  ==========  ==========`

See accompanying notes to consolidated financial statements.

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**SIEBEL SYSTEMS, INC.****Consolidated Statements of Cash Flows
                           (in thousands; unaudited)**

`Nine Months Ended
                                                                                  September 30,
                                                                             ----------------------
                                                                               2001        2002
                                                                             ---------  -----------
Cash flows from operating activities:
   Net income (loss)....................................................... $ 188,675  $     2,318
   Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Depreciation and other amortization..................................    62,155      105,099
      Amortization of goodwill.............................................    15,108           --
      Amortization of identifiable intangible assets.......................     4,586        6,687
      Compensation related to stock options, net...........................     4,047        3,620
      Write-off of property and equipment abandoned in restructuring.......        --       18,962
      Compensation expense related to option settlement shares issuable....        --       31,471
      Provision for doubtful accounts and returns..........................    23,404       17,531
      Tax benefit from exercise of stock options...........................    53,800       10,000
      Deferred income taxes................................................      (556)         516
      Write-down of cost-method investments to fair value..................     3,073        6,640
      Net gains on short-term investments and marketable equity securities.    (2,718)      (9,750)
      Exchange of software for cost-method investments.....................      (971)          --
      Changes in operating assets and liabilities:
         Accounts receivable...............................................    78,798       91,615
         Prepaids and other................................................    21,514        8,234
         Accounts payable and accrued expenses.............................   (17,084)     (62,866)
         Option settlement obligations.....................................        --       23,408
         Restructuring obligations.........................................        --       76,700
         Deferred revenue..................................................    28,166        9,640
                                                                             ---------  -----------
           Net cash provided by operating activities.......................   461,997      339,825
                                                                             ---------  -----------
Cash flows from investing activities:
   Purchases of property and equipment.....................................  (218,691)     (55,324)
   Purchases of short-term investments.....................................  (834,267)  (1,548,344)
   Sales and maturities of short-term investments..........................   480,177    1,120,432
   Purchases of marketable equity securities...............................        --       (1,000)
   Proceeds from sale of marketable equity securities......................       821          853
   Purchase consideration for acquired businesses, net of cash received....     8,555         (500)
   Other non-operating assets and non-marketable securities................   (16,536)       8,421
   Repayments from (advances to) affiliate, net............................    10,579           --
                                                                             ---------  -----------
           Net cash used in investing activities...........................  (569,362)    (475,462)
                                                                             ---------  -----------
Cash flows from financing activities:
   Proceeds from issuance of common stock, net of repurchases..............   129,742       80,268
   Proceeds from equipment financing.......................................        --       24,873
   Repayments of capital lease obligations.................................        --       (6,051)
   Repayments of stockholder notes.........................................     1,201          422
                                                                             ---------  -----------
           Net cash provided by financing activities.......................   130,943       99,512
                                                                             ---------  -----------
Effect of exchange rate fluctuations on cash and cash equivalents..........     1,317       10,161
                                                                             ---------  -----------
Change in cash and cash equivalents........................................    24,895      (25,964)
Cash and cash equivalents, beginning of period.............................   751,384      799,090
                                                                             ---------  -----------
Cash and cash equivalents, end of period................................... $ 776,279  $   773,126
                                                                             =========  ===========
Supplemental disclosures of cash flows information:
   Cash paid for interest.................................................. $  16,768  $    17,992
                                                                             =========  ===========

   Cash paid for income taxes.............................................. $  17,469  $    27,410
                                                                             =========  ===========
Supplemental disclosures of non-cash activities:
   Common stock and stock options issued for acquisitions.................. $  28,235  $     5,478
                                                                             =========  ===========`

See accompanying notes to consolidated financial statements.

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SIEBEL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)



1. Summary of Significant Accounting Policies
2. Restructuring
3. Intangible Assets and Goodwill
4. Convertible Subordinated Debentures
5. Commitments and Contingencies
6. Stockholders' Equity
7. Stock Options
8. Net Income (Loss) per Share
9. Segment and Geographic Information
10. Acquisitions

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

The statements contained in this quarterly report that are not historical are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Forward-looking
statements include, without limitation, statements regarding the extent and timing of future revenues, restructuring and
other expenses and customer demand, statements regarding the deployment of our products, and statements regarding reliance on third
parties.  All forward-looking statements included in this quarterly report are based on information available to us as of the date of
this quarterly report.  We assume no obligation to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, unless we are required to do so by law.  We have based these forward-looking statements on
our current expectations and projections about future events.  These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions, including those in the section entitled "Risk Factors"
and elsewhere in this quarterly report.

Overview of the Company's Business

Siebel is a leading provider of multichannel eBusiness applications software.  Siebel eBusiness
Applications are a family of leading Web applications software that enables an organization to better manage its most important
relationships: its customer, partner and employee relationships.  Embedding industry-specific business processes based on best
practices, Siebel eBusiness Applications are designed to meet the information system requirements needed to manage these
relationships for organizations of all sizes, from small businesses to the largest multinational organizations and government
agencies.  The Company's customer relationship management applications enable an organization to sell to, market to, and serve its
customers across multiple channels and lines of business, including the Web, call centers, field, resellers, and retail and dealer
networks.  The Company's partner relationship management applications unite the organization's partners, resellers and customers in
one global information system to facilitate greater collaboration and increased revenues, productivity and customer satisfaction.
The Company's employee relationship management applications enable an organization to drive employee and organizational performance
and increase employee satisfaction through the support of each stage of the employee life cycle.  By deploying the comprehensive
functionality of Siebel eBusiness Applications to better manage their customer, partner and employee relationships, some of
the Company's customers have achieved high levels of satisfaction from these constituencies and continue to be competitive in their
markets.

Siebel recognizes that each industry has different business processes, competitive challenges and information
systems requirements, which cannot be addressed with a "one size fits all" eBusiness approach.  Accordingly, Siebel
eBusiness Applications are available in 20 industry applications designed for specific segments within multiple industries,
including financial services, communications, travel and transportation, energy, the consumer sector, life sciences, the industrial
sector and the public sector.  Providing best-of-class eBusiness functionality, Siebel eBusiness Applications enable
organizations to create a single source of customer information that sales, service and marketing professionals can use to tailor
product and service offerings to meet each of their customers' unique needs.  By using Siebel eBusiness Applications,
organizations can develop new customer relationships, profitably serve existing customers and integrate their systems with those of
their partners, suppliers and customers, regardless of location.

The Company and its subsidiaries are principally engaged in the design, development, marketing and support of
the above family of Siebel eBusiness Applications.  Substantially all of the Company's revenues are derived from a perpetual
license of these software products and the related professional services and customer support (maintenance) services.  The Company
licenses its software in multiple element arrangements in which the customer purchases a combination of software, maintenance and/or
professional services (i.e., training, implementation services, etc.).  First-year maintenance, which includes technical support and
product updates, is typically sold with the related software license and is renewable at the option of the customer on an annual
basis thereafter.  The Company's Global Services Organization provides professional services, which include a broad range of
implementation services, training and technical support, to the Company's customers and implementation partners.  The Company's
Global Services Organization has significant product and implementation expertise and is committed to supporting customers and
partners through every phase of the eBusiness transformation cycle.  Substantially all of the Company's professional service
arrangements are billed on a time and materials basis.  Payment terms for these are negotiated with the Company's customers and
determined based on a variety of factors, including the customer's credit standing and the Company's history with the customer.

The Company plans to continue its efforts to develop software applications that meet its customers' and potential
customers' changing business needs and further reduce the total cost of ownership of the Company's software applications.  The
Company regularly faces competition from new entrants to the Company's product market.  The Company will continue to take various
steps, including the introduction of new products, reducing prices or other incentives, at such times as the Company deems
appropriate, in order to further increase the acceptance of the Company's products.  A key element of the Company's past success with
its products has been, and the Company expects will continue to be, the attraction and retention of highly motivated and skilled
employees.  The Company expects to continue to develop innovative compensation plans to attract and retain the highest quality
employees.

Employee Stock Option Plans

The Company's stock option program has been a key component of the Company's ability to attract and retain
talented employees and to align their interests with the interests of existing stockholders.  The Company's stock option program
consists of two plans:  the Siebel Systems, Inc. 1996 Stock Option Plan, under which officers, key employees and non-employee
directors may be granted stock options to purchase shares of the Company's stock; and the Siebel Systems, Inc. 1998 Equity Incentive
Plan, under which stock options may be granted to employees other than officers and directors.  Substantially all of the Company's
employees participate in one of these plans, thereby providing the Company the ability to meet its goal of long-term retention of its
employees.  The Company recognizes that stock options dilute existing stockholders and intends to control the number of stock options
granted, while still providing competitive compensation packages.

In prior years, the Company granted a significant number of stock options as it rapidly hired new employees and
rewarded existing employees for high levels of performance.  In order to maintain the proper balance between the need to attract and
retain employees and minimize the dilution to existing stockholders, the Company did not grant any stock options to the Company's
five most highly compensated executive officers during the nine months ended September 30, 2002.  Substantially all of the stock
options granted to employees during 2002 related to employees hired during 2002.  In addition to limiting new stock option grants
during the nine months ended September 30, 2002, the Company took various actions, described further below, resulting in the
reduction of outstanding stock options by 21% from the levels as of December 31, 2001.

As discussed below and in Note 7 to the accompanying unaudited financial statements, the Company completed a
tender offer during the nine months ended September 30, 2002, to settle 28.1 million stock options for total consideration of $51.9
million, consisting of $31.5 million of fully vested, non-forfeitable shares of the Company's common stock (5.5 million shares) and
$20.4 million in cash.  A total of 4.1 million of these shares are subject to a holding period as further described in Note 7 to the
accompanying unaudited consolidated financial statements.  The Company offered to settle these stock options to: (i) improve employee
morale by eliminating "out-of-the-money" stock options; (ii) reduce the future potential dilution to existing stockholders;
and (iii) better align employees' interest with those of stockholders.  As a result of the Option Settlement, stock options,
representing net potential dilution to existing stockholders of 5%, were canceled.  The potential dilution to stockholders is
calculated as the stock options canceled less shares of common stock issued in exchange for the stock options, divided by the number
of shares of common stock outstanding as of December 31, 2001.

As a result of the Company's workforce reduction described below under the heading "Restructuring" and
the reduced levels of hiring in 2002, canceled stock options of terminated employees, net of current year grants, reduced potential
stock option dilution (i.e., "Dilution Percentage") to existing stockholders by 3%.  The Dilution Percentage decrease is
calculated as stock options forfeited by employees leaving the Company, net of new stock options granted during the year, divided by
the total outstanding shares of common stock at the beginning of the year.

The Company currently expects that the Dilution Percentage will be negligible during the fourth quarter of 2002,
and that the Dilution Percentage increase for 2003 will average 2% to 3%, or less.  These estimates could differ from the actual
percentage for the fourth quarter of 2002 and the 2003 fiscal year, depending on various factors, including changes in estimated
stock option grants for planned hiring, acquisition, merit, and retention-based programs.

All stock option grants are made after a review by, and with the approval of, the Compensation Committee of the
Board of Directors.  All members of the Compensation Committee are independent directors, as defined in the applicable rules for
issuers traded on The Nasdaq Stock Market.  Please refer to the "Report of the Compensation Committee of the Board of Directors
on Executive Compensation" appearing in the Company's proxy statement dated April 29, 2002, for further information concerning
the policies and procedures of the Company and the Compensation Committee regarding the use of stock options.  Stock option activity
for the nine months ended September 30, 2002, is summarized as follows:

`Weighted
                                              Shares                         Average
                                            Available     Number of          Exercise
                                            for Grant       Shares       Price per Share
                                           ------------ --------------   ----------------  
   Balances, December 31, 2001...........  117,178,547    247,203,762   $          23.81
     Additional shares authorized........           --             --
     Options granted.....................   (4,264,750)     4,264,750   $          25.73
     Options exercised...................           --     (9,586,186)  $           6.30
     Options canceled....................   19,407,795    (19,620,288)  $          33.83
     Options settled.....................   27,408,462    (28,056,712)  $          62.81
                                           ------------ --------------   ----------------
   Balances, September 30, 2002..........  159,730,054    194,205,326   $          18.06
                                           ============ ==============   ================`

The following table details the "in-the-money" and "out-of-the-money" status of the Company's
stock options outstanding as of September 30, 2002:

`Options Outstanding              Options Exercisable
                    --------------------------------------  ---------------------
                                    Weighted     Weighted               Weighted
                                     Average      Average                Average
                      Number        Remaining    Exercise     Number    Exercise
    Options          of Shares   Life (in Years)  Price     of Shares    Price
----------------    ------------  -------------  ---------  ----------- ---------
In-the-money         59,858,190            4.7      $3.29   47,668,165     $3.16
Out-of-the-money    134,347,136            7.9     $24.64   49,367,955    $25.36
                    ------------  -------------  ---------  ----------- ---------
                    194,205,326            6.9     $18.06   97,036,120    $14.45
                    ============                            ===========`

In-the-money stock options in the above table have exercise prices below the closing price of the Company's common
stock on September 30, 2002, of $5.75 and out-of-the money stock options have exercise prices equal to or greater than $5.75.

For additional information regarding the Company's employee stock option plans, please refer to Note 7 to the
accompanying unaudited financial statements.  For additional information about the compensation of the Company's executive officers
and stock option grants to the Company's top five executive officers during the year ended December 31, 2001, refer to the Company's
proxy statement dated April 29, 2002.

Overview of the Results for the Three and Nine Months Ended September 30, 2002

The Company's revenue growth and profitability depend in large part on the overall global economic and business
conditions and the demand for information technology, particularly within the markets in which the Company offers industry-specific
versions of its products.  The majority of the Company's revenues are generated from customers in the high technology,
telecommunications, financial services (including insurance), pharmaceutical, utilities and consumer packaged goods industries.
Accordingly, the Company's business is affected by the economic and business conditions of these industries and the demand for
information technology within these industries.  Although recent economic data indicate that macroeconomic conditions may be
stabilizing, capital spending by corporations, and more specifically technology spending, appears to be lagging behind the overall
economic recovery.  Hence, economic conditions within the information technology industry continued to be extremely difficult during
the first nine months of 2002 and, in fact, may have progressively deteriorated.

In response to these challenging economic conditions, at the beginning of 2002, the Company set five broad
objectives, which guided management's decisions during the first nine months of 2002: (i) operate a cash-positive, profitable
business; (ii) maintain and improve customer satisfaction levels; (iii) maintain and improve the Company's market leadership; (iv)
maintain the Company's product leadership in eBusiness application software; and (v) continue to develop solutions for the Company's
customers that lower the total cost of integrating software applications.  To better enable the Company to effectively achieve these
five objectives, management undertook the following actions during the three and nine months ended September 30, 2002:

- The Company initiated a restructuring of its operations during the third quarter of 2002 and anticipates
completing the restructuring during the fourth quarter of 2002.  The Company expects to recognize a charge related to this
restructuring of up to approximately $275.0 million, of which the Company recognized $109.4 million in the third quarter of 2002 and
expects to recognize up to an additional $165.0 million in the fourth quarter of 2002.  The Company believes that the restructuring
will reduce its operating costs and related cash requirements, thereby strengthening the Company's operating performance and better
aligning the Company's cost structure with its anticipated future revenues.  Please refer to "Restructuring" below and Note
2 to the accompanying unaudited financial statements for further discussion of the Restructuring.

- As more fully described below under the heading "Option Settlement" and in Note 7 to the
accompanying unaudited consolidated financial statements, on August 29, 2002, the Company commenced an offer to its employees to
settle outstanding stock options with exercise prices equal to or greater than $40.00 per share ("Eligible Options").  The
Company commenced this offer in order to: (i) improve employee morale by realigning the cash and equity components of the Company's
compensation programs; (ii) eliminate the distraction to the Company's employees of significantly out-of-the-money stock options; and
(iii) reduce the number of outstanding stock options relative to number of shares outstanding, or "option overhang,"
thereby reducing future potential dilution to existing stockholders.

On September 30, 2002, the offer period ended and the Company was obligated to settle 28.1 million stock options
for total consideration of $51.9 million, consisting of $31.5 million of fully vested, non-forfeitable shares of the Company's common
stock (5.5 million shares) and $20.4 million in cash.  The Company recorded a compensation charge of $54.9 million, consisting of
$51.9 million related to the consideration paid and $3.0 million of associated employer payroll taxes and other costs.



- The Company maintained the cost controls that it initiated in 2001.  Excluding the impact of the option
settlement program, the Company reduced the discretionary portion of its cost structure to near minimal levels during 2002.
Specifically, management continued to reduce advertising expenditures, maintained the chief executive officer salary at one dollar,
maintained the 20% reductions in senior executive compensation, reduced bonuses for other employees, deferred merit increases until
the third quarter of 2002, and reduced discretionary expenditures, such as travel and recruiting.

- The Company continued its requirement of obtaining competitive bids for its purchases, where appropriate.  In
addition, the Company continued to require chief executive officer approval for all significant purchases and all
hiring.

- To ensure that the Company maintains continuity of business operations under adverse circumstances, including
a significant geopolitical dislocation or earthquake in the San Francisco Bay Area, the Company continued to strengthen its data
communications and customer service infrastructure.  In early October 2002, the Company completed a duplicate information technology
infrastructure site in Salt Lake City, Utah, thereby strengthening its ability to provide high-quality customer service globally even
in the event of a significant and sustained system outage at any of the Company's facilities.

- The Company continued its focus on customer satisfaction by leading a team of systems integrators and software
vendors in a collaborative effort to reduce the cost of integrating software applications.  Through this collaborative effort, the
Company will release, in the fourth quarter of 2002, "Universal Application Network," a standards-based, vendor-independent
application integration solution.  Universal Application Network is designed to address one of the primary challenges currently
facing the software applications industry: driving down the cost of application ownership and maintenance.

As a result of these actions and actions undertaken in 2001, during the nine months ended September 30, 2002, the
Company was able to maintain or increase the Company's customer satisfaction levels; maintain the Company's market share in the
various product categories in which it operates; continue as a technology leader in the customer relationship management market; and
continue its efforts to lower the total cost to the Company's customers of integrating software applications.  Excluding the impact
of the Company's option settlement program and restructuring activities, the Company was able to operate a cash-positive, profitable
business in exceptionally challenging economic times.  In addition, the Company achieved the following financial results:

- Total quarterly expenses, excluding the impact of the Company's option settlement program and restructuring,
decreased by 12%, from $392.9 million in the third quarter of 2001 to $347.6 million in the third quarter of 2002, and decreased by
17%, from $1,333.5 million for the first nine months of 2001 to $1,103.4 million for the first nine months of 2002.

- Cash and short-term investments increased by $410.6 million, or 25%, from $1,656.7 million as of December 31,
2001, to $2,067.3 million as of September 30, 2002, representing approximately 61% and 70% of total assets, respectively.  During
2001 and the first nine months of 2002, a period of deteriorating global economic conditions, the Company increased cash and
short-term investments by $914.7 million, or 79%, primarily through operations.

- Cash flows from operations were $462.0 million and $339.8 million during the nine months ended September 30,
2001 and 2002, respectively.

- Working capital increased by 18%, from $1,584.4 million as of December 31, 2001, to $1,866.8 million as of
September 30, 2002.

- Stockholders' equity increased by 8%, from $1,836.1 million as of December 31, 2001, to $1,982.5 million as of
September 30, 2002.

As a result of current economic uncertainties and concerns regarding the accounting practices of publicly
traded companies, the Company believes that three specific factors will increasingly become important measures of a company's overall
performance and value: (i) positive cash flows from operations; (ii) positive earnings that are reported in accordance with both the
form and the intent of generally accepted accounting principles; and (iii) a strong balance sheet.  Since shipment of its first
product in the fourth quarter of 1994, the Company's operations have produced positive annual cash flows.  Excluding the impact of
the Company's Restructuring and the Option Settlement in the third quarter of 2002, the Company's operations have also produced
positive annual earnings during this period.  The Company believes that its financial position is strong, with total assets of
$2,961.7 million, cash and short-term investments of $2,067.3 million, working capital of $1,866.8 million, and stockholders' equity
of $1,982.5 million.

The Company believes that the application of accounting standards are as important as a company's reported
financial position, results of operations and cash flows.  The Company believes that its accounting policies are prudent and provide
a clear view of the Company's financial performance.  The Company utilizes its internal audit function to help ensure that it follows
these accounting policies and maintains its internal controls.  The Company has formed a Disclosure Committee, composed of senior
financial and legal personnel, to help ensure the completeness and accuracy of the Company's financial results and disclosures.  In
addition, prior to the release of the Company's financial results, the Company's key management reviews the Company's annual and
quarterly results, along with key accounting policies and estimates, with its audit committee, which is composed of independent board
members.  To ensure that the Company provides a clear view of its financial performance, the Company has avoided some of the
accounting practices currently in question, such as disclosing operating results on a "pro forma" basis that excludes
on-going expenses such as amortization of intangibles, payroll taxes on employee stock options, and/or stock-based compensation.  In
addition, the Company has not entered into any significant transactions with related parties.  The Company does not use
off-balance-sheet arrangements with unconsolidated related parties, nor does it use other forms of off-balance-sheet arrangements such as
research and development arrangements.

Restructuring

As discussed above, throughout 2001 and 2002 the Company reduced the discretionary portion of its operating costs
to near minimal levels.  As a result of the continued downturn in the information technology industry, certain of the Company's key
operating metrics, such as total revenue, operating margin and revenue per employee, continued to decline from the Company's
historical levels.  In response to this decline, during the third quarter of 2002, the Company initiated a restructuring of its
operations and an associated workforce reduction (collectively, the "Restructuring") intended to: (i) strengthen the
Company's competitive position; and (ii) reduce its cost structure and thereby improve the Company's revenue per employee, operating
margin and overall operating performance.  The Company anticipates completing the Restructuring during the fourth quarter of
2002.

The Company expects to recognize a total charge related to this Restructuring of up to approximately $275.0
million, of which the Company recognized a charge of $109.4 million in the third quarter of 2002 and expects to recognize up to an
additional $165.0 million in the fourth quarter of 2002.  The Restructuring charge recognized in the third quarter of 2002 is
comprised primarily of: (i) severance and associated employee termination costs related to the reduction of the Company's workforce;
(ii) lease termination costs and/or costs associated with permanently vacating certain facilities; and (iii) impairment costs related
to certain long-lived assets that were abandoned in connection with the Company's consolidation of its facilities.  The Company had
substantially completed its workforce reduction as of September 30, 2002; therefore, the majority of the Restructuring-related
expenses to be incurred during the fourth quarter of 2002 will relate to costs associated with permanently vacating facilities and
asset impairment charges.

As part of the Restructuring, the Company has reduced or expects to reduce its workforce by a total of
approximately 1,100 employees, or 15% of its workforce.  As of September 30, 2002, the Company had reduced its workforce by more than
1,000 employees and expects to complete the reduction of the remaining employees in the fourth quarter of 2002.  The Company has
communicated the termination benefits to the remaining employees it intends to terminate; however, as a result of regulatory
requirements in the countries where these employees are located, the Company had not completed the separation of employment in
certain countries as of September 30, 2002.  This workforce reduction affected substantially all of the Company's organizations and
geographical regions.  The costs associated with the Company's workforce reduction recognized during the third quarter of 2002
consist primarily of severance, COBRA benefits, payroll taxes and other associated employment termination costs.  The Company does
not expect to recognize any significant charges in the fourth quarter of 2002 related to its workforce reduction.

As a result of the workforce reduction and previous employee attrition, certain of the Company's facilities were
under-utilized and certain facilities that were scheduled to be occupied in early 2003 are expected to be under-utilized.
Accordingly, during the third quarter of 2002, the Company began consolidating its workforce into existing facilities, thereby
permanently removing from its operations certain facilities currently occupied and facilities that the Company does not plan to
occupy.  During the third quarter, the Company permanently removed from its operations certain facilities located in Emeryville and
San Mateo, California; Egham, England; and several smaller offices in North America and Europe.  During the fourth quarter of 2002,
the Company expects to permanently remove from its operations additional facilities, which are primarily located in San Mateo,
California.  The costs incurred and to be incurred associated with the Company's facilities consolidation primarily relate to lease
termination costs, costs associated with satisfying remaining lease commitments, and expected brokerage and other re-letting costs,
partially offset by estimated sublease income.  The Company is in the process of negotiating with its lessors appropriate lease
termination fees and/or seeking suitable subtenants of these facilities.  The Company's estimates of the excess facility charge may
vary significantly depending, in part, on factors which may be beyond the Company's control, such as the Company's success in
negotiating with lessors, the time periods required to locate and contract suitable subleases and the market rates at the time of
such subleases.  Adjustments to the facilities reserve will be made if further consolidations are required or if actual lease exit
costs or sublease income differ from amounts currently expected.

As part of the consolidation of the Company's facilities, certain leasehold improvements, furniture and fixtures
were abandoned in the third quarter of 2002.  As a result, the Company recorded a non-cash charge equal to the net book value of
these abandoned assets in Restructuring-related expenses during the three months ended September 30, 2002.  The Company expects to
complete the Restructuring in the fourth quarter of 2002 and may abandon additional furniture, fixtures and leasehold improvements,
resulting in an additional impairment charge during the fourth quarter of 2002.

Subject to the timely and successful implementation of the Restructuring, the Company believes that the
Restructuring will further reduce the Company's expense levels and a portion of the related cash requirements, resulting in a cost
structure that is better aligned with the Company's anticipated future revenues.  Specifically, the Company expects the
implementation of the Restructuring to reduce the Company's quarterly operating expenses from the levels in the second quarter of
2002 by approximately $30.0 million.  These expense savings are prior to expenses that may increase, such as bonuses, commissions,
and advertising, among others.  As the result of removing certain facilities from the Company's operations that were scheduled to be
occupied in the first quarter of 2003, the Company will avoid up to an additional $4.0 million in quarterly expenses.  The Company
expects to achieve the majority of these expense savings by the end of the first quarter of 2003.

Because the Restructuring charge and related benefits are derived from management's estimates, which are based on
currently available information, the Company's Restructuring may not achieve the benefits currently anticipated or on the timetable
or at the level, currently contemplated.  In addition, the Company's software license revenues and operating performance may continue
to be negatively impacted by: (i) the uncertainty in the information technology industry and associated reductions in capital
expenditures; (ii) geopolitical uncertainties; (iii) additional terrorist attacks; (iv) a lack of confidence in corporate governance
and accounting practices; (v) the diversity in global economic conditions; (vi) continued intense competition; (vii) business and
chief executive officer confidence in the economy, evidenced, in part, by stock market levels; and (viii) other factors described
under "Risk Factors" below.  Accordingly, additional actions, including a further Restructuring of the Company's
operations, may be required in the future.  As a result, the demand for the Company's products and services and, ultimately, the
Company's future financial performance, are difficult to predict with any degree of certainty.

Please refer to "We may not be able to successfully implement our Restructuring efforts, and such efforts may
adversely impact our ability to retain and attract future employees" under Risk Factors for further discussion of risks
associated with the Restructuring.

Option Settlement

On August 29, 2002, the Company commenced an offer (the "Option Settlement") to its employees to settle
Eligible Options.  Stock options to purchase an aggregate of 32.0 million shares were eligible for tender at the commencement of the
Option Settlement.  Members of the Company's Board of Directors were excluded from the Option Settlement and, accordingly two
individuals, the Company's Chairman and CEO, along with the Vice Chairman, Co-Founder and Vice President, Strategic Planning, did
not participate.  The Company also excluded employees on a leave of absence (other than for medical, maternity, military, workers'
compensation or other statutorily protected reasons) and employees who resigned or received notice of termination prior to the
termination of the offer period.

Eligible employees who participated in the Option Settlement received, in exchange for the settlement of tendered
stock options, a fixed amount of consideration equal to the number of shares underlying such tendered stock options, multiplied by
$1.85.  In accordance with terms of the Option Settlement, employees who were due total consideration of $5,000 or less received the
consideration (less applicable tax withholdings) in cash, and employees who were due more than $5,000 received the consideration
(less applicable tax withholdings) in fully vested, non-forfeitable shares of the Company's common stock.  On September 30, 2002, the
offer period ended and the Company was obligated to settle 28.1 million Eligible Options for total consideration of $51.9 million,
consisting of $31.5 million of fully vested, non-forfeitable shares of the Company's common stock (5.5 million shares) and $20.4
million in cash.  The number of fully vested, non-forfeitable shares of the Company's common stock to be issued was determined by
dividing the total consideration due (less the amount of applicable tax withholdings) by the closing price of the Company's common
stock on September 30, 2002, of $5.75 per share.  The Company recorded a compensation charge of $54.9 million related to the Option
Settlement, consisting of $51.9 million related to the consideration paid and $3.0 million of associated employer payroll taxes and
other costs.  The Company has allocated this expense to the respective categories within the accompanying statement of operations
based on the individual employee's functional responsibility.

While the shares of common stock issued under the Option Settlement are fully vested and non-forfeitable, a
total of 4.1 million shares of common stock are subject to a "holding period" of one to four years, depending on the number
of Eligible Options available to be tendered.  Holders of these 4.1 million fully vested, non-forfeitable shares issued in the Option
Settlement are prohibited from selling, transferring, making a short sale, granting any option to purchase or entering into any
hedging transaction with the same economic effect as the sale of such shares during the holding period.  Accordingly, 1.9 million,
1.9 million, 0.2 million, and 0.1 million fully vested, non-forfeitable shares of the Company's common stock will be released from
the holding period on October 1, 2003, 2004, 2005, and 2006, respectively.  The remaining 1.4 million shares of common stock issued
in the Option Settlement are freely tradable at issuance.  Shares of common stock related to the Option Settlement will be issued in
the fourth quarter of 2002.

Discussion of the Results of Operations for the Three and Nine Months Ended September 30, 2001 and 2002

Revenues

The following table sets forth the Company's revenues, both in absolute dollars and expressed as a percentage of
total revenues, for the three and nine months ended September 30, 2001 and 2002 (in thousands, except percentages):

`Three Months Ended September 30,        Nine Months Ended September 30,
                                         --------------------------------------  --------------------------------------
                                               2001               2002                 2001                2002
                                         -----------------  -------------------  ------------------  ------------------
Revenues:                                                                                                               
  Software.............................. $193,473   44.2%   $126,834     35.5%   $  815,413   51.1%  $  542,990   43.8%
  Professional services,
    maintenance and other...............  244,417   55.8     230,328     64.5       781,379   48.9      697,581   56.2
                                         -------- ------    -------- --------    ---------- ------   ---------- ------
      Total revenues.................... $437,890  100.0%   $357,162    100.0%   $1,596,792  100.0%  $1,240,571  100.0%
                                         ======== ======    ======== ========    ========== ======   ========== ======`

Software.  Software license revenues decreased by 34% from $193.5 million for the three months ended
September 30, 2001, to $126.8 million for the three months ended September 30, 2002, and decreased by 33% from $815.4 million for the
nine months ended September 30, 2001, to $543.0 million for the nine months ended September 30, 2002.  Software license revenues as a
percentage of total revenues decreased from 44% in the three months ended September 30, 2001, to 36% in the three months ended
September 30, 2002, and decreased from 51% in the nine months ended September 30, 2001, to 44% in the nine months ended September 30,
2002.  The Company's customers have been impacted by: (i) continued reductions in corporate capital expenditures; (ii) the overall
weakness of the global economy; and (iii) geopolitical uncertainties, among many other factors.  Accordingly, many of the Company's
customers have: (i) delayed the initiation of the purchasing process; (ii) increased the time to complete a software purchase; and/or
(iii) reduced their capital expenditure budgets, thereby restricting their software procurement to well-defined current needs.  In
addition, the length of the purchasing cycle for the Company's software applications has increased slightly as the result of
increased competition.  As a result of these factors, both the number of software license revenue transactions and average
transaction size have been negatively impacted during 2002, with transactions with revenues greater than $5 million affected to the
greatest extent.  Accordingly, the Company's software license revenues have decreased during the three and nine months ended
September 30, 2002, compared to the respective periods in 2001.  The decline in software license revenues as a percentage of total
revenues was primarily due to the factors described above impacting software license revenues to a greater extent than professional
services, maintenance and other revenues.

Although the Company's software license revenues decreased on a year-over-year
basis during 2002, the Company continued to increase its customer base with more than 50% of software license
revenues coming from new customer projects during the three and nine months ended September 30, 2002.  The Company believes that the
continued growth of its customer base will provide a competitive advantage through increased future sales opportunities when
corporate capital expenditures return to normalized levels.  The Company anticipates that the Company's software license revenues
will return to positive sequential quarterly growth as the overall economic conditions strengthen and, more specifically, the overall
demand for information technology increases.  The Company does not expect a significant improvement in information technology
spending in the immediate future; however, the Company does expect that an increase in seasonal demand in the fourth quarter and the
addition of new sales leadership effective October 1, 2002, will result in a modest increase in software license revenues, both in
terms of absolute dollars and as a percentage of total revenues, in the fourth quarter of 2002 as compared to the levels achieved in
the third quarter of 2002.  The Company and its management are committed to improving the performance of its sales organization and
returning the Company's software license revenues to positive sequential quarterly growth.  Refer to
the risk factor "A variation in the conversion of our revenue pipeline to contracts could adversely affect our revenues and
ability to forecast operations."

The Company markets its products in the United States through its direct sales force and internationally through
its direct sales force and to a limited extent through distributors, primarily in Europe, Asia Pacific, Japan and Latin America.
International license revenues accounted for 42% and 45% of software license revenues for the three and nine months ended September
30, 2001, respectively, compared to 48% and 39% of software license revenues for the three and nine months ended September 30, 2002,
respectively.  The Company expects international software license revenues will continue to account for a significant portion of
total software license revenues in the future.

Professional Services, Maintenance and Other.  Professional services, maintenance and other revenues are
primarily composed of professional services (i.e., implementation services and training) and maintenance (i.e., technical support and
product updates).  Professional services are typically provided over a period of three to six months subsequent to a software license
arrangement and, accordingly, the Company's professional services revenues depend in large part on the Company's software license
revenues.  The Company's maintenance revenues depend on both the Company's software license revenues and renewals of maintenance
agreements by the Company's existing customer base.  Professional services, maintenance and other revenues decreased by 6% from
$244.4 million for the three months ended September 30, 2001, to $230.3 million for the three months ended September 30, 2002, and
decreased by 11% from $781.4 million for the nine months ended September 30, 2001, to $697.6 million for the nine months ended
September 30, 2002.  As a percentage of total revenues, professional services, maintenance and other revenues were 56% and 49% during
the three and nine months ended September 30, 2001, respectively, compared to 64% and 56% during the three and nine months ended
September 30, 2002, respectively.

The decrease in the absolute dollar
amount of professional services, maintenance and other revenues was due to a decline in revenues derived from professional services,
partially offset by an increase in maintenance revenues.   Professional services revenues decreased on a year-over-year basis as a
result of the deterioration of global economic conditions and resulting decrease in the Company's software license revenues.  The
Company's maintenance revenues have continued to increase both sequentially and on a year-over-year basis, primarily due to the
continued renewal of customer maintenance agreements.  While maintenance revenues continued to increase sequentially in the third
quarter, the Company's efforts to renew existing customers' maintenance agreements have become more challenging than in previous
quarters.  Professional services, maintenance and other revenues increased as a percentage of total revenues due primarily to growth
in the number of customers receiving maintenance, coupled with the decrease in the Company's software license revenues. The Company
currently anticipates that professional services, maintenance and other revenues will remain comparable in the fourth quarter of 2002
to the levels achieved in the third quarter of 2002.  The Company expects to continue to manage its professional services
organization to ensure that it does not compete with implementation partners.

On January 1, 2002, the Company adopted EITF No. 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.  Prior to the adoption of
EITF 01-14, the Company recorded rebilled out-of-pocket expenses as an offset to the related expense.  Comparative financial
statements for prior periods have been conformed to the current year presentation.

Cost of Revenues and Gross Margin

The following table sets forth the Company's cost of revenues and gross margin, both in absolute dollars and
expressed as a percentage of total revenues, for the three and nine months ended September 30, 2001 and 2002 (in thousands, except
percentages):

`Three Months Ended September 30,        Nine Months Ended September 30,
                                         --------------------------------------  --------------------------------------
                                               2001               2002                 2001                2002
                                         -----------------  -------------------  ------------------  ------------------
Cost of revenues:                                                                                                       
  Software.............................. $  3,405    0.8%   $  6,011      1.6%   $   12,228    0.7%  $   16,588    1.4%
  Professional services,
    maintenance and other...............  144,875   33.1     135,912     38.1       477,083   29.9      381,245   30.7
                                         -------- ------    -------- --------    ---------- ------   ---------- ------
      Total cost of revenues............ $148,280   33.9%   $141,923     39.7%   $  489,311   30.6%  $  397,833   32.1%
                                         ======== ======    ======== ========    ========== ======   ========== ======
Gross margin...........................  $289,610   66.1%   $215,239     60.3%   $1,107,481   69.4%  $  842,738   67.9%
                                         ======== ======    ======== ========    ========== ======   ========== ======`

As discussed further above and in Note 7 to the accompanying unaudited financial statements, the Company
completed a tender offer for certain of its stock options during the third quarter of 2002.  Included in cost of professional
services, maintenance and other revenues for the three and nine months ended September 30, 2002, is a compensation charge of $14.1
million related to the settlement of stock options held by the Company's professional service and technical support personnel.  The
Company views these expenses as significant special charges that make year-over-year and a sequential quarterly comparison of the
Company's normal ongoing operating performance difficult.  Accordingly, the following table sets forth the cost of revenues and gross
margin for the three and nine months ended September 30, 2001 and 2002, expressed both in absolute dollars and as a percentage of
total revenues, prior to the impact of the Option Settlement expenses:

`Three Months Ended September 30,        Nine Months Ended September 30,
                                         --------------------------------------  --------------------------------------
                                               2001               2002                 2001                2002
                                         -----------------  -------------------  ------------------  ------------------
Cost of revenues:                                                                                                       
  Software.............................. $  3,405    0.8%   $  6,011      1.6%   $   12,228    0.7%  $   16,588    1.4%
  Professional services,
    maintenance and other...............  144,875   33.1     121,793     34.2       477,083   29.9      367,126   29.5
                                         -------- ------    -------- --------    ---------- ------   ---------- ------
      Total cost of revenues............ $148,280   33.9%   $127,804     35.8%   $  489,311   30.6%  $  383,714   30.9%
                                         ======== ======    ======== ========    ========== ======   ========== ======
Gross margin...........................  $289,610   66.1%   $229,358     64.2%   $1,107,481   69.4%  $  856,857   69.1%
                                         ======== ======    ======== ========    ========== ======   ========== ======`

Software.  Cost of software license revenues includes amortization of acquired technology; third-party
software royalties; and product packaging, production and documentation.  All costs incurred in the research and development of
software products and enhancements to existing products have been expensed as incurred.  Cost of software license revenues was $3.4
million and $12.2 million for the three and nine months ended September 30, 2001, respectively, compared to $6.0 million and $16.6
million for the three and nine months ended September 30, 2002, respectively.  As a percentage of software license revenues, cost of
software license revenues was 2% in both the three and nine months ended September 30, 2001, compared to 5% for the three months
ended September 30, 2002, and 3% for the nine months ended September 30, 2002.  Cost of software license revenues increased in
absolute dollars and as a percentage of software license revenue primarily due to: (i) an increase in amortization expense associated
with the acquired technology obtained in the acquisition of nQuire Software, Inc., as discussed in Note 10 to the accompanying
unaudited consolidated financial statements; and (ii) a shift to products with higher third-party royalties from products with either
no royalty obligation or lower royalty rates.  During the fourth quarter of 2002, cost of software license revenues as a percentage
of software license revenues is expected to remain comparable to the percentage incurred during the third quarter of 2002.

Professional Services, Maintenance and Other.  Cost of professional services, maintenance and other
revenues consist primarily of personnel, facilities and systems costs incurred to provide training, consulting and other global
services.  Cost of professional services, maintenance and other revenues decreased from $144.9 million and $477.1 million for the
three and nine months ended September 30, 2001, respectively, to $135.9 million and $381.2 million for the three and nine months
ended September 30, 2002, respectively.  As discussed above, the Company completed a tender off for certain of its options during the
third quarter of 2002.  Included in cost of professional services, maintenance and other revenues for the three and nine months ended
September 30, 2002, is a compensation charge of $14.1 million related to the settlement of stock options held by the Company's
professional service and technical support personnel.  Excluding this compensation charge, cost of professional services, maintenance
and other revenues decreased from $144.9 million and $477.1 million for the three and nine months ended September 30, 2001,
respectively, to $121.8 million and $367.1 million for the three and nine months ended September 30, 2002, respectively.

Excluding the impact of the Option Settlement, these costs were 60% and 61% of professional services, maintenance
and other revenues in the three and nine months ended September 30, 2001, respectively, as compared to 53% in both the three and nine
months ended September 30, 2002.  The decrease in the absolute dollar amount reflects: (i) the reduction of headcount in response to
the decrease in demand for the Company's implementation services; (ii) a reduction in the use of third-party contractors; and (iii)
an acceleration of the Company's cost control initiatives, including reductions of discretionary expenditures such as travel and
entertainment and incentive and other variable compensation.  The decrease as a percentage of professional services, maintenance and
other revenues from the 2001 periods to the 2002 periods reflects: (i) the continued growth of the Company's higher-margin
maintenance revenues; (ii) a higher utilization of the Company's global services personnel; (iii) a reduction in the use of
third-party contractors; and (iv) an acceleration of the Company's cost control initiatives discussed above.

The Company began the Restructuring during the third quarter of 2002, resulting in a reduction of approximately
250 of its professional services and technical support personnel and the initiation of the consolidation of the remaining personnel
into higher-utilized facilities.  As a result of this Restructuring, during the fourth quarter of 2002 the Company expects
professional services, maintenance and other costs, in terms of absolute dollars and as a percentage of professional services,
maintenance and other revenues, will remain comparable to the levels incurred during the third quarter of 2002.  The Company does not
expect to realize the full benefit of the Restructuring in its professional services and technical support organizations until early
2003.

As discussed above, prior to adoption of EITF 01-14, the Company recorded rebilled out-of-pocket expenses as
an offset to the related expense.  Comparative financial statements for prior periods have been conformed to the current year
presentation.

Operating Expenses

The following table sets forth the Company's operating expenses, both in absolute dollars and expressed as a
percentage of total revenues, for the three and nine months ended September 30, 2001 and 2002 (in thousands, except percentages):

`Three Months Ended September 30,        Nine Months Ended September 30,
                                         --------------------------------------  --------------------------------------
                                               2001               2002                 2001                2002
                                         -----------------  -------------------  ------------------  ------------------
Operating expenses:                                                                                                     
  Product development................... $ 52,422   12.0%   $ 59,102     16.5%   $  150,030    9.4%  $  158,469   12.8%
  Sales and marketing...................  155,298   35.5     148,454     41.6       560,635   35.1      464,447   37.4
  General and administrative............   36,943    8.4      53,002     14.9       133,551    8.4      137,547   11.1
  Restructuring-related expenses........       --     --     109,383     30.6            --     --      109,383    8.8
                                         -------- ------    -------- --------    ---------- ------   ---------- ------
      Total operating expenses.......... $244,663   55.9%   $369,941    103.6%   $  844,216   52.9%  $  869,846   70.1%
                                         ======== ======    ======== ========    ========== ======   ========== ======`

As discussed further above and in Notes 2 and 7 to the accompanying unaudited financial statements, the Company
initiated a Restructuring of its operations and completed a tender offer for certain of its stock options during the third quarter of
2002.  Included in operating expenses for the three and nine months ended September 30, 2002, is a compensation charge of $40.8
million related to the settlement of stock options held by the Company's product development, sales and marketing, and general and
administrative personnel.  The Company views these expenses as significant special charges that make year-over-year and a sequential
quarterly comparison of the Company's normal ongoing operating performance difficult.

The following table sets forth these operating costs for the three and nine months ended September 30, 2001
and 2002, expressed both in absolute dollars and as a percentage of total revenues, prior to the impact of the Restructuring and the
Option Settlement expenses:

`Three Months Ended September 30,        Nine Months Ended September 30,
                                         --------------------------------------  --------------------------------------
                                               2001               2002                 2001                2002
                                         -----------------  -------------------  ------------------  ------------------
Operating expenses:                                                                                                     
  Product development................... $ 52,422   12.0%   $ 47,208     13.2%   $  150,030    9.4%  $  146,575   11.8%
  Sales and marketing...................  155,298   35.5     129,383     36.2       560,635   35.1      445,376   35.9
  General and administrative............   36,943    8.4      43,207     12.1       133,551    8.4      127,752   10.3
                                         -------- ------    -------- --------    ---------- ------   ---------- ------
      Total operating expenses.......... $244,663   55.9%   $219,798     61.5%   $  844,216   52.9%  $  719,703   58.0%
                                         ======== ======    ======== ========    ========== ======   ========== ======`

Product Development.  Product development expense includes costs associated with the development of new
products, enhancements of existing products and quality assurance activities and consists primarily of employee salaries, benefits,
consulting costs and the cost of software development tools and equipment.  The Company considers technological feasibility of its
software products to have been reached upon completion of a working model that has met certain performance criteria.  The period
between achievement of technological feasibility and general release of a software product is typically very short, and development
costs incurred during that period have not been material.  Accordingly, the Company has not capitalized any software development
costs to date.  Product development expense increased from $52.4 million and $150.0 million for the three and nine months ended
September 30, 2001, respectively, to $59.1 million and $158.5 million for the three and nine months ended September 30, 2002,
respectively.  As a percentage of total revenues, product development expense was 12% and 9% for the three and nine months ended
September 30, 2001, respectively, as compared to 17% and 13% for the three and nine months ended September 30, 2002,
respectively.

Included in product development expense for the three and nine months ended September 30, 2002, is a compensation
charge of $11.9 million related to the settlement of stock options held by the Company's product development personnel.  Excluding
this compensation charge, product development expense decreased from $52.4 million and $150.0 million for the three and nine months
ended September 30, 2001, respectively, to $47.2 million and $146.6 million for the three and nine months ended September 30, 2002,
respectively.  As a percentage of total revenues, product development expense was 12% and 9% for the three and nine months ended
September 30, 2001, respectively, as compared to 13% and 12% for the three and nine months ended September 30, 2002, respectively.

Excluding the impact of the Option Settlement, product development expense decreased in 2002 from 2001
primarily as the result of: (i) the reduction in product development personnel throughout 2002; and (ii) the Company's cost control
initiative described above, partially offset by an increase in depreciation of equipment utilized in the Company's product
development operations.  Product development expense as a percentage of total revenues increased from the 2001 periods to the 2002
periods primarily as a result of the Company's continued investment in the research and development of new products during a period
in which the Company's software license revenues decreased.  While the Company anticipates that it will continue to devote
substantial resources to develop new products, new versions of its existing products and additional modules, the Company began the
Restructuring during the third quarter, resulting in a reduction of approximately 250 product development personnel and the
initiation of the consolidation of the remaining personnel into higher-utilized facilities.  The Company does not expect to realize
the full benefit of the Restructuring in its product development organization until early 2003.

While the Company expects to continue to realize the benefits of its Restructuring efforts in the fourth
quarter, the Company expects that these benefits will be offset by increased expenditures related to the completion of the Company's
newest product, Universal Application Network.  Accordingly, during the fourth quarter of 2002 the Company expects product
development expense to increase modestly in terms of the absolute dollar amount from the levels incurred during the third quarter of
2002 and to remain comparable to the percentage of total revenues incurred during the third quarter of 2002.

Sales and Marketing.  The Company continues to place significant emphasis, both domestically and
internationally, on direct sales through its own sales force.  Accordingly, sales and marketing expense is composed primarily of
costs associated with the Company's sales and marketing personnel, including the Company's product marketing personnel.  Sales and
marketing expense consists primarily of: (i) salaries, commissions and bonuses earned by these personnel; (ii) facility-related
(i.e., rent) and equipment-related (i.e., depreciation) expenses utilized by these personnel; (iii) travel and entertainment expenses
related to these personnel; and (iv) promotional and advertising expenses.  Sales and marketing expense decreased from $155.3 million
and $560.6 million for the three and nine months ended September 30, 2001, respectively, to $148.5 million and $464.5 million for the
three and nine months ended September 30, 2002, respectively.  As a percentage of total revenues, sales and marketing expense was 36%
and 35% for the three and nine months ended September 30, 2001, respectively, as compared to 42% and 37% for the three and nine
months ended September 30, 2002, respectively.

Included in sales and marketing expense for the three and nine months ended September 30, 2002, is a
compensation charge of $19.1 million related to the settlement of stock options held by the Company's sales and marketing personnel.
Excluding this compensation charge, sales and marketing expense decreased from $155.3 million and $560.6 million for the three and
nine months ended September 30, 2001, respectively, to $129.4 million and $445.4 million for the three and nine months ended
September 30, 2002, respectively.  As a percentage of total revenues, sales and marketing expense was 36% and 35% for the three and
nine months ended September 30, 2001, respectively, as compared to 36% for both the three and nine months ended September 30, 2002.

Excluding the impact of the Option Settlement, sales and marketing expense decreased in terms of absolute
dollars during the three and nine months ended September 30, 2002, from the comparable periods in 2001, primarily due to the
Company's cost control initiatives and the decrease in sales commissions and other incentive compensation that resulted from a
decrease in the Company's software license revenues.  In response to the weakening global economy, the Company reduced its
expenditures throughout 2001 and has continued to closely monitor its expenses during the nine months ended September 30, 2002.  The
Company's cost controls included: (i) decreasing or eliminating incentive compensation and reducing executive compensation; (ii)
deferring merit compensation increases; (iii) reducing advertising, travel and other discretionary expenditures; and (iv) reducing
headcount beginning in the third quarter of 2001.  In addition, as discussed above under Restructuring, the Company has reduced its
sales and marketing personnel by approximately 500 personnel and began the consolidation of the remaining personnel into
higher-utilized facilities.  The Company does not expect to realize the full benefit of the Restructuring in its sales and marketing
organizations until early 2003.

While the Company expects to continue to realize the benefits of its Restructuring efforts in the fourth
quarter, the Company expects that these benefits will be offset by an increase in: (i) commissions resulting from an expected
increase in revenues; (ii) compensation expense associated with the renewal of merit compensation increases and incentive
compensation plans; and (iii) advertising expenditures.  Accordingly, during the fourth quarter of 2002 the Company expects sales and
marketing expense to increase in terms of the absolute dollar amount from the levels incurred during the third quarter of 2002 and to
remain comparable to the percentage of total revenues incurred during the third quarter of 2002.

General and Administrative.  General and administrative expense consists primarily of salaries and occupancy
costs for administrative, executive and finance personnel, along with bad debt expense.  General and administrative expense was $36.9
million and $133.6 million for the three and nine months ended September 30, 2001, respectively, as compared to $53.0 million and
$137.6 million for the three and nine months ended September 30, 2002, respectively.  As a percentage of total revenues, general and
administrative expense was 8% for the three and nine months ended September 30, 2001, as compared to 15% and 11% for the three and
nine months ended September 30, 2002, respectively.

Included in general and administrative expense for the three and nine months ended September 30, 2002, is a
compensation charge of $9.8 million related to the settlement of stock options held by the Company's general and administrative
personnel.  Excluding this compensation charge, general and administrative expense was $36.9 million and $133.6 million for the three
and nine months ended September 30, 2001, respectively, as compared to $43.2 million and $127.8 million for the three and nine months
ended September 30, 2002, respectively.  As a percentage of total revenues, general and administrative expense was 8% for the three
and nine months ended September 30, 2001, as compared to 12% and 10% for the three and nine months ended September 30, 2002,
respectively.

Excluding the impact of the Option Settlement, general and administrative expense in terms of absolute dollars
increased from the third quarter of 2001 to the third quarter of 2002 due primarily to an increase in rent and depreciation,
partially offset by management's cost control initiatives.  General and administrative expense in terms of absolute dollars decreased
from the nine months ended September 30, 2001, to the nine months ended September 30, 2002, primarily as the result of: (i)
management's cost control initiatives described above; (ii) a decrease in the Company's provision for doubtful accounts associated
with reduced receivable levels; and (iii) the elimination of goodwill amortization in 2002 as a result of the adoption of SFAS 142,
partially offset by an increase in rent and depreciation expense.  During the three and nine months ended September 30, 2002, the
majority of general and administrative expenses were relatively fixed in nature, absent a reduction in workforce or facilities-related
expenditures.  Accordingly, general and administrative expense increased as a percentage of total revenues during the three
and nine months ended September 30, 2002, as compared to respective periods in 2001, due primarily to a decrease in total revenues.
As discussed above under Restructuring, the Company has reduced its general and administrative personnel by approximately 100
personnel and began the consolidation of the remaining personnel into higher-utilized facilities.    The Company does not expect to
realize the full benefit of the Restructuring in its general and administrative organization until early 2003.

While the Company expects to continue to realize the benefits of its Restructuring efforts in the fourth
quarter, the Company expects that these benefits will be offset by an increase in compensation expense associated with the renewal of
merit compensation increases and bonuses.  Accordingly, during the fourth quarter of 2002 the Company anticipates general and
administrative expense will increase in terms of the absolute dollar amount from the levels incurred during the third quarter of 2002
and to remain comparable to the percentage of total revenues incurred during the third quarter of 2002.

Restructuring-Related Expenses.  During the third quarter of 2002, the Company initiated a Restructuring of
its operations and associated workforce reduction intended to strengthen the Company's competitive position and future operating
performance.  The Company anticipates completing the Restructuring during the fourth quarter of 2002.  The Company expects to
recognize a total charge related to this Restructuring of up to approximately $275.0 million, of which the Company recognized a
charge of $109.4 in the third quarter of 2002 and expects to recognize up to an additional $165.0 million in the fourth quarter of
2002.  Total cash outlays under the Restructuring are expected to range from $200.0 million to $225.0 million, with the majority of
the outlays due in 2004 and thereafter as described further below.

The Restructuring charge recognized in the third quarter of 2002 is comprised primarily of: (i) severance and
associated employee termination costs related to the reduction of the Company's workforce; (ii) lease termination costs and/or costs
associated with permanently vacating certain facilities; and (iii) impairment costs related to certain long-lived assets that were
abandoned in connection with the Company's consolidation of its facilities.  The Company has substantially completed its workforce
reduction as of September 30, 2002; therefore, the majority of the Restructuring-related expenses to be incurred during the fourth
quarter of 2002 will relate to costs associated with permanently vacating facilities and asset impairment charges.  The following
table summarizes the Company's Restructuring-related expenses incurred during the third quarter of 2002 and related liabilities as of
September 30, 2002 (in thousands):

`Employee      Facility-        Asset
                                                       Termination     Related      Abandonment
                                                          Costs         Costs          Costs         Total
                                                       -----------  -------------  --------------  ----------
Restructuring-related expenses....................... $    22,301  $      68,120  $       18,962  $  109,383
Cash payments........................................     (13,659)           (62)             --     (13,721)
Non-cash charges.....................................          --             --         (18,962)    (18,962)
                                                       -----------  -------------  --------------  ----------
   Restructuring obligations, September 30, 2002..... $     8,642  $      68,058  $           --  $   76,700
                                                       ===========  =============  ==============
   Less: Restructuring obligations, short-term.......                                                 26,529
                                                                                                   ----------
   Restructuring obligations, long-term..............                                             $   50,171
                                                                                                   ==========`

The costs associated with permanently vacating facilities will generally be paid over the remaining lease terms,
ending at various dates through December 2023 or over a shorter period as the Company may negotiate with its lessors.  Refer to Note
5 to the accompanying unaudited financial statements for a summary of future lease commitments related to facilities that are part of
the Company's Restructuring completed in the third quarter of 2002.  The lease commitments presented in Note 5 have not been reduced
by estimated sublease income.  The remaining costs associated with the reduction of the Company's workforce will be paid during the
fourth quarter of 2002.  The total Restructuring charge and related cash outlay are based on management's current estimates, which
may change if further consolidations are required or if actual lease commitments or sublease income differ from amounts currently
expected.

Operating Income (Loss) and Operating Margin

Operating income was $44.9 million and $263.3 million for the three and nine months ended September 30, 2001,
respectively, as compared to an operating loss of $154.7 million and $27.1 million for the three and nine months ended September 30,
2002, respectively.  Operating margins were 10% and 16% during the three and nine months ended September 30, 2001, respectively, as
compared to negative operating margins of 43% and 2% during the three and nine months ended September 30, 2002, respectively.  The
Company incurred negative operating income and margins during the three and nine months ended September 30, 2002, primarily as the
result of the Company's Restructuring and Option Settlement.

Excluding Restructuring-related expenses of $109.4 million and Option Settlement expenses of $54.9 million,
operating income decreased from $44.9 million and $263.3 million for the three and nine months ended September 30, 2001,
respectively, to $9.6 million and $137.2 million for the three and nine months ended September 30, 2002, respectively.  In addition,
operating margins, before Restructuring-related expenses and Option Settlement expenses, were 10% and 16% during the three and nine
months ended September 30, 2001, respectively, as compared to 3% and 11% during the three and nine months ended September 30, 2002,
respectively.

Prior to the impact of the Restructuring and Option Settlement, the Company's operating income and operating
margins decreased in the three and nine months ended September 30, 2002, from the comparable periods in 2001, due primarily to: (i)
the year-over-year decrease in software license revenues, which are at higher margins than professional services, maintenance and
other revenues; and (ii) the increase in facility-related (i.e., rent) and equipment-related (i.e., depreciation) expenses.  The
decline in operating income and operating margins was partially offset by: (i) management's cost control initiatives; and (ii) the
elimination of the requirement to amortize goodwill, which totaled approximately $4.9 million and $15.1 million during the three and
nine months ended September 30, 2001, respectively.  Please refer to Notes 1 and 3 to the accompanying unaudited consolidated
financial statements for further discussions regarding the elimination of the requirement to amortize goodwill.  As a result of the
Company's Restructuring efforts, the Company anticipates that its cost structure will be better aligned with its anticipated revenue
levels; however, the Company does not expect to realize the full benefit of the Restructuring until early 2003.

Other Income, Net

For the three and nine months ended
September 30, 2001 and 2002, other income, net was comprised of the following:

`Three Months Ended    Nine Months Ended
                                                    September 30,         September 30,
                                                 --------------------  --------------------
                                                   2001       2002       2001       2002
                                                 ---------  ---------  ---------  ---------
Interest income................................ $  16,355  $  15,096  $  52,599  $  44,053
Interest expense...............................    (4,453)    (5,113)   (13,549)   (14,949)
Net gains on marketable investments............       944      5,020      2,718      9,750
Loss on cost-method investments................      (663)    (4,132)    (3,073)    (6,640)
Other, net.....................................    (1,262)       (40)    (2,479)    (1,483)
                                                 ---------  ---------  ---------  ---------
                                                $  10,921  $  10,831  $  36,216  $  30,731
                                                 =========  =========  =========  =========`

Interest income represents earnings on the Company's cash and short-term investments.  Interest income
decreased during the three and nine months ended September 30, 2002, from the levels for the comparable periods in 2001, primarily
due to a decline in interest rates, partially offset by the Company's increased balances of cash and short-term investments.
Interest expense primarily represents interest on the Company's $300.0 million convertible subordinated debentures (see Note 4 to the
accompanying unaudited consolidated financial statements).  Interest expense has increased during the 2002 periods as compared to the
2001 periods, primarily as the result of interest expense associated with the increase in capital lease obligations.

During the three and nine months ended September 30, 2001 and 2002, net gains on marketable investments were
primarily the result of gains from sales of the Company's short-term interest-bearing investments.  During the three and nine months
ended September 30, 2002, the gains on marketable investments were partially offset by write-downs of $0.5 million and $1.1 million,
respectively, to the Company's marketable equity securities, as the decline was determined to be other-than-temporary.  The Company
holds several minority interests, included in other assets, in companies having operations or technology in areas within its
strategic focus.  During the three and nine months ended September 30, 2001 and 2002, the loss on cost method investments represents
adjustments to certain of these investments to fair value as the decline in these investments was deemed to be other-than-temporary.
Other, net for all periods presented is primarily composed of charitable contributions, banking fees and foreign currency gains or
losses.

Provision for Income Taxes and Income Tax Benefit

The Company's provision for income taxes
totaled $20.7 million and $110.8 million for the three and nine months ended September 30, 2001, respectively.  As a result of the
Company's Restructuring and Option Settlement, the Company recognized an income tax benefit of $51.8 million for the three months
ended September 30, 2002, and income tax expense of $1.3 million for the nine months ended September 30, 2002.  Income taxes as a
percentage of pretax income (i.e., the "Effective Rate") were 37% in both the three and nine months ended September 30,
2001, as compared to an Effective Rate of 36% in both the three and nine months ended September 30, 2002.  The Company currently
expects its Effective Rate for the remainder of 2002 to be approximately 36%; however, as discussed below under "Critical
Accounting Policies," the Company may have to increase its tax rate in future periods should the Company's actual geographical
mix of pretax income or annual pretax income differ from amounts currently expected.

Net Income (Loss)

The Company earned net income of $35.2 million and $188.7 million during the three and nine months ended
September 30, 2001, respectively, as compared to a net loss of $92.1 million for the three months ended September 30, 2002 and net
income of $2.3 million for the nine months ended September 30, 2002.  Diluted net income per share was $0.07 for the three months
ended September 30, 2001, compared to a diluted net loss per share of $0.19 for the three months ended September 30, 2002.   Diluted
net income per share was $0.36 for the nine months ended September 30, 2001, compared to diluted net income per share of $0.00 for
the nine months ended September 30, 2002.

Liquidity and Capital Resources

The Company derives its liquidity and capital resources primarily from the Company's cash flows from
operations and from working capital.  The Company's cash, cash equivalents and short-term investments increased from $1,656.7 million
as of December 31, 2001, to $2,067.3 million as of September 30, 2002, representing approximately 61% and 70% of total assets,
respectively.  The Company's days sales outstanding in accounts receivable was 73 days as of December 31, 2001, compared with 72 days
as of September 30, 2002.  The Company's liquidity could be negatively impacted by a decrease in demand for the Company's products,
which are subject to rapid technological changes, or a reduction of capital expenditures by the Company's customers as a result of a
downturn in the global economy, among other factors.  The Company does not have any off-balance-sheet arrangements with
unconsolidated entities or related parties and, accordingly, the Company's liquidity and capital resources are not subject to
off-balance-sheet risks from unconsolidated entities.

As of September 30, 2002, the Company's future fixed commitments for cash payments primarily related to
obligations under non-cancelable operating and capital leases and the Company's convertible subordinated debentures.  The Company
leases facilities under non-cancelable operating leases expiring between 2002 and 2022 and certain equipment under non-cancelable
operating and capital leases expiring between 2004 and 2014.  As of September 30, 2002, future minimum lease payments under these
leases consisted of $27.6 million due for the remainder of 2002, $599.7 million due within five years subsequent to 2002, and $653.9
million due in 2008 and thereafter.  In addition, as of September 30, 2002, the Company had $300.0 million of convertible
subordinated debentures outstanding.  These debentures mature on September 15, 2006; bear interest at a rate of 5.50%; and are
convertible at the option of the holder into 12.9 million shares of the Company's common stock at any time prior to maturity, at a
conversion price of $23.32 per share, subject to adjustment under certain conditions.  As of September 15, 2002,
the Company has the right to redeem the notes, in whole or in part.  The redemption price will range
from $309.4 million to $302.4 million if the notes are redeemed between September 15, 2002, and September 14, 2006.  Any redemption
made on or after September 15, 2006, will be at $300.0 million.  The Company will pay accrued interest to the redemption date.

Cash provided by operating activities was $462.0 million and $339.8 million for the nine months ended
September 30, 2001 and 2002, respectively.  Despite the weak economic conditions, the Company has continued to operate its business
to produce positive cash flows from operations.  Cash provided by operating activities decreased in 2002 from 2001 primarily as the
result of the decreases in revenues and net income that occurred, in part, as a result of the weak global economic conditions.
During the nine months ended September 30, 2001 and 2002, the Company's cash flows from operations were primarily derived from: (i)
the Company's earnings prior to non-cash expenses such as depreciation, amortization and bad debt; (ii) the non-cash portion of
Restructuring-related expenses and Option Settlement expenses; (iii) the tax benefit related to the exercise of employee stock
options, which reduces the Company's cash outlay for income tax expense; and (iv) changes in the Company's working capital, which is
primarily composed of collections of accounts receivable and increases in deferred revenue, partially offset by payments of accounts
payable and accrued expenses.  Because the majority of the Restructuring-related expenses and Option Settlement expenses will be paid
over time or do not involve cash outlays, cash provided by operating activities for the nine months ended September 30, 2002, was
only impacted by the $13.7 million of cash payments made to date on these obligations.  As the Company settles the remaining
Restructuring and Option Settlement obligations, the Company's future cash flows from operations will be reduced in the period of
settlement.

Cash used in investing activities was $569.4 million and $475.5 million for the nine months ended September
30, 2001 and 2002, respectively.  During each of these periods, the Company's investment activities primarily related to the purchase
of additional property and equipment and the reinvestment of the Company's cash into short-term investments.  For the nine months
ended September 30, 2001 and 2002, the Company reinvested its cash flows from operations into short-term investments in net amounts
of $354.1 million and $427.9 million, respectively, and had purchases of property and equipment, including leasehold improvements, of
$218.7 million and $55.3 million, respectively.  Other investing activities resulted in an increase in cash of $3.4 million and $7.8
million during the nine months ended September 30, 2001 and 2002, respectively.

Capital expenditures were significantly higher in the first nine months of 2001 compared to the first nine months
of 2002 primarily as a result of the following: (i) expansion of the Company's infrastructure during 2001 to support the development
and testing of Siebel 7; and (ii) purchases of tenant improvements and furniture and fixtures for newly leased facilities.  In
connection with its Restructuring, the Company may purchase land and buildings, based upon the cash return on this investment.

Cash provided by financing activities was $130.9 million and $99.5 million during the nine months ended
September 30, 2001 and 2002, respectively.  For the nine months ended September 30, 2001 and 2002, the Company's financing activities
consisted primarily of net proceeds of $129.7 million and $80.3 million, respectively, from the issuance of
common stock pursuant to the exercise of stock options and the Company's employee stock purchase plan.  During the nine months
ended September 30, 2002, the Company also received proceeds of $24.9 million from equipment financing, partially offset by net
repayments on this financing and other capital leases of $6.1 million.

While the Company believes that the anticipated cash flows from operations, along with cash and short-term
investments, will be adequate to meet its cash needs for daily operations and capital expenditures for at least the next 12 months,
the Company may elect to raise additional capital through a public offering or other means in the future, depending upon market
conditions.

Adoption of Accounting Standards

During the nine months
ended September 30, 2002, the Company adopted new accounting standards related to the accounting for its: derivative instruments and
hedging activities; business combinations; intangible assets and goodwill; impairment of long-lived assets; discontinued operations;
and presentation of rebilled out-of-pocket expenses.  There was not a cumulative transition adjustment upon the adoption of any of
these accounting standards, and the adoption of these accounting standards did not have a material impact on the Company's
consolidated financial position, results of operations or cash flows.  Refer to Note 1 to the accompanying unaudited consolidated
financial statements for further discussion of the accounting standards adopted during the nine months ended September 30, 2002.

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations" ("SFAS
143").  The Company is required to adopt SFAS 143 effective January 1, 2003, and early application is permitted.  In July 2002,
the FASB issued SFAS No. 146 "Accounting for Exit or Disposal Activities" ("SFAS 146").  SFAS 146 is effective
for exit or disposal activities initiated after December 31, 2002.  The Company does not expect the adoption of SFAS 143 or 146 to
have a material effect on its consolidated financial position, results of operations or cash flows.  Refer to Note 1 to the
accompanying unaudited consolidated financial statements for further discussion of these accounting standards.

Use of Estimates

The accompanying discussion and analysis of the Company's financial condition and results of operations are
based upon the Company's unaudited consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States.  The preparation of these financial statements requires that the Company make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities.  On an 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 of acquired intangible assets and
goodwill, useful lives of intangible assets and property and equipment, income taxes, Restructuring obligations, 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 significantly from the
estimates made by management with respect to these and other items that require management's estimates.

In addition to these estimates and assumptions that are utilized in preparation of historical financial
statements, the inability to properly estimate the timing and amount of future revenues could significantly impact the Company's
future operations.  While the Company's proprietary software allows the Company to track its potential revenues with a high degree of
visibility and aids in its ability to manage the size of its operations, management must make assumptions and estimates as to the
timing and amount of future revenue.  Specifically, the Company's sales personnel monitor the status of all proposals, such as the
estimated closing date and potential dollar amount of such transaction.  The Company aggregates these estimates periodically to
generate a sales pipeline and then evaluates the pipeline to identify trends in the Company's business.  This pipeline analysis and
related estimates of revenue may differ significantly from actual revenues in a particular reporting period as the estimates and
assumptions were made using the best available data at the time, which is subject to change.  Specifically, the slowdown in the
global economy and information technology spending has caused and may continue to cause customer purchasing decisions to be delayed,
reduced in amount or canceled, all of which have reduced and could continue to reduce the rate of conversion of the pipeline into
contracts.  A variation in the pipeline or in the conversion rate of the pipeline into contracts could cause the Company to plan or
budget inaccurately and thereby could adversely affect the Company's business, financial condition or results of operations.  In
addition, because a substantial portion of the Company's software license contracts close in the latter part of a quarter, management
may not be able to adjust the Company's cost structure to respond to a variation in the conversion of the pipeline in a timely
manner, and thereby the delays may adversely and materially affect the Company's business, financial condition or results of
operations.

Critical Accounting Policies

The Company believes that there are several accounting policies that are critical to understanding the
Company's historical and future performance, as these policies affect the reported amounts of revenue and the more significant areas
involving management's judgments and estimates. These significant accounting policies relate to revenue recognition,
Restructuring-related expenses, stock-based compensation, Option Settlement, the provision for doubtful accounts, acquired intangible assets,
impairment of long-lived assets, other-than-temporary declines in the market value of investments, and income taxes.  These policies,
and the Company's procedures related to these policies, are described in detail below.  Please see Note 1 to the accompanying
unaudited consolidated financial statements for a further description of these accounting policies.

Revenue Recognition

The Company's software arrangements typically include: (i) an end user license that provides for
an initial fee in exchange for a customer's use of the Company's products in perpetuity based on a specified number of users; (ii) a
maintenance arrangement that provides for technical support and product updates over a period of 12 months; and (iii) a professional
service arrangement on a time and materials basis.

The Company recognizes software revenue using the residual method pursuant to the requirements of Statement of
Position No. 97-2 "Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of Position No. 98-9
"Software Revenue Recognition with Respect to Certain Arrangements."  Under the residual method, revenue is recognized when
Company-specific objective evidence of fair value exists for all of the undelivered elements in the arrangement (i.e., professional
services and maintenance), but does not exist for one or more of the delivered elements in the arrangement (i.e., the software
product).  The Company allocates revenue to each undelivered element based on its respective fair value, with the fair value
determined by the price charged when that element is sold separately.  The Company determines the fair value of the maintenance
portion of the arrangement based on the ultimate renewal price of the maintenance charged to the customer based on full deployment of
the licensed software products and the fair value of the professional services portion of the arrangement based on the hourly rates
that the Company charges for these services when sold independently from a software license.  If evidence of fair value cannot be
established for the undelivered elements of a license agreement, the entire amount of revenue from the arrangement is deferred and
recognized over the period that these elements are delivered.

A customer typically prepays maintenance for the first 12 months, and the related revenue is deferred and
recognized over the term of the initial maintenance contract.  Maintenance is renewable by the customer on an annual basis
thereafter.  Rates for maintenance, including subsequent renewal rates, are typically established based upon a specified percentage
of net license fees as set forth in the arrangement.  Professional services revenue primarily consists of implementation services
related to the installation of the Company's products and training revenues.  The Company's software is ready to use by the customer
upon receipt.  While many of the Company's customers may choose to alter the software to fit their individual needs, the Company's
implementation services do not involve significant customization to or development of the underlying software code.  Substantially
all of the Company's professional service arrangements are on a time and materials basis and, accordingly, are recognized as the
services are performed, which is typically over a three- to nine-month period subsequent to licensing of the Company's software.

For substantially all of the Company's software arrangements, the Company defers revenue for the fair value of the
maintenance and professional services to be provided to the customer and recognizes revenue for the software license when persuasive
evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable and collection is deemed
probable.  The Company evaluates each of these criteria as follows:

- Evidence of an arrangement: The Company considers a non-cancelable agreement signed by the Company and the
customer to be evidence of an arrangement.

- Delivery: Delivery is considered to occur when media containing the licensed programs is provided to a common
carrier or, in the case of electronic delivery, the customer is given access to the licensed programs.  The Company's typical end
user license agreement does not include customer acceptance provisions.

- Fixed or determinable fee: The Company considers the fee to be fixed or determinable if the fee is not subject
to refund or adjustment.  If the arrangement fee is not fixed or determinable, the Company recognizes the revenue as amounts become
due and payable.

- Collection is deemed probable: The Company conducts a credit review for all significant transactions at the
time of the arrangement to determine the credit-worthiness of the customer.  Collection is deemed probable if the Company expects
that the customer will be able to pay amounts under the arrangement as payments become due.  If the Company determines that
collection is not probable, the Company defers the revenue and recognizes the revenue upon cash collection.

Restructuring-Related Expenses

The Company's Restructuring charges are comprised primarily of: (i) severance and associated employee
termination costs related to the reduction of the Company's workforce; (ii) lease termination costs and/or costs associated with
permanently vacating its facilities ("abandonment"); and (iii) impairment costs related to certain long-lived assets
abandoned.  The Company accounts for the costs associated with the reduction of the Company's workforce in accordance with Emerging
Issues Task Force ("EITF") Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)" ("EITF 94-3").  Accordingly, the
Company records the liability related to these termination costs when the following conditions have been met:  (i) management with
the appropriate level of authority approves a termination plan that commits the Company to such plan and establishes the benefits the
employees will receive upon termination; (ii) the benefit arrangement is communicated to the employees in sufficient detail to enable
the employees to determine the termination benefits; (iii) the plan specifically identifies the number of employees to be terminated,
their locations, and their job classifications; and (iv) the period of time to implement the plan does not indicate changes to the
plan are likely.  The termination costs recorded by the Company are not associated with nor do they benefit continuing activities.

The Company accounts for the costs associated with lease termination and/or abandonment in accordance with
EITF Issue No. 88-10 "Costs Associated with Lease Modification or Termination" ("EITF 88-10").  Accordingly, the
Company records the costs associated with lease termination and/or abandonment when the leased property has no substantive future use
or benefit to the Company.  Under EITF 88-10, the Company records the liability associated with lease termination and/or abandonment
as the sum of the total remaining lease costs and related exit costs, less probable sublease income.  The Company accounts for costs
related to long-lived assets abandoned in accordance with SFAS 144 and, accordingly, charges to expense the net carrying value of the
long-lived assets when the Company ceases to use the assets.

Inherent in the estimation of the costs related to the Company's Restructuring efforts are assessments related
to the most likely expected outcome of the significant actions to accomplish the Restructuring.  Changing business conditions may
affect the assumptions related to the timing and extent of the Company's Restructuring activities.  The Company will review the
status of Restructuring activities on a quarterly basis and, if appropriate, record changes to its Restructuring obligations in
operations based on management's most current estimates.

Stock-Based Compensation

The Company accounts for its employee stock-based compensation plans using the intrinsic value
method, as prescribed by APB No. 25 "Accounting for Stock Issued to Employees" and interpretations thereof (collectively
"APB 25").  Accordingly, deferred compensation is recorded on the date of grant if the current price of the underlying
stock exceeds the exercise price.  The Company records and measures deferred compensation for stock options granted to non-employees
at their fair value.  Deferred compensation is expensed on a straight-line basis over the vesting period of the related stock option,
which is generally three to five years.

Option Settlement

The Company accounted for the Option Settlement in accordance with APB 25 and interpretations thereof.
Specifically, the Company determined that the consideration paid for the Eligible Options represented "substantial
consideration" as required by Issue 39(f) of EITF Issue No. 00-23 "Issues Relating to Accounting for Stock Compensation
Under APB Opinion No. 25 and FASB Interpretation No. 44," as the $1.85 per Eligible Option was at least the fair value for each
Eligible Option, as determined using the Black-Scholes option-pricing model.  In determining the fair value of the Eligible Options
using the Black-Scholes option-pricing model, the Company used the following assumptions:  (i) the expected remaining life was deemed
to be the remaining term of the stock options, which ranged from approximately 7 years to 8 years; (ii) a volatility of 45.0% during
the expected life; (iii) a risk-free interest rate of 4.0%; and (iv) no dividends.  The settlement amount of $1.85 per Eligible
Option was established at the commencement of the offer period and remained unchanged throughout the offer period.

Because the Option Settlement involved substantial consideration, as described in Issue 39(f) of EITF Issue No.
00-23, the Company concluded that variable accounting would not be required for stock options granted to participants more than six
months prior to the date of the offer.  Further, variable accounting is not required under Issue 39(a) of EITF Issue No. 00-23 for
Eligible Options subject to the offer that were not surrendered for settlement, because: (i) the stock offered was fully vested and
non-forfeitable; and (ii) the number of shares to be received by an employee who accepts the offer is based on the number of
surrendered stock options multiplied by $1.85, divided by the fair value of the stock at the date of settlement.  The Company further
concluded that the "look back" and "look forward" provisions of FASB Interpretation No. 44, paragraph 45 apply to
the stock options surrendered for settlement.  Because the Company had granted no stock options to the holders of the Eligible
Options in the six months preceding the commencement of the tender offer period, variable accounting is not required for any of the
Company's outstanding stock options not subject to the Option Settlement.  The Company does not intend to grant stock options to any
participants in the Option Settlement for at least six months following the conclusion of the tender offer period.  If any stock
options are granted to participants in the Option Settlement within the six months following the end of the tender offer period,
those stock options will receive variable accounting.

Provision for Doubtful Accounts

The Company initially records its provision for doubtful accounts based on its historical experience and then
adjusts this provision at the end of each reporting period based on a detailed assessment of its accounts receivable and allowance
for doubtful accounts.  In estimating the provision for doubtful accounts, management considers: (i) the age of the accounts
receivable; (ii) trends within and ratios involving the age of the accounts receivable; (iii) the customer mix in each of the aging
categories; (iv) the Company's historical provision for doubtful accounts, which has ranged between 1.0% and 3.5% of total revenues
(generally approximately 1% of total revenues); (v) the credit-worthiness of the customer; (vi) the economic conditions of the
customer's industry; and (vii) general economic conditions, among other factors.  Should any of these factors change, the estimates
made by management will also change, which could impact the level of the Company's future provision for doubtful accounts.
Specifically, if the financial condition of the Company's customers were to deteriorate, affecting their ability to make payments,
additional provision for doubtful accounts may be required.  A number of the Company's customers are in the telecom industry and, as
discussed previously, as part of the Company's evaluation of its provision for doubtful accounts, the Company has considered not only
the economic conditions in that industry but also the financial condition of the Company's customers in that industry in determining
the provision for doubtful accounts.  Should conditions continue to deteriorate in that industry, or any other industry, additional
provision for doubtful accounts may be required.

Acquired Intangible Assets

The Company accounts for its purchases of acquired companies in accordance
with SFAS 141 and accounts for the related acquired intangible assets in accordance with SFAS 142.  In accordance with SFAS 141, the
Company allocates the cost of the acquired companies to the identifiable tangible and intangible assets and liabilities acquired,
with the remaining amount being classified as goodwill.  Certain intangible assets, such as "acquired technology," are
amortized to expense over time, while in-process research and development costs ("IPR&D"), if any, are recorded as a
one-time charge at the acquisition date.

The majority of entities acquired by the Company do not have significant tangible assets and, as a result, a
significant portion of the purchase price is typically allocated to identified intangible assets and goodwill.  The Company's future
operating performance will be impacted by the future amortization of intangible assets, potential charges related to IPR&D, and
potential impairment charges related to goodwill.  Accordingly, the allocation of the purchase price to intangible assets and
goodwill has a significant impact on the Company's future operating results.  The allocation of the purchase price of the acquired
companies to intangible assets and goodwill requires management to make significant estimates and assumptions, including estimates of
future cash flows expected to be generated by the acquired assets and the appropriate discount rate to value these cash flows.
Should different conditions prevail, material write-downs of net intangible assets and/or goodwill could occur.

As required by SFAS 142, the Company has not amortized goodwill associated with acquisitions completed after June
30, 2001, for any period presented and ceased amortization of goodwill associated with acquisitions completed prior to July 1, 2001,
effective January 1, 2002.  Prior to January 1, 2002, the Company amortized goodwill associated with the pre-July 1, 2001
acquisitions over three to five years using the straight-line method.  Identifiable intangibles (acquired technology) are currently
amortized over three years using the straight-line method.  As described below, in lieu of amortizing goodwill, the Company tests
goodwill for impairment periodically and records any necessary impairment in accordance with SFAS 142.

Impairment of Long-Lived Assets

The Company tests goodwill for impairment in accordance with SFAS 142, which requires that goodwill be tested
for impairment at the "reporting unit level" ("Reporting Unit") at least annually and more frequently upon the
occurrence of certain events, as defined by SFAS 142.  Consistent with the Company's determination that it has only one reporting
segment, the Company has determined that it has only one Reporting Unit, specifically the license, implementation and support of its
software applications.  Goodwill will be tested for impairment annually on July 1 in a two-step process.  First, the Company must
determine if the carrying amount of its Reporting Unit exceeds the "fair value" of the Reporting Unit based on quoted
market prices of the Company's common stock, which would indicate that goodwill may be impaired.  If the Company determines that
goodwill may be impaired, the Company compares the "implied fair value" of the goodwill, as defined by SFAS 142, to its
carrying amount to determine the impairment loss, if any.

The Company evaluates all of its long-lived assets, including intangible assets other than goodwill, for
impairment in accordance with the provisions of SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144").  SFAS 144 requires that long-lived assets and intangible assets other than goodwill be evaluated
for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based
on expected undiscounted cash flows attributable to that asset.  Should events indicate that any of the Company's assets are
impaired, the amount of such impairment will be measured as the difference between the carrying value and the fair value of the
impaired asset and recorded in earnings during the period of such impairment.

Other-Than-Temporary Declines in the Market Value of Investments

The Company records an investment impairment charge when it determines an investment has experienced a decline
in value that is other-than-temporary.  To make this determination, the Company reviews the carrying value of its short-term
investments and marketable equity securities, along with investments accounted for under the cost method, at the end of each
reporting period to determine if any investments are impaired.  This review includes an evaluation of historical and projected
financial performance, expected cash needs and recent funding events.  Other-than-temporary impairments are recognized in earnings
if: (i) the market value of the investment is below its current carrying value for an extended period, which the Company generally
defines as six to nine months; (ii) the issuer has experienced significant financial declines; or (iii) the issuer has experienced
significant difficulties in raising capital to continue operations, among other factors.  Future adverse changes in market conditions
or poor operating results of underlying investments could result in an inability to recover the carrying value of the investments,
thereby possibly requiring an impairment charge in the future.

Income Taxes

The Company's valuation allowance on its deferred tax assets pertains to certain tax credits and net operating
loss carryforwards resulting from the exercise of certain employee stock options.  The valuation allowance will be reduced in the
period in which the Company realizes a benefit on its tax return from a reduction of income taxes payable from the utilization of
these credits and losses.  When realized, the tax benefit of these credits and losses will be accounted for as a credit to
stockholders' equity rather than as a reduction of income tax expense.

As part of the process of preparing the Company's financial statements, the Company is required to estimate
its income taxes in each of the jurisdictions in which the Company operates.  This process involves estimating the Company's current
tax liabilities in each jurisdiction, including the impact, if any, of additional taxes resulting from tax examinations as well as
making judgments regarding the recoverability of deferred tax assets.  To the extent recovery of deferred tax assets is not likely
based on the Company's estimation of future taxable income in each jurisdiction, a valuation allowance is established.  Tax
liabilities can involve complex issues and may require an extended period to resolve.   While the Company has considered future
taxable income and the existence of prudent and feasible tax planning strategies in assessing the need for an additional valuation
allowance on its remaining deferred tax assets, in the event the Company were to determine that it would not be able to realize all
or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the
period such determination was made.

To determine the Company's quarterly tax rate, the Company is required to estimate its full-year income and
the related income tax expense in each jurisdiction in which the Company operates.  Changes in the geographical mix or estimated
level of annual pretax income can impact the Company's overall effective tax rate.  Accordingly, the Company may have to increase its
tax rate in future periods should the actual geographical mix or annual pretax income differ from amounts currently expected.

Risk Factors

Set forth below and elsewhere in this quarterly report and in the other documents we file with the SEC are
risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking
statements contained in this quarterly report.  Prospective and existing investors are strongly urged to carefully consider the
various cautionary statements and risks set forth in this quarterly report and our other public filings.

Our total revenue and operating results may fluctuate.

We have experienced and in the future may experience a shortfall in revenue or earnings or otherwise fail
to meet public market expectations, which could materially and adversely affect our business and the market price of our common
stock.  Our total revenue and operating results may fluctuate significantly because of a number of factors, many of which are outside
of our control.  These factors include:

- Business and chief executive officer confidence in the economy, evidenced, in part, by stock market levels;
- Changes in the domestic and international economic, business and political conditions;
- Economic conditions within the information technology industry;
- Level of product and price competition;
- Length of our sales cycle and customer licensing patterns;
- Size and timing of individual license transactions;
- Delay or deferral of customer implementations of our products;
- Success in expanding our Global Services Organization, direct sales force and indirect distribution
channels;
- Timing of new product introductions and product enhancements;
- Appropriate mix of products licensed and services sold;
- Levels of international transactions;
- Activities of and acquisitions by competitors;
- Timing of new hires and the allocation of our resources;
- Increases in the cost of software and professional services;
- Changes in foreign currency exchange rates; and
- Our ability to develop and market new products and control costs.

One or more of the foregoing factors may cause our operating expenses to be disproportionately high during any
given period or may cause our net revenue and operating results to fluctuate significantly.  Based upon the preceding factors, we may
experience a shortfall in revenue or earnings or otherwise fail to meet public market expectations, which could materially and
adversely affect our business, financial condition, results of operations and the market price of our common stock.

Our quarterly operating results may fluctuate.

Our total revenue and operating results may vary significantly from quarter to quarter.  The main factors
that may affect these fluctuations are:

- Domestic and international economic, business and political conditions;
- Economic conditions within the information technology industry;
- The discretionary nature of our customers' purchase and budget cycles;
- The size and complexity of our license transactions;
- The potential delays in recognizing revenue from license transactions;
- The timing of new product releases;
- Seasonal variations in operating results; and
- Variations in the fiscal or quarterly cycles of our customers.

Each customer's decision to implement our products and services is discretionary, involves a significant
commitment of resources and is subject to its budget cycles.  In addition, the timing of license revenue is difficult to predict
because of the length of our sales cycle, which has ranged to date from one to twenty-four months.  We base our operating expenses on
anticipated revenue trends.  Because a high percentage of these expenses are relatively fixed, a delay in recognizing revenue from
license transactions could cause significant variations in operating results from quarter to quarter and could result in operating
losses.  If these expenses precede, or are not subsequently followed by, increased revenues, our business, financial condition or
results of operations could be materially and adversely affected.

As a result of these and other factors, revenues for any quarter are subject to significant variation, and we
believe that period-to-period comparisons of our results of operations are not necessarily meaningful.  You should not rely on these
comparisons as indications of future performance.  Our future quarterly operating results from time to time may not meet the
expectations of market analysts or investors, which would likely have an adverse effect on the price of our common stock.

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

The revenue growth and profitability of our business depends on the overall demand for eBusiness applications
software and services, particularly within the industries in which we offer specific versions of our products.  Because our sales are
primarily to major corporate customers in the high technology, telecommunications, financial services (including insurance),
pharmaceutical, utilities and consumer packaged goods industries, our business depends on the overall economic conditions and the
economic and business conditions within these industries.  The progressive weakening of the global economy, the weakening of the
information technology industry, and the weakening of the business conditions within the above industries has caused a decrease in
our software license revenues in both 2001 and 2002.  A softening of demand for computer software caused by a continued weakening of
the economy, domestically or internationally, may result in a continued decrease in revenues and growth rates.  In addition, the
financial, political, economic and other uncertainties following the terrorist attacks upon the United States have led to a further
weakening of the global economy.  Subsequent terrorist acts and/or the threat of future outbreak or continued escalation of
hostilities involving the United States or other countries could adversely affect the growth rate of the Company's software license
revenue and have an adverse effect on our business, financial condition or results of operations.

A variation in the conversion of our revenue pipeline to contracts could adversely affect our revenues and
ability to forecast operations.

Our revenue pipeline estimates may not consistently correlate to actual revenues in a particular quarter or over a
longer period of time.  A slowdown in the economy, domestically and internationally, has caused and may continue to cause customer
purchasing decisions to be delayed, reduced in amount or canceled, all of which have reduced and could continue to reduce the rate of
conversion of the pipeline into contracts.  A variation in the pipeline or in the conversion of the pipeline into contracts could
cause us to plan or budget inaccurately and thereby could adversely affect our business, financial condition or results of
operations.  In addition, primarily due to a substantial portion of our license revenue contracts closing in the latter part of a
quarter, management may not be able to adjust our cost structure in response to a variation in the conversion of the pipeline into
contracts in a timely manner, thereby adversely affecting our business, financial condition or results of operations.

We may not be able to successfully implement our Restructuring efforts, and such efforts may adversely
impact our ability to retain and attract future employees.

During the third quarter of 2002, we initiated a Restructuring of our operations involving, among other things,
the reduction of our workforce by approximately 1,100 employees worldwide and the consolidation of excess facilities.  As part of
this Restructuring, we permanently removed from our operations certain of our leased facilities during the third quarter of 2002 and
expect to remove additional facilities from our operations during the fourth quarter of 2002.  The removal of these facilities from
our operations will require us to negotiate certain lease terminations and/or subleases of our facilities.  We cannot predict when or
if we will be successful in negotiating lease termination agreements or subleases of our facilities on terms acceptable to us.
Should we be unsuccessful in such negotiations or if the negotiated terms are less favorable than currently anticipated, we may be
required to materially increase our Restructuring charge in future periods.  In addition, we cannot assure you that our Restructuring
program will achieve all of the benefits we currently anticipate or on the timetable contemplated.

Workforce reductions, including the one we initiated in the third quarter of 2002, could result in a lack of focus
and reduced productivity by our remaining employees, which in turn may affect our revenues in the current or a future quarter.  In
addition, prospects and current customers may decide to delay or not purchase our products due to the perceived uncertainty caused by
our Restructuring.  We cannot assure you that we will not reduce or otherwise adjust our workforce again in the future or that the
related transition issues associated with such a reduction will not occur again.  In addition, employees, whether or not directly
affected by the reduction, may seek future employment with our business partners, customers or competitors.  Although our employees
are required to sign a confidentiality agreement at the time of hire, we cannot assure you that the confidential nature of certain
proprietary information will be maintained in the course of such future employment.  Further, we believe that our future success will
depend in large part upon our ability to attract and retain highly skilled personnel.  We may have difficulty attracting such
personnel as a result of a perceived risk of future workforce reductions.

If we do not successfully manage the size of our operations, our business may be negatively impacted.

If we fail to manage the size of our operations effectively, our business, financial condition or results of
operations could be materially and adversely affected.  Since we began operations in 1994 and continuing throughout early 2001, our
business grew rapidly.  Throughout the last nine months of 2001 and the first nine months of 2002, our revenues have declined as a
result of deterioration in the overall economy and information technology industry.  These rapid changes in our business have placed
a significant strain on our management systems and resources.  In response to the continued deterioration in the information
technology industry, management initiated a Restructuring of our operations in the third quarter of 2002.  This Restructuring has its
own risks, many of which are discussed above under "We may not be able to successfully implement our Restructuring efforts, and
such efforts may adversely impact our ability to retain and attract future employees."  In addition, if we return to growth in
the future, that growth may require us to implement new systems or upgrade current systems, and the failure to successfully implement
such new or improved systems could materially and adversely affect our business.

Our success will require us to manage the size of our employee base, particularly our direct sales force and
global support staff.

The majority of our expenses are personnel-related costs such as employee compensation and benefits, along with
the cost of the infrastructure (occupancy and equipment) to support our employee base.  The failure to adjust our employee base,
particularly our direct sales force and technical and global services staff, to the appropriate level to support our revenues could
materially and adversely affect our business, operating results and financial condition.  In addition, expansion of the distribution
of our products may place new and increased demands on our direct sales force and technical and sales support staff.  Although we
currently invest sufficient resources in our direct sales force and our technical and global services staff, there are only a limited
number of qualified personnel in these areas.  Our ability to achieve expanded distribution and revenue growth in the future will
depend, in part, on our success in recruiting and training sufficient direct sales, technical and global services personnel.  We may
not be able to expand our direct sales force and technical support staff as necessary to support our operations.

We rely on strategic relationships with systems integrators, distributors, resellers and technology
vendors.

Failure to maintain existing strategic relationships with systems integrators, distributors, resellers and
technology vendors, or to establish new relationships in the future, could have a material adverse effect on our business.  We have
established strategic relationships with a number of organizations that we believe are important to our sales, marketing and support
activities and the implementation of our products.  We believe that our relationships with these organizations provide marketing and
sales opportunities for our direct sales force and expand the distribution of our products.  These relationships allow us to keep
pace with the technological and marketing developments of major software vendors and provide us with technical assistance for our
product development efforts.

In particular, we have established non-exclusive strategic relationships with Accenture, Cap Gemini Ernst &
Young, Deloitte Consulting, IBM Global Services, and PricewaterhouseCoopers, among others.  A significant portion of our revenues has
historically been derived from customers that have engaged systems integrators with which we have a relationship.  Any deterioration
of our relationship with these significant third-party systems integrators could have a material adverse effect on our business,
financial condition or results of operations.  We also have relationships with technology vendors such as IBM Corporation; Compaq
Computer Corporation; Microsoft Corporation; and Sun Microsystems, Inc., among others.  Failure to maintain existing relationships on
terms equally favorable to us, or to establish new relationships in the future, could have a material adverse effect on our business,
financial condition or results of operations.

Our current and potential customers may also rely on third-party systems integrators to develop, deploy or manage
Siebel eBusiness Applications.  If we do not adequately train a sufficient number of systems integrators, or if these
integrators do not have, or do not devote, the resources necessary to implement our products, our business, financial condition or
results of operations could be materially and adversely affected.

We may not be able to compete effectively in the Internet-related products and services market.

Siebel eBusiness Applications communicate through public and private networks over the Internet.
The success of our products may depend, in part, on our ability to continue developing products that are compatible with the
Internet.  We cannot predict with any assurance whether the demand for Internet-related products and services will increase or
decrease in the future.  The increased commercial use of the Internet could require substantial modification and customization of our
products and the introduction of new products.

Critical issues concerning the commercial use of the Internet, including security, privacy, demand, reliability,
cost, ease of use, accessibility, quality of service and potential tax or other government regulation remain unresolved and may
affect the use of the Internet as a medium to support the functionality of our products and distribution of our software.  If these
critical issues are not favorably resolved, our business, financial condition or results of operations could be materially and
adversely affected.

We operate in a competitive and rapidly changing market.

If the Web-based applications market fails to grow, our business, operating results and financial
condition could be materially and adversely affected.  The market for Web-based applications software is relatively new, highly
competitive and rapidly changing.  We market our products only to customers who have migrated or are in the process of migrating
their enterprise computing systems to Web-based computing environments.  Our future financial performance will partly depend on the
continued growth of organizations successfully adopting Web-based computing environments.

Our customers may not successfully implement our products.

If existing customers have difficulty deploying Siebel eBusiness Applications or for any other
reason are not satisfied with Siebel eBusiness Applications, our business, operating results and financial condition could be
materially and adversely affected.  Many of our customers purchase and implement our products in phases.  Our customers frequently
deploy our products to large numbers of sales, marketing and customer service personnel.  These end users may not accept our
products.  Our products are also being deployed on a variety of computer hardware platforms and used with a number of third-party
software applications and programming tools.  This use may present significant technical challenges, particularly as large numbers of
personnel attempt to use our products concurrently.

A limited number of products providea substantial
part of our license revenues.

A substantial majority of our license revenues are attributable to sales of Siebel Sales, Siebel Service,
Siebel Call Center, Siebel Analytics, Siebel Interactive Selling and related products.  In addition, we offer industry-specific
versions of these products.  We expect that these products and related consulting, maintenance and training services will continue to
account for a majority of our future revenues.  Our success depends in part on our ability to market and maintain the industry-specific
versions of our products.  Factors adversely affecting the cost and pricing of, or demand for, these products, such as
competition or technological change, could have a material adverse effect on our business, financial condition or results of
operations.

The length of time required to engage a client and to implement our products may be lengthy and
unpredictable.

The timing of the sales and implementation of our products and services is lengthy and not predictable
with any degree of accuracy.  Prior sales and implementation cycles should not be relied upon as any indication of future cycles.
The license of our software products is often an enterprise-wide decision by prospective customers and generally requires us to
provide a significant level of education to prospective customers regarding the use and benefits of our products.  In addition, the
implementation of our products involves a significant commitment of resources by prospective customers and is commonly associated
with reengineering efforts that may be performed by the customer or third-party systems integrators.  The cost to the customer of our
product is typically only a portion of the related hardware, software, development, training and integration costs of implementing a
large-scale eBusiness software system.  For these and other reasons, the period between initial contact and the implementation of our
products is often lengthy and is subject to a number of factors that may cause significant delays, over many of which we have little
or no control.  These factors include the size and complexity of the overall project and delays in our customers' implementation of
Web-based computing environments.  A delay in the sale or implementation of even a limited number of license transactions could have
a material adverse effect on our business, financial condition or results of operations and cause our operating results to vary
significantly from quarter to quarter.  As a result of current economic conditions, our sales cycle has recently become longer than
historical sales cycles.

Our distribution channels may create additional risks.

Failure to minimize channel conflicts could materially and adversely affect our business, operating
results and financial condition.  We have a number of relationships with resellers, which assist us in obtaining broad market
coverage.  We have generally avoided exclusive relationships with resellers of our products.  Discount policies and reseller
licensing programs are intended to support each distribution channel with a minimum level of channel conflicts.

Our revenue is concentrated in a relatively small number of customers.

Our success depends on gaining new customers and maintaining relationships with our existing customers.
From quarter to quarter, a relatively small number of customers generally account for a significant percentage of our revenues.  We
expect that licenses of our products to a limited number of customers will continue to account for a significant percentage of
revenue in an individual quarter for the foreseeable future; however, because the top ten customers vary from quarter to quarter, we
anticipate that license revenues from the top ten customers for an entire fiscal year will be less significant.  For the nine months
ended September 30, 2002, software license revenues from our 10 largest customers accounted for approximately 27% of total software
license revenues.  The failure to successfully market our products to new customers or to new industries, or the loss of a small
number of customers or any reduction or delay in orders by any such customer, could have a material adverse effect on our business,
financial condition or results of operations.



Our continued success will require us to keep pace with technological developments, evolving industry standards
and changing customer needs.

The software market in which we compete is characterized by: (i) rapid technological change; (ii) frequent
introductions of new products; (iii) changing customer needs; and (iv) evolving industry standards.  To keep pace with technological
developments, evolving industry standards and changing customer needs, we must support existing products and develop new products.
We may not be successful in developing, marketing and releasing new products or new versions of Siebel eBusiness Applications
that respond to technological developments, evolving industry standards or changing customer requirements.  We may also experience
difficulties that could delay or prevent the successful development, introduction and sale of these enhancements.  In addition, these
enhancements may not adequately meet the requirements of the marketplace and may not achieve any significant degree of market
acceptance.  If release dates of any future products or enhancements to Siebel eBusiness Applications are delayed, or if these
products or enhancements fail to achieve market acceptance when released, our business, operating results and financial condition
could be materially and adversely affected.  In addition, new products or enhancements by our competitors may cause customers to
defer or forego purchases of our products, which could have a material adverse effect on our business, financial condition or results
of operations.

To be successful, we must effectively compete in the eBusiness systems market.

Our products target the eBusiness systems market.  This market is highly competitive, rapidly changing and
significantly affected by new product introductions and other market activities of industry participants.  Our products are targeted
at the emerging market for customer, partner and employee relationship information systems.  We face competition primarily from our
customers' internal information technology departments and systems integrators, as well as from other application software providers
that offer a variety of products and services designed to address this market.  We believe that most customer deployments have been
the result of large internal development projects, custom solutions from systems integrators or the application of personal and
departmental productivity tools to the global enterprise.  We may not be able to compete successfully against such internal
development efforts.

We frequently rely on a number of systems consulting and systems integration firms for a substantial portion of
implementation and other global services, as well as for recommendations of our products during the evaluation stage of the purchase
process.  Although we seek to maintain close relationships with these service providers, many of them have similar and often more
established relationships with our competitors.  If we are unable to develop and retain effective, long-term relationships with these
third parties, our competitive position could be materially and adversely affected.  Further, many of these third parties have
significantly greater resources than we do and may market software products that compete with us and may otherwise reduce or
discontinue their relationships with or support of us and our products.

A large number of personal, departmental and other products exist in the eBusiness applications market. Our
competitors include a number of companies that compete with us primarily within a particular product line (e.g., analytics,
interactive selling, etc.) and/or the prospective customer's industry (e.g., life sciences, financial services, etc.).  These
companies include Amdocs Limited; CAS GmbH; Chordiant Software, Inc.; Dendrite International, Inc.; E.piphany, Inc.; FrontRange
Solutions, Inc.; Interact Commerce Corporation; JD Edwards & Company; Kana Software, Inc.; ONYX Software Corporation; Pivotal
Corporation; and Salesforce.com, Inc., among many others.  In addition, our competitors include several companies, such as Oracle
Corporation, PeopleSoft, Inc. and SAP AG, which compete in a majority of the Company's product lines.  Some of these competitors have
longer operating histories; significantly greater financial, technical, marketing and other resources; significantly greater name
recognition; and a larger installed base of customers than we do.  In addition, many competitors have well-established relationships
with our current and potential customers.  As a result, these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of their
products than we can.

There are many factors that may increase competition in the eBusiness systems market, including: (i) entry of new
competitors; (ii) alliances among existing competitors; (iii) alliances between our competitors and systems integrators; (iv)
consolidation in the software industry or among systems integrators; and (v) technological changes or changes in the use of the
Internet.  Increased competition may result in price reductions, reduced gross margins or loss of market share, any of which could
materially and adversely affect our business, operating results and financial condition.  We cannot assure you that we will be able
to compete successfully against current and future competitors or that competitive pressures faced by us will not materially and
adversely affect our business, financial condition or results of operations.

If we do not maintain our relationships with third-party vendors, interruptions in the supply of our products may
result.

We may not be able to replace the functionality provided by the third-party software currently offered
with our products if that software becomes obsolete or incompatible with future versions of our products or is not adequately
maintained or updated.  Portions of our products incorporate software that was developed and is maintained by third-party software
developers.  Although we believe there are other sources for these products, any significant interruption in the supply of these
products could adversely impact our sales unless and until we can secure another source.  We depend in part on these third parties'
abilities to enhance their current products, to develop new products on a timely and cost-effective basis and to respond to emerging
industry standards and other technological changes.  The absence of or any significant delay in the replacement of functionality
provided by third-party software in our products could materially and adversely affect our sales.

Software errors or defects in our products could reduce revenues.

Software products frequently contain errors or failures, especially when first introduced or when new
versions are released, and could be affected by viruses.  We have, in the past, been forced to delay the commercial release of
products until the correction of software problems.  We could lose revenues as a result of software viruses, errors or defects,
including defects in third-party products with which our products work.  Our products are intended for use in applications that may
be critical to a customer's business.  As a result, we expect that our customers and potential customers will have a greater
sensitivity to product defects than the market for software products generally.  Testing errors may also be found in new products or
releases after commencement of commercial shipments, resulting in loss of revenue or delay in market acceptance, damage to our
reputation, or increased service and warranty costs, any of which could have a material adverse effect upon our business, financial
condition or results of operations.

We need to successfully integrate acquisitions.

Our business strategy includes pursuing opportunities to grow our business, internally and through selective
acquisitions, investments, joint ventures and strategic alliances.  Our ability to implement this strategy depends, in part, on our
success in making such acquisitions, investments, joint ventures and strategic alliances on satisfactory terms and successfully
integrating them into our operations.  Implementation of this strategy may impose significant strains on our management, operating
systems and financial resources.  Failure to manage this growth, or unexpected difficulties encountered during expansion, could have
an adverse effect on our business, financial condition or results of operations.

Integration of personnel and operations relating to our previous or future acquisitions may disrupt our
business and management.

We acquired two companies during 2001, nQuire Software, Inc. and Sales.com, Inc., and may acquire
additional companies in the future.  We may not be able to successfully assimilate the additional personnel, operations, acquired
technology and products acquired from these companies into our business.  In particular, we will need to assimilate and retain key
professional services, sales, engineering and marketing personnel.  Key personnel from the acquired companies have in certain
instances decided, and they may in the future decide, to pursue other opportunities.  In addition, it may be necessary to integrate
products of these companies with our technology, and it is uncertain whether we may accomplish this easily or at all.  These
integration difficulties could disrupt our ongoing business, distract management and employees or increase expenses.  Acquisitions
are inherently risky, and we may also face unexpected costs, which may adversely affect operating results in any quarter.

If we acquire additional companies, products or technologies, we may face risks similar to those faced in
our other acquisitions.

We may continue to make other investments in complementary companies, products or technologies.  We may
not realize the anticipated benefits of any other acquisition or investment.  If we acquire another company, we will likely face the
same risks, uncertainties and disruptions as discussed above with respect to our other acquisitions.  In addition, our profitability
may suffer because of acquisition-related costs or amortization costs for acquired intangible assets.

The loss of key personnel could negatively affect our performance.

Our performance depends on the continued service of our key technical, sales and senior management
personnel, particularly Thomas M. Siebel, our Chairman and CEO.  Our key employees have not entered into employment agreements with
us.  The loss of one or more of our executive officers could have a material adverse effect on our business, operating results and
financial condition.  On September 9, 2002, we announced the appointment of Richard P. Chiarello as our Senior Vice President,
Worldwide Sales.  Effective October 1, 2002, Mr. Chiarello replaced Mark Hanson, who managed our worldwide sales activities in an
interim capacity and will remain with the Company in a senior executive role.  To integrate into our company, new senior personnel
must spend a significant amount of time learning our business model and management system, in addition to performing their regular
duties.  Accordingly, until new senior personnel become familiar with our business model and systems, their integration may result in
some disruption to our ongoing operations.

Leverage and debt service obligations may adversely affect our cash flow.

As of September 30, 2002, we have $300.0 million of convertible subordinated notes outstanding, bearing
interest at 5.50% and due September 15, 2006 (see Note 4 to the accompanying unaudited consolidated financial statements).  While our
current cash and short-term investments are sufficient to pay our current outstanding indebtedness, we cannot assure you that any
future financing arrangements will be available, or if available, on terms acceptable to us.  Our current or future leverage could
have negative consequences, including:

- Increasing our vulnerability to general adverse economic and industry conditions;
- Limiting our ability to obtain additional financing;
- Requiring the dedication of a substantial portion of our expected cash flow from operations to service our
indebtedness, thereby reducing the amount of our expected cash flow available for other purposes, including capital
expenditures;
- Limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we
compete; and
- Placing us at a competitive disadvantage compared to less leveraged competitors and competitors that have
better access to capital resources.

We may not be able to protect our proprietary information.

We rely primarily on a combination of patent, copyright, trade secret and trademark laws; confidentiality
procedures; and contractual provisions to protect our proprietary rights.  We also believe that the technological and creative skills
of our personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance are
essential to establishing and maintaining a technology leadership position.  We seek to protect our software, documentation and other
written materials under patent, trade secret and copyright laws, which afford only limited protection.  Any patents issued to us may
be invalidated, circumvented or challenged.  Any of our pending or future patent applications, whether or not being currently
challenged, may not be issued with the scope of the claims we seek, if at all.  Furthermore, others may develop technologies that are
similar or superior to our technology or design around our patents.

Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use information that we regard as proprietary.  Policing unauthorized use of our products is difficult.  In
addition, the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States.  Our
means of protecting our proprietary rights in the United States or abroad may not be adequate.  We have entered into agreements with
substantially all of our customers that require us to place Siebel eBusiness Applications source code into escrow.  Such
agreements generally provide that such parties will have a limited, non-exclusive right to use such code if: (i) there is a
bankruptcy proceeding by or against us; (ii) we cease to do business; or (iii) we fail to meet our support obligations.

Although we do not believe that we are infringing any proprietary rights of others, third parties may claim that
we have infringed their intellectual property rights.  Furthermore, former employers of our former, current or future employees may
assert claims that such employees have improperly disclosed to us the confidential or proprietary information of such former
employers.  Any such claims, with or without merit, could: (i) be time-consuming to defend; (ii) result in costly litigation; (iii)
divert management's attention and resources; (iv) cause product shipment delays; and (v) require us to pay monetary damages or enter
into royalty or licensing agreements.  A successful claim of product infringement against us and our failure or inability to license
or create a workaround for such infringed or similar technology may materially and adversely affect our business, financial condition
or results of operations.

We license certain software from third parties.  These third-party software licenses may not continue to be
available to us on acceptable terms.  The loss of, or inability to maintain, any of these software licenses could result in shipment
delays or reductions.  This could materially and adversely affect our business, financial condition or results of operations.

Our international operations involve unique risks.

Our revenues are primarily derived from large multinational companies.  To service the needs of these
companies, we must provide worldwide product support services.  We have expanded and in the future may expand our international
operations and enter additional international markets.  This will require significant management attention and financial resources
that could adversely affect our operating margins and earnings.  We may not be able to maintain or increase international market
demand for Siebel eBusiness Applications.  If we do not, our international sales will be limited and our business, financial
condition or results of operations could be materially and adversely affected.

Our international operations are subject to a variety of risks, including: (i) foreign currency fluctuations; (ii)
economic or political instability; (iii) shipping delays; and (iv) various trade restrictions.  Any of these risks could have a
significant impact on our ability to deliver products on a competitive and timely basis.  Significant increases in the level of
customs duties, export quotas or other trade restrictions could also have an adverse effect on our business, financial condition or
results of operations.  In situations where direct sales or purchases are denominated in foreign currency, any fluctuation in the
exchange rate may adversely affect our business, financial condition or results of operations.  We manage our foreign currency
exchange rate risk by entering into contracts to sell or purchase foreign currency at the time a foreign currency receivable or
payable is generated.  When the foreign currency asset or liability is extinguished, the contract is liquidated, and the resulting
gain or loss on the contract mitigates the exchange rate risk of the associated asset or liability.  In certain instances, we have
not hedged foreign currency receivables and payables when the forward contracts in the relevant currency were not readily available
or were not cost effective.

Some of our stockholders may be able to exercise control over matters requiring stockholder approval.

Our current officers, directors and entities affiliated with us together beneficially owned a significant
portion of the outstanding shares of common stock as of September 30, 2002.  While these stockholders do not hold a majority of our
outstanding common stock, they will be able to exercise significant influence over matters requiring stockholder approval, including
the election of directors and the approval of mergers, consolidations and sales of our assets.  This may prevent or discourage tender
offers for our common stock.

Our stock price may continue to be volatile.

Our stock price has fluctuated substantially since our initial public offering in June 1996.  The trading
price of our common stock is subject to significant fluctuations in response to variations in quarterly operating results; the gain
or loss of significant orders; changes in earning estimates by analysts; changes in our revenue and/or earnings expectations as
announced in our earnings call; announcements of technological innovations or new products by us or our competitors; changes in the
domestic and international economic, political and business conditions; general conditions in the software and computer industries;
the recent lack of confidence in corporate governance and accounting practices; and other events or factors.  In addition, the stock
market in general has experienced extreme price and volume fluctuations that have affected the market price for many companies in
industries similar or related to ours and that have been unrelated to the operating performance of these companies.  These market
fluctuations have adversely affected and may continue to adversely affect the market price of our common stock.

Provisions in our charter documents may prevent certain corporate actions.

Our Board of Directors is authorized to issue up to 2,000,000 shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further approval by
our stockholders.  One of these shares has been designated Series A1 Preferred Stock, which was issued in connection with the
acquisition of Janna Systems Inc.  Please see Note 6 to the accompanying unaudited consolidated financial statements for a more
detailed description of the Series A1 Preferred Stock.  Preferred stock could be issued with voting, liquidation, dividend and other
rights superior to those of the common stock.  The rights of the holders of common stock will be subject to and may be adversely
affected by the rights of the holders of any preferred stock that may be issued in the future.  The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more
difficult for a third party to acquire a majority of our outstanding voting stock.  We have a classified Board of Directors.  This
and certain other provisions of our certificate of incorporation and certain provisions of our bylaws and of Delaware law could delay
or make more difficult a merger, tender offer or proxy contest.

Due to these and other factors, we may not meet expectations of securities analysts or investors with respect
to our revenues or other operating results, which could adversely affect our stock price.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk.

The tables below provide information about our derivative financial instruments and financial instruments that are
subject to market risk.  The first table includes our foreign currency contracts used to minimize the impact of changes in currency
rates on existing foreign currency receivables, payables and intercompany balances, which are subject to exchange rate risk.  The
second table includes our available-for-sale short-term investments, which are subject to interest rate risk.

We manage our foreign currency exchange rate risk by entering into contracts to sell or buy foreign currency
at the time a foreign currency receivable or payable is generated.  When the foreign currency asset or liability is extinguished, the
contract is liquidated, and the resulting gain or loss on the contract mitigates the exchange rate risk of the associated asset or
liability.

The following summarizes as of September 30, 2002, our foreign currency forward contracts, by currency.  All
of our foreign currency forward contracts mature within a year.  Contract amounts are representative of the expected payments to be
made under these instruments (in thousands):

`Contract Amount  Contract        Fair
                                           (Local Currency)  Amount     Value (US$)
                                           ---------------  ---------   ------------
Australian dollars ("AUD") (contracts
  to pay AUD/receive US$).................    (AUD) 11,612   US$6,199  $       (113)

Brazilian real ("BRL") (contracts to
  pay BRL/receive US$)....................     (BRL) 6,434   US$2,164  $        461

British pounds ("GBP") (contracts to
  pay GBP/receive EUR)....................    (GBP) 17,405 EUR 24,473  $       (238)

Canadian dollars ("CAD") (contracts
  to pay CAD/receive US$).................    (CAD) 16,360  US$10,380  $         76

Japanese yen ("YEN") (contracts to
  pay Yen/receive US$).................... (YEN) 2,878,100  US$23,852  $        523

Mexican peso ("MXN") (contracts
  to pay MXN/receive US$).................    (MXN) 36,317   US$3,482  $        (40)

Singapore dollars ("SGD") (contracts
  to pay SGD/receive US$).................     (SGD) 3,652   US$2,090  $         39

Czech Republic koruna ("CZK") (contracts
  to receive CZK/pay EUR).................    (CZK) 64,176  EUR 2,133  $        (28)

Euro ("EUR") (contracts to receive
  EUR/pay US$)............................   (EUR) 164,345 US$158,266  $      2,563

Swedish krona ("SEK") (contracts to
  receive SEK/pay EUR)....................    (SEK) 17,417  EUR 1,903  $         15

Swiss franc ("CHF") (contracts to
  receive CHF/pay EUR)....................     (CHF) 4,542  EUR 3,141  $        (28)`

The following summarizes the Company's short-term investments and the weighted average yields, as of September
30, 2002 (in thousands):

`Expected Maturity Date
                         -------------------------------------------------------------------
                                                                           There-
                           2002      2003      2004      2005      2006    after     Total
                         --------- --------- --------- --------- -------- -------- ---------
US Treasury and Agency
  securities............  $53,045  $143,548  $125,609  $122,495  $44,680  $13,349  $502,726
Weighted average yield..     1.83%     1.81%     2.13%     2.22%    2.28%    2.42%

Corporate bonds.........  $92,453  $210,029  $121,262   $78,040  $30,480  $60,734  $592,998
Weighted average yield..     2.31%     2.14%     2.61%     2.97%    3.66%    3.69%

Asset-backed securities.   $1,716   $47,250   $71,851   $65,598   $9,313   $2,687  $198,415
Weighted average yield..     2.10%     2.45%     3.02%     3.16%    3.75%    4.44%`

As of September 30, 2002, we had an investment portfolio of fixed income securities, excluding those
classified as cash and cash equivalents, of $1,294.1 million.  These securities, like all fixed income instruments, are subject to
interest rate risk and will decline in value if market interest rates increase.  If market interest rates were to increase
immediately and uniformly by 100 basis points from levels as of September 30, 2002, the fair value of the portfolio would decline by
$19.2 million.

We manage our interest rate risk by maintaining an investment portfolio with debt instruments of high credit
quality and relatively short average maturities.  We also manage interest rate risk by maintaining sufficient cash and cash
equivalent balances such that we are typically able to hold our investments to maturity.

We are exposed to equity price risks on marketable equity securities.  These investments are in publicly
traded companies in the high technology industry sector.  We typically do not attempt to reduce or eliminate our market exposure on
these securities.  A 10% adverse change in the equity price would result in an approximate $0.4 million decrease in the fair value of
our marketable equity securities as of September 30, 2002.

The fair value of our convertible subordinated debenture fluctuates based upon changes in the price of our
common stock, changes in interest rates and changes in our credit-worthiness.  The fair market value of the convertible subordinated
debenture as of September 30, 2002, was $274.1 million.

Item 4.	Evaluation of Disclosure Controls and Procedures.

1. Evaluation of disclosure controls and procedures.  Our Chief Executive Officer and our Chief Financial
Officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date (the "Evaluation Date") within 90 days before the filing
date of this quarterly report, have concluded that, as of the Evaluation Date, our disclosure controls and procedures were adequate
and designed to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by
others within those entities.
2. Changes in internal controls.  There were no significant changes in our internal controls or, to our
knowledge, in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date.

---

Part II.	Other Information

Item 1.	Legal Proceedings.

We are subject to legal proceedings and claims, either asserted or unasserted, that arise in the ordinary
course of business.  While the outcome of these proceedings and claims cannot be predicted with certainty, management does not
believe that the outcome of any of these legal matters will have a material adverse effect on our consolidated financial position,
results of operations or cash flows.

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

(a) Exhibits.

|Exhibit | Description of Document                                                                                                                                         
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1     | Arrangement Agreement dated September 11, 2000, among the Registrant, certain indirectly
wholly owned subsidiaries of the Registrant, and Janna Systems Inc. (1)
|3.1     | Amended and Restated Certificate of Incorporation of the Registrant, as amended to date. (2)                                                                    
|3.2     | Bylaws of the Registrant. (3)                                                                                                                                   
|4.1     | Reference is made to Exhibit 3.1 and Exhibit 3.2.                                                                                                               
|4.2     | Specimen Stock Certificate. (3)                                                                                                                                 
|4.3     | Restated Investor Rights Agreement, dated December 1, 1995, between the Registrant and certain
investors, as amended April 30, 1996 and June 14, 1996. (3)      
|4.4     | Certificate of Designation of Series A1 Preferred Stock of the Registrant. (1)                                                                                  
|4.5     | Indenture between the Registrant, as Issuer, and Chase Manhattan Bank and Trust Company,
National Association, as Trustee, dated September 15, 1999. (4)        
|10.1    | Registrant's 1996 Equity Incentive Plan, as amended. (5)                                                                                                        
|10.2    | Registrant's Employee Stock Purchase Plan, as amended. (6)                                                                                                      
|10.3    | Form of Indemnity Agreement entered into between the Registrant and its officers and directors. (3)                                                             
|10.4    | Registrant's Deferred Compensation Plan, dated January 10, 1997. (7)                                                                                            
|10.5    | Lease Agreement, dated June 4, 1996, by and between the Registrant and Crossroad Associates
and Clocktower Associates, as amended. (3)                          
|10.5.1  | Amendments to Lease Agreement, by and between the Registrant and Crossroad Associates and
Clocktower Associates. (8)                                            
|10.6    | Lease Agreement, dated March 11, 1999, by and between the Registrant and Sobrato Interests III,
as amended. (9)                                                 
|10.6.1  | First Amendment to Lease,  dated June 11, 1999, and Second Amendment to Lease, dated
July 31, 1999. (10)                                                        
|10.7    | Lease Agreement, dated March 11, 1999, by and between the Registrant and Sobrato Interests III,
as amended. (9)                                                 
|10.7.1  | First Amendment to Lease, dated June 11, 1999, and Second Amendment to Lease, dated
July 31, 1999. (10)                                                         
|10.8    | Lease Agreement, dated June 11, 1999, by and between the Registrant and Sobrato Interests III,
as amended. (9)                                                  
|10.8.1  | First Amendment to Lease, dated September 23, 2000. (10)                                                                                                        
|10.9    | Lease Agreement, dated August 16, 1999, by and between the Registrant and Spieker
Properties, L.P., as amended. (9)                                             
|10.9.1  | Amendment Number One to Lease, dated October 26, 2000, and Amendment Number Two to Lease,
dated June 29, 2001. (8)                                              
|10.10   | Office Lease Agreement, dated September 14, 2000, by and between the Registrant and Wilson Equity
Office, LLC.  (12)                                            
|10.10.1 | First Amendment to Office Lease Agreement, dated December 21, 2001, and Second Amendment to
Office Lease Agreement, dated September 25, 2002. (12)              
|10.11   | Registrant's 1998 Equity Incentive Plan, as amended. (11)                                                                                                       
|99.1    | Certification pursuant Section 906 of the Sarbanes-Oxley Act of 2002. (12)                                                                                      

__________________

(1)	Incorporated by reference to the Registrant's Current Report on Form 8-K filed on November 27,
2000.
(2)	Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
2001.
(3)	Incorporated by reference to the Registrant's Registration Statement on Form S-1 (No. 333-03751), as
amended.
(4)	Incorporated by reference to the Registrant's Registration Statement on Form S-3 (No. 333-91777) filed on
November 30, 1999.
(5)	Incorporated by reference to the Registrant's Definitive Proxy Statement on Schedule 14A filed on September
17, 1999.
(6)	Incorporated by reference to the Registrant's Registration Statement on Form S-8 (No. 333-07983), as
amended.
(7)	Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
(8)	Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
2002. 
(9)	Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1999.
(10)	Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000.
(11)	Incorporated by reference to the Registrant's Registration Statement on Form S-8 (No. 333-72218), as
amended.
(12) Filed herewith.

(b)	Reports on Form 8-K.

On August 5, 2002, the Registrant filed a current report on Form 8-K reporting under Item 5 that on August 5,
2002, the Registrant filed with the Securities and Exchange Commission (the "SEC") the Statements under Oath of Principle
Executive Officer and Principal Financial Officer in accordance with the SEC's June 27, 2002 order requiring the filing of sworn
statements pursuant to Section 21 (a)(1) of the Securities and Exchange Act of 1934.

On August 29, 2002, the Registrant filed a current report on Form 8-K reporting under Item 5 that on August
29, 2002, the Registrant commenced a tender offer to its employees to exchange outstanding stock options with exercise prices equal
to or greater than $40.00 per share for shares of its common stock, or in some cases, cash (referred to herein as the Option
Settlement).

Availability of this Report

The Company intends to make this Form 10-Q publicly available on its Web site (www.siebel.com) shortly after
filing with the Securities and Exchange Commission.  The Company assumes no obligation to update or revise any forward-looking
statements in this Form 10-Q, whether as a result of new information, future events or otherwise, unless it is required to do so by
law.

---

**SIGNATURES**

Pursuant to the requirement of the Security Exchange Act
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

SIEBEL SYSTEMS, INC.(Registrant)Dated: November 11, 2002By:
    /s/ Kenneth A. GoldmanKenneth A. GoldmanSenior Vice President, Finance and
                                    Administration and
                                    Chief Financial Officer(Principal Financial Officer)

---



CERTIFICATIONS



I, Thomas M. Siebel, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Siebel Systems, Inc.;

2. 	Based on my knowledge, this quarterly 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 quarterly report;

3. 	Based on my knowledge, the financial statements, and other financial information included in this quarterly
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 quarterly 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 we 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 quarterly 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 quarterly report (the "Evaluation Date"); and

c) 	presented in this quarterly 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
function):

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 quarterly report whether or not
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.

Dated: November 11, 2002By:
    /s/ Thomas M. SiebelThomas M. SiebelChairman and CEO

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I, Kenneth A. Goldman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Siebel Systems, Inc.;

2. 	Based on my knowledge, this quarterly 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 quarterly report;

3. 	Based on my knowledge, the financial statements, and other financial information included in this quarterly
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 quarterly 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 we 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 quarterly 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 quarterly report (the "Evaluation Date"); and

c) 	presented in this quarterly 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
function):

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 quarterly report whether or not
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.

Dated: November 11, 2002By:
    /s/ Kenneth A. GoldmanKenneth A. GoldmanSenior Vice President, Finance and
                                    Administration and
                                    Chief Financial Officer

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