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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2003



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission File Number 0-24720



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Business Objects S.A.

(Exact name of registrant as specified in its charter)



|Republic of France                                             |  | 98-0355777                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



157-159 Rue Anatole
France, 92300 Levallois-Perret, France

(Address of principal executive offices)



(408) 953-6000

(Registrants telephone number, including area code)



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



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



As of October 31, 2003, the
number of outstanding shares of our common stock was 64,867,513 Ordinary Shares of euro 0.10 nominal value (including 13,844,764 American depositary shares each corresponding to one Ordinary Share and 1,067,675 treasury shares).



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Business Objects S.A.

Index



|                              |  |                                                                                                                 |  | Page
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|                              | 
|PART I. FINANCIAL INFORMATION |  |                                                                                                                
|                              |  |                                                                                                                
|Item 1.                       |  | Unaudited Condensed Consolidated Financial Statements:                                                          |  |     
|                              |  |                                                                                                                
|                              |  | Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002                            |  | 3   
|                              |  |                                                                                                                
|                              |  | Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2003 and 2002     |  | 4   
|                              |  |                                                                                                                
|                              |  | Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2003 and 2002 |  | 5   
|                              |  |                                                                                                                
|                              |  | Notes to Condensed Consolidated Financial Statements                                                            |  | 6   
|                              |  |                                                                                                                
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 22  
|                              |  |                                                                                                                
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                                      |  | 47  
|                              |  |                                                                                                                
|Item 4.                       |  | Controls and Procedures                                                                                         |  | 48  
|                              | 
|PART II. OTHER INFORMATION    |  | 49                                                                                                             
|                              |  |                                                                                                                
|Item 1.                       |  | Legal Proceedings                                                                                               |  | 49  
|                              |  |                                                                                                                
|Item 4.                       |  | Submissions of Matters                                                                                          |  | 49  
|                              |  |                                                                                                                
|Item 6.                       |  | Exhibits and Current Reports on Form 8-K                                                                        |  | 49  
|                              | 
|SIGNATURES                    |  | 52                                                                                                             







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BUSINESS OBJECTS S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of US dollars)

|                                                                                                                  |  | September 30,2003 |         |   | December 31,2002 |  
|----------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | -
|                                                                                                                  |  | (unaudited)       |         |   |                  |  
|ASSETS                                                                                                            |  |                   |         |   |                  |  
|Current assets:                                                                                                   |  |                   |         |   |                  |  
|Cash and cash equivalents                                                                                         |  | $                 | 297,967 |   |                  | $
|Short-term investments                                                                                            |  |                   | 81,979  |   |                  |  
|Restricted cash                                                                                                   |  |                   | 18,073  |   |                  |  
|Accounts receivable, net                                                                                          |  |                   | 88,778  |   |                  |  
|Deferred taxes, net                                                                                               |  |                   | 11,104  |   |                  |  
|Other current assets                                                                                              |  |                   | 24,653  |   |                  |  
|                                                                                                                  |  |                   |         |   |                  |  
|Total current assets                                                                                              |  |                   | 522,554 |   |                  |  
|Goodwill                                                                                                          |  |                   | 72,964  |   |                  |  
|Other intangible assets, net                                                                                      |  |                   | 8,738   |   |                  |  
|Property and equipment, net                                                                                       |  |                   | 34,447  |   |                  |  
|Restricted cashlong term                                                                                         |  |                   |        |   |                  |  
|Deposits and other assets                                                                                         |  |                   | 3,346   |   |                  |  
|                                                                                                                  |  |                   |         |   |                  |  
|Total assets                                                                                                      |  | $                 | 642,049 |   |                  | $
|                                                                                                                  |  |                   |         |   |                  |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                              |  |                   |         |   |                  |  
|Current liabilities:                                                                                              |  |                   |         |   |                  |  
|Accounts payable                                                                                                  |  | $                 | 29,341  |   |                  | $
|Accrued payroll and related expenses                                                                              |  |                   | 50,758  |   |                  |  
|Deferred revenue                                                                                                  |  |                   | 96,800  |   |                  |  
|Income taxes payable                                                                                              |  |                   | 2,159   |   |                  |  
|Other current liabilities                                                                                         |  |                   | 36,885  |   |                  |  
|Notes payablecurrent portion                                                                                     |  |                   | 10,612  |   |                  |  
|                                                                                                                  |  |                   |         |   |                  |  
|Total current liabilities                                                                                         |  |                   | 226,555 |   |                  |  
|Notes and escrow payable                                                                                          |  |                   |        |   |                  |  
|Long-term accrued rent                                                                                            |  |                   | 3,625   |   |                  |  
|Commitments and contingencies                                                                                     |  |                   |         |   |                  |  
|Shareholders equity                                                                                              |  |                   |         |   |                  |  
|Ordinary shares, Euro 0.10 nominal value ($0.11 as of September 30, 2003 and $0.11 U.S. as of December 31,
2002): |  |                   |         |   |                  |  
|Authorized 85,003 at September 30, 2003 and 81,378 at December 31, 2002;                                          |  |                   |         |   |                  |  
|Issued and outstanding-64,754 at September 30, 2003 and 63,463 at December 31, 2002                               |  |                   | 6,876   |   |                  |  
|Additional paid-in capital                                                                                        |  |                   | 183,471 |   |                  |  
|Treasury stock, 1,068 shares at September 30, 2003 and December 31, 2002                                          |  |                   | (13,104 | ) |                  |  
|Retained earnings                                                                                                 |  |                   | 211,202 |   |                  |  
|Accumulated other comprehensive income                                                                            |  |                   | 23,424  |   |                  |  
|                                                                                                                  |  |                   |         |   |                  |  
|Total shareholders equity                                                                                        |  |                   | 411,869 |   |                  |  
|                                                                                                                  |  |                   |         |   |                  |  
|Total liabilities and shareholders equity                                                                        |  | $                 | 642,049 |   |                  | $
|                                                                                                                  |  |                   |         |   |                  |  



Note:
The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date.



See the accompanying notes to the Condensed Consolidated Financial Statements.



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BUSINESS OBJECTS S.A.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands of US dollars, except per share and ADS data)



|                                                                                                     |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|---------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | -
|                                                                                                     |  | 2003                            |         |   | 2002                           |  
|                                                                                                     |  | (unaudited)                     |        
|Revenues:                                                                                            |  |                                 |         |   |                                |  
|Net license fees                                                                                     |  | $                               | 58,044  |   |                                | $
|Services                                                                                             |  |                                 | 71,068  |   |                                |  
|                                                                                                     |  |                                 |         |   |                                |  
|Total revenues                                                                                       |  |                                 | 129,112 |   |                                |  
|Cost of revenues:                                                                                    |  |                                 |         |   |                                |  
|Net license fees                                                                                     |  |                                 | 1,088   |   |                                |  
|Services                                                                                             |  |                                 | 21,602  |   |                                |  
|                                                                                                     |  |                                 |         |   |                                |  
|Total cost of revenues                                                                               |  |                                 | 22,690  |   |                                |  
|                                                                                                     |  |                                 |         |   |                                |  
|Gross margin                                                                                         |  |                                 | 106,422 |   |                                |  
|Operating expenses:                                                                                  |  |                                 |         |   |                                |  
|Sales and marketing                                                                                  |  |                                 | 59,954  |   |                                |  
|Research and development                                                                             |  |                                 | 22,852  |   |                                |  
|General and administrative                                                                           |  |                                 | 10,198  |   |                                |  
|Acquired in-process technology                                                                       |  |                                 |        |   |                                |  
|Restructuring                                                                                        |  |                                 |        |   |                                |  
|                                                                                                     |  |                                 |         |   |                                |  
|Total operating expenses                                                                             |  |                                 | 93,004  |   |                                |  
|                                                                                                     |  |                                 |         |   |                                |  
|Income from operations                                                                               |  |                                 | 13,418  |   |                                |  
|Interest and other income, net                                                                       |  |                                 | 4,058   |   |                                |  
|                                                                                                     |  |                                 |         |   |                                |  
|Income before provision for income taxes                                                             |  |                                 | 17,476  |   |                                |  
|Provision for income taxes                                                                           |  |                                 | (6,649  | ) |                                |  
|                                                                                                     |  |                                 |         |   |                                |  
|Net income                                                                                           |  | $                               | 10,827  |   |                                | $
|                                                                                                     |  |                                 |         |   |                                |  
|Net income per ADS and sharebasic                                                                   |  | $                               | 0.17    |   |                                | $
|                                                                                                     |  |                                 |         |   |                                |  
|Net income per ADS and sharediluted                                                                 |  | $                               | 0.17    |   |                                | $
|                                                                                                     |  |                                 |         |   |                                |  
|ADS and shares used in computing net income per ADS & per share-basic                                |  |                                 | 63,370  |   |                                |  
|ADS and shares and common share equivalents used in computing net income per ADS & per share-diluted |  |                                 | 65,073  |   |                                |  



See the accompanying
notes to the Condensed Consolidated Financial Statements.



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BUSINESS OBJECTS S.A.

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

(In thousands of US dollars)



|                                                                     |  | Nine Months Ended September 30, |        
|-------------------------------------------------------------------- |  | ------------------------------- | -------
|                                                                     |  | 2003                            |        
|                                                                     |  | (unaudited)                     |        
|Net cash provided (used in) operating activities:                    |  |                                 |        
|Net income                                                           |  | $                               | 31,167 
|Depreciation and amortization                                        |  |                                 | 14,160 
|Write-off of acquired in-process research & development              |  |                                 |       
|Deferred income taxes                                                |  |                                 | 1,857  
|Changes in operating assets and liabilities:                         |  |                                 |        
|Decrease in accounts receivable                                      |  |                                 | 14,405 
|(Increase) decrease in current and other assets                      |  |                                 | (9,425 
|Decrease in accrued other severance and restructuring                |  |                                 | (335   
|Increase (decrease) in accounts payable                              |  |                                 | 8,065  
|Decrease in accrued payroll and related expenses                     |  |                                 | (455   
|Decrease in income taxes payable                                     |  |                                 | (4,709 
|Increase in deferred revenue                                         |  |                                 | 17,364 
|(Decrease) increase in other current liabilities                     |  |                                 | (4,713 
|                                                                     |  |                                 |        
|Net cash provided by operating activities                            |  |                                 | 67,381 
|                                                                     |  |                                 |        
|Cash flows from investing activities:                                |  |                                 |        
|Purchase of property and equipment                                   |  |                                 | (7,564 
|Change in estimate in restructuring accrual for Acta acquisition     |  |                                 | 2,741  
|Business acquisitions                                                |  |                                 |       
|Purchase of short-term investments                                   |  |                                 | (31,851
|                                                                     |  |                                 |        
|Net cash used for investing activities                               |  |                                 | (36,674
|                                                                     |  |                                 |        
|Cash flows from financing activities:                                |  |                                 |        
|Issuance of shares                                                   |  |                                 | 14,675 
|Changes in restricted cash                                           |  |                                 | 793    
|Notes payable reductions                                             |  |                                 | (793   
|Increase in escrow payable                                           |  |                                 |       
|                                                                     |  |                                 |        
|Net cash provided by financing activities                            |  |                                 | 14,675 
|                                                                     |  |                                 |        
|Effect of foreign exchange rate changes on cash and cash equivalents |  |                                 | 18,644 
|                                                                     |  |                                 |        
|Net increase in cash and cash equivalents                            |  |                                 | 64,026 
|Cash and cash equivalents, beginning of the period                   |  |                                 | 233,941
|                                                                     |  |                                 |        
|Cash and cash equivalents, end of the period                         |  | $                               | 297,967
|                                                                     |  |                                 |        



See the accompanying
notes to the Condensed Consolidated Financial Statements.



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Business Objects S.A.

Notes to Condensed Consolidated Financial Statements

September 30, 2003



1. Basis of Presentation



The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States, applied on a consistent basis. As permitted by Form 10-Q, certain information and note disclosures normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the Companys financial position,
results of operations, and cash flows for the interim periods presented have been made. Operating results for the three and nine month periods ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year
ending December 31, 2003. These financial statements should be read in conjunction with the Companys audited consolidated financial statements and notes as included in its Annual Report on Form 10-K for the year ended December 31, 2002.



2. Use of Estimates



The preparation of the consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Estimates are used for, but not limited to allowances for uncollectible accounts receivable, useful lives for property and equipment and intangibles, employee benefits, taxes, expense accruals, accrued restructuring charges,
contingent liabilities, purchase price allocation for business combinations, impairment of long lived assets, including intangible assets and goodwill, and the deferred tax valuation allowance. Actual results could differ from those estimates.



3. Accounts Receivable



Accounts receivable are stated net of allowances for doubtful accounts of $2,527,000 at
September 30, 2003 and $2,891,000 at December 31, 2002.



4. Revenue
Recognition



The Company enters into arrangements for the sale of 1)
licenses of software products and related maintenance contracts; 2) bundled license, maintenance and services and 3) services on a time and material basis. In instances where maintenance is bundled with a license of software products, such
maintenance terms are typically one year.



For each arrangement, the Company
determines whether evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection is probable. If any of these criteria are not met, revenue recognition is deferred until such time as all of the criteria
are met. In software arrangements that include rights to multiple software



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products, and/or services, the Company uses the residual method, under which revenue is allocated to the undelivered
elements based on vendor specific objective evidence of fair value of such undelivered elements and the residual amount of revenue is allocated to the delivered elements.



For those contracts that consist solely of license and maintenance the Company recognizes net license revenues based upon the residual
method after all licensed software products have been delivered as prescribed by the Statement of Position 98-9 Modification of SOP No. 97-2 with Respect to Certain Transactions. The Company recognizes maintenance revenues over the term
of the maintenance contract. The maintenance rates for both license agreements with and without stated renewal rates are based upon the Companys price list. Vendor specific objective evidence of the fair value of maintenance for license
agreements that do not include stated renewal rates is determined by reference to the price paid by the Companys customers when maintenance is sold separately (that is, the renewal rate). Past history has shown that the rate the Company
charges for maintenance on license agreements with a stated renewal rate is similar to the rate the Company charges for maintenance on license agreements without a stated renewal rate.



Services can consist of maintenance, training and/or consulting services. The Company assesses whether the service element of the
arrangement is essential to the functionality of the other elements of the arrangement. When software services are considered essential or the arrangement involves customization or modification of the software, both the net license and service
revenues under the arrangement are recognized under the percentage of completion method of contract accounting, based on input measures of hours. For those arrangements for which the Company has concluded that the service element is not essential to
the other elements of the arrangement the Company determines whether the services are available from other vendors, do not involve a significant degree of risk or unique acceptance criteria and whether the Company has sufficient experience in
providing the service to be able to separately account for the service. When the service qualifies for separate accounting, the Company uses vendor specific objective evidence of fair value for the services and the maintenance to account for the
arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Revenue allocable to services is recognized as the services are performed. Vendor-specific objective evidence of fair value of
consulting services is based upon average daily rates. As previously noted, the Company enters into contracts for services alone and such contracts are based upon time and material basis.



There is no right of return or price protection for sales to domestic and international distributors or value-added resellers (collectively,
resellers). The Company does not accept orders from resellers when the Company is aware that a reseller does not have a purchase order from an end-user.



5. Other Current Liabilities



Other current liabilities include accruals for sales, use and value added taxes, accrued rent, audit, tax and legal fees, deferred compensation under the Companys
United States deferred compensation plan, withholding in connection with the employee stock purchase plan, and other accruals, none of which individually account for more than five percent of total current liabilities.



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6. Comprehensive Income



Comprehensive income includes net income and foreign currency translation gains and losses that have been excluded from net income and reflected instead in
shareholders equity. The following table sets forth the calculation of comprehensive income (in thousands):



|                                            |  | Three Months Ended September 30, |        |   | Nine Months Ended September 30,
|------------------------------------------- |  | -------------------------------- | ------ | - | -------------------------------
|                                            |  | 2003                             |        |   | 2002                           
|Net income                                  |  | $                                | 10,827 |   |                                
|Change in cumulative translation adjustment |  |                                  | (1,945 | ) |                                
|                                            |  |                                  |        |   |                                
|Total comprehensive income                  |  | $                                | 8,882  |   |                                
|                                            |  |                                  |        |   |                                



7. Net Income per Share and ADS



The components of basic and diluted earnings per share and American
Depositary Share (ADS) were as follows (in thousands, except per share and ADS):



|                                                                                                    |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|--------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------
|                                                                                                    |  | 2003                            |        | 2002                          
|Numerator:                                                                                          |  |                                 |        |                               
|Net income                                                                                          |  | $                               | 10,827 |                               
|                                                                                                    |  |                                 |        |                               
|Denominator:                                                                                        |  |                                 |        |                               
|Basic weighted average ADSs and shares outstanding                                                  |  |                                 | 63,370 |                               
|Incremental ordinary shares attributable to shares issuable under employee stock plans and warrants |  |                                 | 1,703  |                               
|                                                                                                    |  |                                 |        |                               
|Diluted weighted average ADS and shares outstanding                                                 |  |                                 | 65,073 |                               
|                                                                                                    |  |                                 |        |                               
|Net income per ADS and per sharebasic                                                              |  | $                               | 0.17   |                               
|                                                                                                    |  |                                 |        |                               
|Net income per ADS and per sharediluted                                                            |  | $                               | 0.17   |                               
|                                                                                                    |  |                                 |        |                               



For the three months ended September
30, 2003 and 2002, stock option rights totaling 4,374,139 shares and 8,524,737 shares, respectively, have been excluded from the diluted EPS calculation because the options exercise price was greater than the average market price of common
shares and their effect would have been antidilutive. For the nine months ended September 30, 2003 and 2002, stock option rights totaling 4,417,765 shares and 7,577,756 shares, respectively, have been excluded from the diluted EPS calculation
because the options exercise price was greater than the average market price of common shares and their effect would have been antidilutive.



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8. Segment and Geographic Information



The Company has one reportable segment: business intelligence software products. The Company recognizes its net software license revenue
from three product families: business intelligence platform, enterprise analytic applications and data integration. The following summarizes net license revenue recognized from each product family (in thousands):



|                                 |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|-------------------------------- |  | ------------------------------- | ------ | ------------------------------
|                                 |  | 2003                            |        | 2002                          
|Business intelligence platform   |  | $                               | 48,510 |                               
|Enterprise analytic applications |  |                                 | 5,670  |                               
|Data integration                 |  |                                 | 3,864  |                               
|                                 |  |                                 |        |                               
|Total net license revenue        |  | $                               | 58,044 |                               
|                                 |  |                                 |        |                               



|The | following summarizes total revenue by geographic region (in thousands):
|--- | -----------------------------------------------------------------------



|                       |  | Three Months EndedSeptember 30, |         | Nine Months EndedSeptember 30,
|---------------------- |  | ------------------------------- | ------- | ------------------------------
|                       |  | 2003                            |         | 2002                          
|Europe                 |  | $                               | 63,265  |                               
|Americas               |  |                                 | 55,306  |                               
|Asia Pacific and Japan |  |                                 | 10,541  |                               
|                       |  |                                 |         |                               
|Total revenue          |  | $                               | 129,112 |                               
|                       |  |                                 |         |                               



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9. Legal Proceedings



On July 15, 2002, Informatica Corporation (Informatica) filed an action for alleged patent infringement in the United States District Court for the Northern
District of California against Acta Technology, Inc. (Acta Technology or Acta). The Company became a party to this action when the Company acquired Acta Technology in August 2002. The complaint alleges that Acta Technology
software products infringe Informaticas United States Patent No. 6,014,670 and 6,339,775 both entitled Apparatus and Method for Performing Data Transformations in Data Warehousing and United States Patent No. 6,208,990 entitled
Method and Architecture for Automated Optimization of ETL throughput in Data Warehousing Applications. On July 17, 2002, Informatica filed an amended complaint alleging that the Acta Technology software products also infringe United
States Patent No. 6,044,374 entitled Method and Apparatus for Sharing Metadata Between Multiple Data Marts Through Object References. The complaint seeks relief in the form of an injunction, unspecified damages and an award of treble
damages. The Company believes that it has meritorious defenses to the claims against it and intends to defend itself vigorously. The potential costs associated with an adverse outcome of this matter cannot be reasonably estimated at this time. This
case is set to proceed to trial on August 16, 2004.



On October 17, 2001, the
Company filed a lawsuit in the United States District Court for the Northern District of California against MicroStrategy Incorporated (MicroStrategy) for alleged patent infringement. The lawsuit alleges that MicroStrategy infringes on
the Companys United States Patent No. 5,555,403 by making, using, offering to sell and selling its product currently known as MicroStrategy Version 7.0. The Companys complaint requests that the defendant be enjoined from further
infringing the patent and seeks an as-yet undetermined amount of damages. On June 27, 2003, MicroStrategy filed a motion for summary judgment that its products do not infringe the Companys patent. On July 23, 2003 the Company filed its
opposition to MicroStrategys motion. On August 29, 2003, the Court ruled that the Companys patent is not infringed and dismissed the case. On September 12, 2003, the Company filed its motion to vacate the Courts judgment. On
October 7, 2003, the Court denied the motion to vacate. The Company has appealed the Courts judgment to the Federal Circuit.



On October 30, 2001, an action for alleged patent infringement was filed in the United States District Court for the Eastern District of Virginia against the Company and
its subsidiary, Business Objects Americas, by MicroStrategy. The complaint initially alleged that the Companys software products, BusinessObjects Broadcast Agent, BusinessObjects Infoview and BusinessObjects Broadcast Agent Publisher, infringe
MicroStrategys United States Patent No. 6,279,033 entitled System and Method for Asynchronous Control of Report Generation Using a Network Interface and United States Patent No. 6,260,050 entitled System and Method of
Adapting Automatic Output of Service Related OLAP Reports to Disparate Output Devices. In January 2002, the Company filed petitions for Reexamination of the patents by the United States Patent and Trademark Office (USPTO). The
petitions as to both patents were granted in April 2002. Based on the USPTO action, the District Court stayed proceedings on the patent claims pending the completion of the reexaminations. On July 3, 2003, the USPTO issued a Notice of Intent to
Issue a Reexamination Certificate in connection with the reexamination of patent No. 6,260,050, indicating the claims of this patent are patentable



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as originally issued. The Court has lifted the stay and the patent claim is to be tried on April 12, 2004. MicroStrategy
has indicated it will abandon its claim against the Company under MicroStrategys patent No. 6,279,033. It is the Companys current assessment that its products do not infringe Microstrategys patents and the Company believes that the
likelihood that this claim will be material is remote.



In April 2002,
MicroStrategy obtained leave to amend its patent claims against the Company to include claims for misappropriation of trade secrets, violation of the Computer Fraud and Abuse Act, tortuous interference with contractual relations and conspiracy in
violation of the Virginia Code seeking injunctive relief and damages. On December 30, 2002, the District Judge granted the Companys motion for summary judgment and rejected MicroStrategys claims for damages as to the causes of action for
misappropriation of trade secrets, Computer Fraud and Abuse Act and conspiracy in violation of the Virginia Code. Trial of the trade secret claim for injunctive relief and damages claim for tortious interference with contractual relations started on
October 20, 2003. On October 28, 2003, the Court granted judgment as a matter of law in favor of the Company and dismissed the jury trial on MicroStrategys allegations that the Company tortiously interfered with certain employment agreements
between MicroStrategy and its ex-employees. The Court has yet to decide MicroStrategys remaining claim for injunctive relief that the Company misappropriated its trade secrets. The Court has previously ruled that MicroStrategy is not entitled
to monetary damages on its misappropriation of trade secrets claim.



The
Company is also involved in various other legal proceedings in the ordinary course of business and none are believed to be material to its financial condition and results of operations.



10. Business Restructuring Charge



During the quarter ended June 30, 2002, the Company implemented a restructuring plan to eliminate 50 positions in the Companys European field operations in order to
better align its revenue and cost structure in Europe in response to the regions overall weak IT spending environment. In addition, the Company eliminated excess office space in France, Italy, Spain and Switzerland. Implementation of the plan
resulted in restructuring charges to earnings totaling $3,756,000 for severance and other employee termination benefits and costs associated with exiting facilities, representing the excess of lease costs over anticipated sublease income.



During the quarter ended December 31, 2002 the Company adopted an additional
restructuring plan to eliminate an additional 4 positions as part of its ongoing measures to better align operating expenses with revenues. Implementation of this plan resulted in restructuring charges to earnings totaling $725,000 for severance and
other employee termination benefits.



The Company had completed the
implementation of both restructuring plans as of September 30, 2003. The remaining $513,000 restructuring accrual relates to estimated remaining payments to terminated employees who have initiated legal action against the Company. The Company does
not expect a resolution in these lawsuits until at least the fourth quarter of 2004.





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##### Table of Contents

The following table summarizes the Companys accrued restructuring costs at September 30, 2003 (in thousands):



|                                                                    |  | Severanceand OtherEmployeeTerminationBenefits |       |   | EstimatedCost ofExcessOfficeSpace |   |     | Total | 
|------------------------------------------------------------------- |  | --------------------------------------------- | ----- | - | --------------------------------- | - | --- | ----- | 
|Balance at December 31, 2002                                        |  | $                                             | 1,220 |   |                                   | $ | 153 |       | 
|Adjustments to the original plan                                    |  |                                               | (26   | ) |                                   |   |    |       | 
|Cash payments during the first quarter of 2003                      |  |                                               | (756  | ) |                                   |   | (74 | )     | 
|Impact of foreign currency exchange rates on translation of accrual |  |                                               | 145   |   |                                   |   | 6   |       | 
|                                                                    |  |                                               |       |   |                                   |   |     |       | 
|Balance at March 31, 2003                                           |  |                                               | 583   |   |                                   |   | 85  |       | 
|                                                                    |  |                                               |       |   |                                   |   |     |       | 
|Adjustments to the original plan                                    |  |                                               | (37   | ) |                                   |   |    |       | 
|Cash payments during the second quarter of 2003                     |  |                                               | (59   | ) |                                   |   | (93 | )     | 
|Impact of foreign currency exchange rates on translation of accrual |  |                                               | 30    |   |                                   |   | 8   |       | 
|                                                                    |  |                                               |       |   |                                   |   |     |       | 
|Balance at June 30, 2003                                            |  |                                               | 517   |   |                                   |   |    |       | 
|                                                                    |  |                                               |       |   |                                   |   |     |       | 
|Impact of foreign currency exchange rates on translation of accrual |  |                                               | (4    | ) |                                   |   |    |       | 
|                                                                    |  |                                               |       |   |                                   |   |     |       | 
|Balance at September 30, 2003                                       |  | $                                             | 513   |   |                                   | $ |    |       | 
|                                                                    |  |                                               |       |   |                                   |   |     |       | 



Immediately prior to the
Companys acquisition of Acta Technology, Inc (Acta), Actas management initiated and approved plans to restructure Actas operations. The restructuring plan reduced Actas cost structure and better aligned product
and operating expenses with existing general economic conditions. Acta recorded approximately $13,527,000 of restructuring costs in connection with restructuring the pre-acquisition Acta organization. Costs to restructure Acta prior to the
acquisition were accounted for under EITF Issue No. 95-3, Recognition of Liabilities in Connection with Purchase Business Combinations. These costs were recorded as liabilities assumed as part of the purchase price allocation.





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##### Table of Contents

The restructuring liability consisted primarily of severance, other employee benefits and costs of vacating duplicate
facilities. The severance and other employee benefits related to the planned termination of approximately 50 employees worldwide. Other related restructuring charges consisted primarily of the cost of vacating duplicate facilities and the write-down
of excess equipment. The charge for the write-down of excess equipment was $1,220,000. The charge for lease abandonment was $7,926,000, representing total future minimum lease payments due through 2007, net of projected sublease income of $4,188,000
for Actas Mountain View, California headquarters and other smaller European offices.



The balance of the accrued restructuring charges was capitalized as a cost of acquisition and at September 30, 2003 was as follows (in thousands):



|                                                                              |  | EmployeeSeveranceand OtherRelatedBenefits |   | LeaseholdAbandonmentand Write-offof Propertyand Equipment |   |        | Total | 
|----------------------------------------------------------------------------- |  | ----------------------------------------- | - | --------------------------------------------------------- | - | ------ | ----- | 
|Balance at December 31, 2002                                                  |  | $                                         |  |                                                           | $ | 6,818  |       | 
|                                                                              |  |                                           |   |                                                           |   |        |       | 
|Cash payments during the first quarter of 2003                                |  |                                           |  |                                                           |   | (603   | )     | 
|                                                                              |  |                                           |   |                                                           |   |        |       | 
|Balance at March 31, 2003                                                     |  |                                           |  |                                                           |   | 6,215  |       | 
|                                                                              |  |                                           |   |                                                           |   |        |       | 
|Cash payments during the second quarter of 2003                               |  |                                           |  |                                                           |   | (754   | )     | 
|                                                                              |  |                                           |   |                                                           |   |        |       | 
|Balance at June 30, 2003                                                      |  |                                           |  |                                                           |   | 5,461  |       | 
|                                                                              |  |                                           |   |                                                           |   |        |       | 
|Net cash payments during the third quarter of 2003                            |  |                                           |  |                                                           |   | (2,022 | )     | 
|Reversal of excess U.S. facilities shutdown accrual adjusted through goodwill |  |                                           |  |                                                           |   | (2,741 | )     | 
|                                                                              |  |                                           |   |                                                           |   |        |       | 
|Balance at September 30, 2003                                                 |  | $                                         |  |                                                           | $ | 698    |       | 
|                                                                              |  |                                           |   |                                                           |   |        |       | 



During the third quarter of 2003 the
restructuring accrual was reduced by cash payments of $2,022,000, including a $1,671,000 payment to terminate the lease for Actas Mountain View, California facility through an action by the Santa Clara Valley Transportation Authority (VTA) to
take the property by eminent domain, and $351,000 in regular lease payments in the U.S. and the United Kingdom (U.K.), net of returned



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##### Table of Contents

deposits. Upon termination of the lease, the remaining $2,741,000 accrual related to the Mountain View facility, was
reversed as an adjustment to goodwill.



The remaining accrual of $698,000 at
Septermber 30, 2003 is for estimated future minimum lease payments for Actas U.K. facility which includes payments until 2005.



11. Classification of Notes and Escrows Payable and Restricted Cash



During the nine months ended September 30, 2003, $9,728,000 in notes payable were reclassified as current, from long-term, as they will become due in the first quarter of
2004 subject to indemnification obligations. The related restricted cash, plus $526,000 in cash on deposit for bonuses to be paid to Acta employees was also reclassified as current from long-term during the nine months ended September 30, 2003. In
April 2003, the Company paid $833,000 in notes issued in connection with the purchase of OLAP@Work in April 2000 and released a corresponding amount of restricted cash.



12. Goodwill and Other Intangible Assets



In June 2003, the Company performed the required annual impairment test for goodwill and concluded that no impairment existed. The test consisted of a comparison of the
fair value of the consolidated Company with its carrying amount including the goodwill. The fair value of the reporting unit was determined based on the income approach, which estimates the fair value based on the future discounted cash flows. Under
the income approach, the Company assumed a cash flow period of five years, long-term annual growth rates of 8% to 10%, a discount rate of 35% and terminal value growth rates of 1.5%. Based on the analysis, the Company determined that the fair value
was in excess of the carrying amount of the consolidated Company.



The Company
reduced the carrying value of Acta goodwill by $2,741,000 in the third quarter of 2003 to reflect a change in estimate of the future minimum lease payments for its Mountain View, California facility as the lease was terminated early through an
action by the Santa Clara Valley Transportation Authority to take the site by eminent domain as described in note 10.



The change in the carrying amount of net goodwill was as follows (in thousands):



|                                                                                                |  | For the NineMonths EndedSeptember 30,2003 |       
|----------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ------
|Beginning balance                                                                               |  | $                                         | 75,416
|Impact of foreign currency fluctuations on goodwill                                             |  |                                           | 289   
|Reduction in carrying value of Acta goodwill related to savings from early termination of lease |  |                                           | (2,741
|                                                                                                |  |                                           |       
|Ending balance                                                                                  |  | $                                         | 72,964
|                                                                                                |  |                                           |       



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##### Table of Contents

Other intangible assets, at cost, consisted of the following (in thousands):



|                              |  | September 30, 2003 |         |   | December 31,2002 |  
|----------------------------- |  | ------------------ | ------- | - | ---------------- | -
|Employment contracts          |  | $                  | 7,434   |   |                  | $
|Developed technology          |  |                    | 9,591   |   |                  |  
|Maintenance contracts         |  |                    | 2,700   |   |                  |  
|                              |  |                    |         |   |                  |  
|Total other intangible assets |  |                    | 19,725  |   |                  |  
|Accumulated amortization      |  |                    | (10,987 | ) |                  |  
|                              |  |                    |         |   |                  |  
|Other intangible assets, net  |  | $                  | 8,738   |   |                  | $
|                              |  |                    |         |   |                  |  



The aggregate intangible amortization
expense was $667,656 and $835,614 for the three months ended September 30, 2003 and 2002. Employment contracts are amortized over periods ranging from one to three years. Developed technology and maintenance contracts are amortized over five years.
Intangible assets are amortized on a straight-line basis over their respective estimated useful lives.



The estimated amortization expense for the next five years is as follows (in thousands):



|Remainder of 2003 |  | $ | 668  
|----------------- |  | - | -----
|2004              |  | $ | 2,386
|2005              |  | $ | 2,386
|2006              |  | $ | 2,386
|2007              |  | $ | 912  



13. Stock Based Compensation Plans



The Company issues stock options or share warrants to its employees and
outside directors and provides employees the right to purchase its stock pursuant to shareholder approved stock option and employee stock purchase programs. The Company accounts for its stock-based compensation plans under the intrinsic value method
of accounting as defined by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. No stock-based employee compensation cost is reflected in net income for the three and nine
months ended September 30, 2003 and 2002 as all options granted under these plans had an exercise price equal to the fair market value of the underlying common stock on the date of grant.



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##### Table of Contents

The following table sets forth the effect on net income and earnings per share if the Company had accounted for its stock
option and stock purchase plans under the fair value method of accounting under Statement 123, as amended by Statement 148 (in thousands, except per share and ADS data):



|                                                                                                                                                                                                                                                                                                             |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ------ | - | ------------------------------ | -
|                                                                                                                                                                                                                                                                                                             |  | 2003                            |        |   | 2002                           |  
|Net income, as reported                                                                                                                                                                                                                                                                                      |  | $                               | 10,827 |   |                                | $
|Less: Total stock-based employee compensation expense determined by the fair value method, net of related tax benefits of $4,338
and $5,323 for the three months ended September 30, 2003 and 2002, respectively and $11,620 and $14,578 for the nine months ended September 30, 2003 and 2002, respectively |  |                                 | (7,078 | ) |                                |  
|                                                                                                                                                                                                                                                                                                             |  |                                 |        |   |                                |  
|Pro forma net income                                                                                                                                                                                                                                                                                         |  | $                               | 3,749  |   |                                | $
|                                                                                                                                                                                                                                                                                                             |  |                                 |        |   |                                |  
|Earnings per share and ADS:                                                                                                                                                                                                                                                                                  |  |                                 |        |   |                                |  
|Basic-as reported                                                                                                                                                                                                                                                                                            |  | $                               | 0.17   |   |                                | $
|Basic-pro forma                                                                                                                                                                                                                                                                                              |  | $                               | 0.06   |   |                                | $
|Diluted-as reported                                                                                                                                                                                                                                                                                          |  | $                               | 0.17   |   |                                | $
|Dilued-proforma                                                                                                                                                                                                                                                                                              |  | $                               | 0.06   |   |                                | $
|                                                                                                                                                                                                                                                                                                             |  |                                 |        |   |                                |  



Pro forma information regarding net
income and net income per share is required by FAS 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of FAS 123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model assuming no dividends, risk-free weighted average interest rates of 2.44% and 2.41%, for the third quarter of 2003 and 2002, respectively, and for the year to date calculations 1.75% and 3.80% for the
second quarters of 2003 and 2002 and 1.98% and 3.56% for the first quarters of 2003 and 2002, respectively. A weighted average expected option life of 6 months and 3 years was used for options granted under Employee Stock Purchase Plans and Stock
Options Plans, respectively. The volatility factor of the expected market price of the Companys ordinary shares was assumed to be 73.36% and 70.58% for the third quarter of 2003, and 2002, respectively and for the year to date calculations,
75.40% and 70.58% for the second quarters of 2003 and 2002, and 77.77% and 70.58% for the first quarters of



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2003 and 2002, respectively. The tax benefit was calculated on the total pro forma stock-based employee compensation
expense at the Companys effective tax rate of 38% for the third quarter and first three quarters of 2003 and 2002. As this calculation is based on certain assumptions about the deductibility of the expense, the timing of the deduction and the
ability to use it, the actual tax benefit could vary materially from this estimate. If the Company were to receive no tax benefit, pro forma basic earnings per share would have been $(0.01) and $(0.15) for the third quarter of 2003 and 2002,
respectively, and $0.01 and $(0.17) for the first three quarters of 2003 and 2002, respectively. Pro forma diluted earnings per share would have been $(0.01) and $(0.14) for the third quarters of 2003 and 2002 respectively, and $0.01 and $(0.17) for
the first three quarters of 2003 and 2002, respectively.



For purposes of
required pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. The weighted average fair value calculated under FAS 123 for stock options granted during the third quarter of
2003 and 2002 was $12.39 and $7.29 per share, respectively. The weighted-average fair value of shares purchased under employee stock purchase plans during the third quarter of 2003 and 2002 was $4.59 and $8.38, respectively.



The Black-Scholes option valuation model was developed for use in estimating the fair value
of traded options that have no vesting restrictions, are fully transferable and do not have employment or trading restrictions. The Black-Scholes model requires the input of highly subjective assumptions including the expected stock price
volatility. Because the Companys employee stock options have characteristics significantly different from those of traded options and because the changes in the subjective input assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.



14. Stock Option Exchange Program



On October 11, 2002, the Company announced a voluntary stock option exchange program for its eligible employees. This program included two separate offers: one to
eligible France based employees (the French offer) and the other to eligible international employees including employees in the United States (the International offer). Pursuant to the terms and conditions of each offer, as
amended, eligible employees were given the opportunity to renounce the right to the benefit of all outstanding stock options having an exercise price of 30 Euros or higher granted under the Business Objects S.A. 1999 and 2001 Stock Option Plans, as
amended. In exchange, new options were granted on May 22, 2003, equal to the amount obtained by multiplying the number of shares to which a benefit has been renounced by the applicable exchange percentage. If an eligible employee renounced the right
to the benefit of any one option, the employee was required to renounce the right to the benefit of all options granted to the employee during the six-month period prior to the commencement of the offer regardless of its exercise price.



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##### Table of Contents

Both offers expired on November 19, 2002. In total, the Company accepted for cancellation options to subscribe to
2,773,279 ordinary shares. On May 22, 2003, the Company granted 1,034,126 new options. Pursuant to the International offer, the Company accepted for cancellation options to subscribe to 2,464,537 ordinary shares. On May 22, 2003, the Company granted
912,610 new options with an exercise price of 17.30 euros, except for Italian-based employees who received new options with an exercise price of 19.32 euros in accordance with the terms of the exchange agreement. In addition, pursuant to the French
offer, the Company accepted for cancellation options to subscribe to 308,742 ordinary shares. On May 22, 2003, the Company granted 121,516 new options with an exercise price of 18.39 euro.



The new options granted under the International offer retained the vesting schedule of the
old options they replaced. The new options granted under the French offer retained substantially the same vesting schedule as the old options, except that the new options do not become exercisable until one year following the date of grant of the
new options.



The programs were not available to: (i) the Companys
officers who are also members of the Companys board of directors; (ii) former employees and (iii) any of the Companys employees resident in Sweden and Switzerland.



|15. | Accounting for and Disclosure of Guarantees
|--- | -------------------------------------------



Guarantors Accounting for Guarantees. The Company from time-to-time enters into certain types of contracts that contingently require the Company to indemnify
parties against third party claims. These contracts primarily relate to: (i) certain real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the
Companys use of the applicable premises; (ii) certain agreements with the Companys officers, directors and employees and third parties, under which the Company may be required to indemnify such persons for liabilities arising out of
their duties to the Company and (iii) and agreements under which the Company indemnifies customers and partners for claims arising from intellectual property infringement.



The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types
of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have
been recorded for these obligations on its balance sheet as of September 30, 2003.



The Company warrants that its software products will operate substantially in conformity with product documentation and that the physical media will be free from defect. The specific terms and conditions of the warranties are generally 30
days but may vary depending upon the country in which the software is sold. For those customers purchasing maintenance contracts, the above warranty is extended for the period during which the software remains under maintenance. The Company accrues
for known



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##### Table of Contents

warranty issues if a loss is probable and can be reasonably estimated, and accrues for estimated incurred but
unidentified warranty issues based on historical activity. To date the Company has had no material warranty claims. Due to thorough product testing, the short time between product shipments and the detection and correction of product failures, no
history of material warranty claims, and the fact that no significant warranty issues have been identified, the Company has not recorded a warranty accrual to date.



The Company has entered into certain real estate leases that require the Company to indemnify property owners against certain environmental
and other liabilities and other claims.



| |  | Environmental Liabilities. The Company only engages in the development, marketing and distribution of software, and it has never had any environment related claim, therefore, the
likelihood of incurring a loss related to these environmental indemnifications is remote and thus we are unable to reasonably estimate the amount. Therefore, we have not recorded a related liability in accordance with the recognition and measurement
provisions of SFAS 143.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Other Liabilities and Other Claims. The Company is responsible for certain costs of restoring leased premises to their original condition, and in accordance with the recognition and
measurement provisions of SFAS 143, the Company measured the fair value of these obligations and determined them to be immaterial.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|16. | Income Taxes
|--- | ------------



The Companys effective tax rate was 38% for all periods presented. The Company provides for income taxes for each interim period based on the estimated annual effective tax rate for the year.



|17. | Recent Pronouncements
|--- | ---------------------



Amendment of Statement 133 on Derivative Instruments and Hedging Activities



In April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.
Statement 149 is intended to result in more consistent reporting of contracts as either freestanding derivative instruments subject to Statement 133 in its entirety, or as hybrid instruments with debt host contracts and embedded derivative features.
In addition, Statement 149 clarifies the definition of a derivative by providing guidance on the meaning of initial net investments related to derivatives. Statement 149 is effective for contracts entered into or modified after June 30, 2003. The
adoption of Statement 149 did not have a material effect on the Companys financial position, results of operations or cash flows.



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##### Table of Contents

Financial Instruments with Characteristics of Both Liabilities and Equity



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, which is effective for all financial instruments created or modified after May 31, 2003 and otherwise effective at the beginning of the first interim period beginning after June
15, 2003. On October 29, 2003, the FASB deferred for an indefinite period the application of the guidance in Statement 150 to noncontrolling interests in limited-life subsidiaries. The FASB decided to defer the application of Statement 150 to these
noncontrolling interests until it could consider some of the resulting implementation issues associated with the measurement and recognition guidance for these noncontrolling interests. Statement 150 establishes standards for classifying and
measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. The adoption of Statement 150 did not have a material impact on the Companys financial
position, results of operations or cash flows.



|18. | Plan of Merger
|--- | --------------



Under the terms of an agreement and plan of merger, dated as of July 18, 2003, as amended on August 29, 2003, by and among the Company, Borg Merger Sub I, Inc., Business Objects Americas (as assignee of Borg Merger
Sub II, Inc.), Borg Merger Sub III, Inc., Seagate Software (Cayman) Holdings Corporation (as successor to Seagate Software (Cayman) Holdings) (Holdings) and Crystal Decisions, Inc. (Crystal Decisions), the Company will
acquire Crystal Decisions in a transaction in which, in immediate succession, (i) Borg Merger Sub I will merge with and into Holdings, (ii) the surviving corporation of the first Holdings merger will merge with and into Business Objects Americas,
(iii) Borg Merger Sub III will merge with and into Crystal Decisions, and (iv) the surviving corporation of the first Crystal Decisions merger will merge with and into Business Objects Americas. As a result of these mergers, each of Crystal
Decisions and Holdings will cease to exist as a separate corporation, and the surviving corporation will be Business Objects Americas, which will continue to be a wholly-owned subsidiary of the Company.



Under the terms of the merger agreement, upon consummation of the transaction, holders of
common stock of Crystal Decisions (other than Holdings and other than Crystal Decisions stockholders who exercise appraisal rights under Delaware law) and holders of common stock of Holdings, issued and outstanding immediately prior to the
consummation of the transaction, will receive a proportionate amount of $300,000,000 in cash and a number of newly issued American Depositary shares (ADSs) of the Company, each ADS representing one ordinary share of the Company (or, at
the election of any such stockholder, ordinary shares of the Company) based on a formula which is set forth in the merger agreement. The formula allocates 26,455,673 Company shares based on the number of shares of Crystal Decisions common stock and
the value of Crystal Decisions stock options at the time of closing. The amount of cash and number of Company shares will be adjusted upward based on the total value of any cash received by Crystal Decisions from the exercise of stock options
between the execution of the merger agreement and the closing. In addition, certain Crystal Decisions stock options will be converted into options to acquire Company ADSs having a per option value equivalent to



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##### Table of Contents

the cash and Company shares to be received per share by holders of Crystal Decisions common stock. The exact amount of
cash and number of Company shares that Holdings and Crystal Decisions stockholders will be entitled to receive in the transaction will depend on:



| |  | the number of shares of Crystal Decisions common stock and stock options outstanding as of the closing of the transaction;
| | - | --------------------------------------------------------------------------------------------------------------------------



| |  | the aggregate cash proceeds that Crystal Decisions receives from option exercises between July 18, 2003 and the closing of the transaction; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  | the average closing prices for Company ADSs on the Nasdaq National Market for the 10 trading days ending on the third trading day prior to the closing of the transaction.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result, the Company is not able to determine the amounts
such stockholders will receive at this time. The Company intends to issue a press release containing the final merger consideration amounts on the second business day prior to the closing of the transaction.



The transaction is conditioned upon, among other things, (i) the approval of the shareholders
of Business Objects and (ii) other customary conditions.



The parties currently
expect the transaction to close in the fourth quarter of 2003; although, there can be no assurances that the transaction will close in that time period.



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##### Table of Contents

|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- |  | -------------------------------------------------------------------------------------



Overview



The following discussion and analysis should be read together with our condensed consolidated financial statements and the notes to those statements included elsewhere
in this Form 10-Q. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections about Business Objects and its industry, including statements related to the expected closing date for
the pending acquisition of Crystal Decisions and the demand for business intelligence software and services. These forward-looking statements involve risks and uncertainties. Business Objects actual results could differ materially from those
indicated in these forward-looking statements as a result of certain factors, including the importance of business intelligence in the business intelligence tools, data integration, and analytic applications markets, delays in the anticipated
closing date of the pending Crystal Decisions acquisition, and the risk that the acquisition is not consummated for any reason. For a more complete discussion of these and other risk factors that could cause actual results to differ materially from
those indicated in these forward-looking statements see the discussion under the Risk Factors section and elsewhere in this Form 10-Q. Business Objects undertakes no obligation to update publicly any forward-looking statements for any
reason, even if new information becomes available or other events occur in the future.



Business Objects financial condition and results of operations are discussed within the context of its:



|I. | Business Environment;
|-- | ---------------------



|II. | Results of Operations;
|--- | ----------------------



|III. | Liquidity and Capital Resources;
|---- | --------------------------------



|IV. | The Potential Impact of Known Facts and Uncertainties on Future Operating Results, Cash Flows and Financial Position; and
|--- | -------------------------------------------------------------------------------------------------------------------------



|V. | Critical Accounting Policies.
|-- | -----------------------------



In the accompanying discussion and analysis, the period third quarter refers to the three months ended September 30, 2003 and the period year to
date refers to the nine months ended September 30, 2003. All analyses compare 2003 third quarter results with the third quarter of 2002 and 2003 year to date results with the first three quarters of 2002, unless otherwise indicated.



Business Objects financial results should be interpreted with an
understanding of its critical accounting policies, including the significant estimates and assumptions used to prepare its consolidated financial statements. The application of Business Objects critical accounting policies is discussed on page
41 of this discussion and analysis.



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##### Table of Contents

|I. | Business Environment
|-- | --------------------



Business Objects has operated in difficult economic conditions since 2001 due to a slowdown of the worldwide economy and subsequent reduced spending on information technology (IT). However, during the economic
downturn the business intelligence market performed better than the general market for information technology because business intelligence helps organizations perform more efficiently and requires a relatively low investment compared with some
other technologies; two factors that are particularly attractive to customers during difficult economic periods.



The Company expects that demand for business intelligence software and services will continue to grow as the market evolves from an emerging technology to a mainstream
technology. However, this same market evolution is attracting larger vendors to the business intelligence market, making it more competitive.



Key business drivers during 2003 include Enterprise 6, a new product version released in the second quarter of 2003, and growth in software license update and support
(maintenance) and consulting revenue as discussed under the section Results of Operations below.



In the second quarter of 2003 we agreed to purchase Crystal Decisions to strengthen our competitive position in the business intelligence market. We expect the transaction to close in the fourth quarter of 2003,
however this is subject to shareholder approval and other conditions explained in note 18 of the condensed consolidated financial statements.



II. Results of Operations



II A. Third Quarter of 2003 Compared with Third Quarter of 2002



Net Income



Diluted earnings per share and ADS (EPS) grew by $0.09 to $0.17 per share and ADS on net income of $10.8 million. The $6.0 million increase in net income compared with the third quarter of 2002 was primarily due to an
$8.8 million increase in operating income reduced by a $2.8 million increase in the provision for income taxes and interest and other income, net.



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##### Table of Contents

Operating Income



Components of Operating Income(in Millions of U.S. Dollars)



|                   |  | For the ThirdQuarter of |       | Change |   | ChangeUsingConstantFXRates
|------------------ |  | ----------------------- | ----- | ------ | - | --------------------------
|                   |  | 2003                    |       | 2002   |   |                           
|Revenue            |  | $                       | 129.1 |        | $ | 109.9                     
|Cost of revenues   |  |                         | 22.7  |        |   | 18.8                      
|Operating expenses |  |                         | 93.0  |        |   | 86.5                      
|                   |  |                         |       |        |   |                           
|Operating income   |  | $                       | 13.4  |        | $ | 4.6                       
|                   |  |                         |       |        |   |                           



Operating income increased by $8.8
million compared with the third quarter of 2002 primarily due to revenue growth in local currencies and relatively stable operating expenses in local currencies.



While changes in foreign exchange rates contributed to higher revenues and expenses in U.S. dollars, the net impact was only $0.3 million on
operating income. However, any future changes in our mix of foreign denominated revenues or expenses could have a greater foreign exchange impact on operating income.



Revenue Mix



While both net license fees and services grew during the third quarter, services continued to represent an increasing portion of total revenue as the dollar growth in
services exceeded the dollar growth in license fees.



Revenue Mix(in
Millions of U.S. Dollars)



|                 |  | For the ThirdQuarter of |       | $Change |   | %Change | 
|---------------- |  | ----------------------- | ----- | ------- | - | ------- | 
|                 |  | 2003                    |       | 2002    |   |        
|Revenues:        |  |                         |       |         |   |         | 
|Net license fees |  | $                       | 58.0  |         | $ | 53.7    | 
|Services         |  |                         | 71.1  |         |   | 56.1    | 
|                 |  |                         |       |         |   |         | 
|Total revenues   |  | $                       | 129.1 |         | $ | 109.9   | 
|                 |  |                         |       |         |   |         | 



Net License Fees



Net license fees increased by 8% compared with the third quarter of 2002, representing
positive local currency growth as well as favorable changes in foreign currency exchange rates. Growth in enterprise analytic applications and data integration licenses drove total net license revenue growth while business intelligence platform
license fees were relatively consistent with the prior year period.



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License Fees by Product Family(in Millions of U.S. Dollars)



|                                 |  | For the ThirdQuarter of |      | $Change |   |      | %Change |  
|-------------------------------- |  | ----------------------- | ---- | ------- | - | ---- | ------- | -
|                                 |  | 2003                    |      | 2002    |   |     
|Net license fees:                |  |                         |      |         |   |      |         |  
|Business intelligence platform   |  | $                       | 48.4 |         | $ | 48.8 |         | $
|Enterprise analytic applications |  |                         | 5.7  |         |   | 3.8  |         |  
|Data integration                 |  |                         | 3.9  |         |   | 1.1  |         |  
|                                 |  |                         |      |         |   |      |         |  
|Total net license fees           |  | $                       | 58.0 |         | $ | 53.7 |         | $
|                                 |  |                         |      |         |   |      |         |  



Data integration license fees
increased 248% compared with the third quarter of 2002 primarily due to a full quarter of revenue in the third quarter of 2003 compared with a partial quarter of revenue in 2002 as we acquired the data integration product family through our
acquisition of Acta midway through the third quarter of 2002, and the launch of an improved version of Business Objects Data Integrator.



Enterprise analytic applications license fees increased 50% compared with the third quarter of 2002 primarily due to the launch of new products to target the
market for enterprise performance management (EPM) software; and increased demand for prepackaged analytic application modules.



Business intelligence platform license fees remained flat compared with the third quarter of 2002, as the impact of difficult economic conditions were offset by
the positive impact of a newer version of our product released in the second quarter of 2003 and favorable changes in foreign exchange rates.



Services Revenues



Services revenues grew 27% due to growth in both software license updates and support (maintenance) revenues and growth in professional services revenues.



Services Revenue Growth(in Millions of U.S. Dollars)



|                                     |  | For the ThirdQuarter of |      | $Change |   | %Change | 
|------------------------------------ |  | ----------------------- | ---- | ------- | - | ------- | 
|                                     |  | 2003                    |      | 2002    |   |        
|Service revenues:                    |  |                         |      |         |   |         | 
|Software license updates and support |  | $                       | 53.1 |         | $ | 40.1    | 
|Professional services and other      |  |                         | 18.0 |         |   | 16.0    | 
|                                     |  |                         |      |         |   |         | 
|Total service revenues               |  | $                       | 71.1 |         | $ | 56.1    | 
|                                     |  |                         |      |         |   |         | 



The increase in software license
updates and support (maintenance) revenues was primarily due to the continued expansion of our installed customer base in addition to the renewal of existing maintenance contracts and favorable changes in foreign exchange rates. As increases in our
installed base are driven by sales of software licenses, changes to the growth rate of license fees could impact the future growth rate of maintenance revenues.



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The increase in professional services revenue was primarily due to our strategy to build long-term client relationships
and identify problems and provide our clients with solutions using our products.



Revenue by Geography



Revenue Growth by Geography (in
Millions of U.S. Dollars)



|                       |  | For the ThirdQuarter of |       | $Change |   | %Change | 
|---------------------- |  | ----------------------- | ----- | ------- | - | ------- | 
|                       |  | 2003                    |       | 2002    |   |        
|Americas               |  | $                       | 55.3  |         | $ | 50.4    | 
|Europe                 |  |                         | 63.3  |         |   | 52.0    | 
|Asia Pacific and Japan |  |                         | 10.5  |         |   | 7.5     | 
|                       |  |                         |       |         |   |         | 
|                       |  | $                       | 129.1 |         | $ | 109.9   | 
|                       |  |                         |       |         |   |         | 



Total revenue increased in all major
geographies led by Europe with 22% growth in U.S. dollars in the third quarter of 2003, accounting for 59% of total dollar growth. While European revenue benefited greatly from favorable changes in foreign currency exchange rates, it also grew in
euros for the second consecutive quarter.



Cost of Revenues



Cost of Revenues(as a Percentage of Related Revenues)



|                       |  | For theThirdQuarter of |   |  | Changein % ofRevenue |  
|---------------------- |  | ---------------------- | - |  | -------------------- | -
|                       |  | 2003                   |   |  | 2002                 |  
|Cost of revenues:      |  |                        |   |  |                      |  
|Net license fees       |  | 2                      | % |  | 1                    | %
|Services               |  | 30                     | % |  | 32                   | %
|Total cost of revenues |  | 18                     | % |  | 17                   | %



Cost of net license fees increased by
one percentage point primarily due to the amortization of developed technology acquired through the acquisition of Acta which was completed in the third quarter of 2002.



Cost of services revenues decreased by two percentage points as we better utilized our existing capacity to drive higher levels of revenue
and because higher margin maintenance revenue represented a larger percentage of total services revenue.



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##### Table of Contents

Operating Expenses



Sales and Marketing Expense



Change in Sales and Marketing Expense (in Millions of U.S. Dollars)



|                    |  | For the ThirdQuarter of |      |   | Change |   |      | %Change | 
|------------------- |  | ----------------------- | ---- | - | ------ | - | ---- | ------- | 
|                    |  | 2003                    |      |   | 2002   |   |      |        
|Sales and marketing |  | $                       | 60.0 |   |        | $ | 56.1 |         | 
|% of revenue        |  |                         | 46   | % |        |   | 51   | %       | 



The increase in sales and marketing
expense was primarily due to fluctuations in foreign currency exchange rates as a significant portion of our sales and marketing expenses are denominated in foreign currencies.



The decrease as a percentage of revenues was primarily because sales and marketing expense remained relatively flat in local currency while
revenues grew and sales and marketing expenses were impacted less by changes in foreign currency exchange rates than total revenues.



Research and Development Expense



Change in Research and Development Expense(in Millions of U.S. Dollars)



|                         |  | For the ThirdQuarter of |      |   | Change |   |      | %Change | 
|------------------------ |  | ----------------------- | ---- | - | ------ | - | ---- | ------- | 
|                         |  | 2003                    |      |   | 2002   |   |      |        
|Research and development |  | $                       | 22.9 |   |        | $ | 20.3 |         | 
|% of revenue             |  |                         | 18   | % |        |   | 18   | %       | 



The dollar increase of $2.6 million
was primarily due to fluctuations in foreign currency exchange rates as the majority of our research and development expenses were incurred in euros. Research and development expenses as a percentage of revenues remained relatively constant compared
with the third quarter of 2002 because research and development expenses and total revenues were impacted by changes in foreign exchange rates by approximately the same percentage as our research and development expenses are primarily incurred in
foreign currencies.



Change in General and Administrative Expense(in
Millions of U.S. Dollars)



|                           |  | For the ThirdQuarter of |      |   | Change |   |     | %Change | 
|-------------------------- |  | ----------------------- | ---- | - | ------ | - | --- | ------- | 
|                           |  | 2003                    |      |   | 2002   |   |     |        
|General and administrative |  | $                       | 10.2 |   |        | $ | 8.1 |         | 
|% of revenue               |  |                         | 8    | % |        |   | 7   | %       | 



General and administrative expenses
increased as a percentage of revenues primarily due to integration planning expenses incurred related to the Companys planned acquisition of Crystal Decisions in the fourth quarter of 2003.



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##### Table of Contents

Acquired In-Process Technology Expense



A one time charge of $2.0 million was incurred to write-off in-process technology acquired from Acta in the third quarter of 2002.



Non Operating Expenses



Interest and Other Income, Net



Composition of Interest and Other Income, Net(in Millions of U.S. Dollars)



|                                                                  |  | For the ThirdQuarter of |     |      | $Change |      |   | %Change |  
|----------------------------------------------------------------- |  | ----------------------- | --- | ---- | ------- | ---- | - | ------- | -
|                                                                  |  | 2003                    |     | 2002 |         |      |  
|Net interest income                                               |  | $                       | 2.2 |      | $       | 2.3  |   |         | $
|Net foreign exchange gains (losses)                               |  |                         | 0.1 |      |         | (0.2 | ) |         |  
|Patent infringement settlement income, net of litigation expenses |  |                         | 1.8 |      |         | 2.3  |   |         |  
|                                                                  |  |                         |     |      |         |      |   |         |  
|Interest and other income, net                                    |  | $                       | 4.1 |      | $       | 4.4  |   |         | $
|                                                                  |  |                         |     |      |         |      |   |         |  



Interest and other income, net
decreased primarily because we recognized the last payment from the Brio Software Inc. (Brio) patent infringement settlement in the third quarter of 2002. As of September 30, 2002 the Brio settlement was paid in full.



In the third quarter of 2003 and 2002 we received and recognized payments of $1.75 million
from Cognos Corporation in accordance with a May 2002 agreement to settle our patent infringement lawsuit against Cognos, Inc. and Cognos Corporation (collectively, Cognos). As of September 30, 2003, $6.25 million remained to be paid under the
agreement, payable in three quarterly installments of $1.75 million. Our agreement with Cognos is explained in greater detail in our Form 10-K for the year ended December 31, 2002.



Due to inherent uncertainties regarding performance on the part of Cognos in making the future payments over the next three quarters,
consistent with the cost recovery method and with other literature on extended payment terms including SOP 97-2, we are recognizing the remaining settlement as other income once the amounts become due.



Income Tax Expense



Our effective tax rate was 38%. The $2.3 million increase in income tax expense was due to higher income in the third quarter of 2003
compared with the third quarter of 2002. We provide for income taxes for each interim period based on the estimated annual effective tax rate for the year.



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##### Table of Contents

II B. First Three Quarters of 2003 Compared with First Three Quarters 2002



Net Income



Diluted earnings per share and ADS (EPS) increased by $0.05 to $0.48 per share and ADS on net income of $31.2 million. The $3.4 million
increase in net income compared with the first three quarters of 2002 was primarily due to an $8.2 million increase in operating income and a $4.8 million decrease in the provision for income taxes and interest and other income, net.



Components of Operating Income(in Millions of U.S. Dollars)



|                   |  | For the FirstThree Quarters of |       | Actual |   | Constant FX
|------------------ |  | ------------------------------ | ----- | ------ | - | -----------
|                   |  | 2003                           |       | 2002   |   | Change     
|Revenue            |  | $                              | 376.6 |        | $ | 328.6      
|Cost of revenues   |  |                                | 65.1  |        |   | 54.5       
|Operating expenses |  |                                | 272.6 |        |   | 243.4      
|                   |  |                                |       |        |   |            
|Operating income   |  | $                              | 38.9  |        | $ | 30.7       
|                   |  |                                |       |        |   |            



Operating income increased by $8.2
million compared with the first three quarters of 2002, primarily due to services revenue growth in local currencies offset partially by an increase in operating expenses in local currencies, primarily due to Acta research and development employees
who joined Business Objects in August of 2002; approximately $1.5 million in integration planning expenses incurred related to the pending acquisition of Crystal Decisions in the fourth quarter of 2003; and increased general and administrative
employee related costs, offset by no restructuring expenses year to date compared with $3.8 million in restructuring expenses in the second quarter of 2002.



While changes in foreign exchange rates contributed to higher revenues and expenses in U.S. dollars, the net impact was only $0.2 million on operating income. However,
any changes in our mix of foreign denominated revenues or expenses could have a greater impact on operating income.



Revenue



Revenue Mix



Service revenues increased
as a percentage of total revenues compared with the first three quarters of 2002, as services revenue increased 9% while net license fees decreased by 1%.



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Revenue Mix (in Millions of U.S. Dollars)



|                 |  | For the FirstThree Quarters of |       |      |   |          |  |  
|---------------- |  | ------------------------------ | ----- | ---- | - | -------- |  | -
|                 |  | 2003                           |       | 2002 |   | $ Change |  |  
|Revenues:        |  |                                |       |      |   |          |  |  
|Net license fees |  | $                              | 177.0 |      | $ | 177.8    |  | $
|Services         |  |                                | 199.6 |      |   | 150.8    |  |  
|                 |  |                                |       |      |   |          |  |  
|Total revenues   |  | $                              | 376.6 |      | $ | 328.6    |  | $
|                 |  |                                |       |      |   |          |  |  



Net License Fees



Net license fees remained relatively constant compared with the first three quarters of 2002
as year over year increases in revenue in the second and third quarters of 2003 was offset by a year over year decline in revenue in the first quarter of 2003.



License Fees by Product Family(in Millions of U.S. Dollars)



|                                 |  | For the First Three Quarters of |       |      |   |          |  |  
|-------------------------------- |  | ------------------------------- | ----- | ---- | - | -------- |  | -
|                                 |  | 2003                            |       | 2002 |   | $ Change |  |  
|Net license fees:                |  |                                 |       |      |   |          |  |  
|Enterprise analytic applications |  | $                               | 18.2  |      | $ | 11.8     |  | $
|Data integration                 |  |                                 | 8.6   |      |   | 1.2      |  |  
|Business intelligence platform   |  |                                 | 150.2 |      |   | 164.8    |  |  
|                                 |  |                                 |       |      |   |          |  |  
|Total net license fees           |  | $                               | 177.0 |      | $ | 177.8    |  | $
|                                 |  |                                 |       |      |   |          |  |  



Data integration license fees
grew 617% as the products were acquired through the acquisition of Acta at the end of the third quarter of 2002. Therefore, data integration revenue was lower than normal in the third quarter of 2002.



Enterprise analytic applications license fees increased 54% primarily because of the
launch of new products to target the growing market for enterprise performance management (EPM) software, and increased demand for prepackaged analytic application modules.



Business intelligence platformlicense fees decreased year to date primarily due to difficult economic conditions and an aging
product line that was updated in the second quarter of 2003.



Services Revenues



Services revenues increased 32% compared
with the first three quarters of 2002 due to growth in both software license updates and support (maintenance) revenues and increases in professional services revenues.



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Services Revenue Growth(in Millions of U.S. Dollars)



|                                     |  | For the First Three Quarters of |       |      |   |          | 
|------------------------------------ |  | ------------------------------- | ----- | ---- | - | -------- | 
|                                     |  | 2003                            |       | 2002 |   | $ Change | 
|Service revenues:                    |  |                                 |       |      |   |          | 
|Software license updates and support |  | $                               | 147.5 |      | $ | 106.6    | 
|Professional services and other      |  |                                 | 52.1  |      |   | 44.2     | 
|                                     |  |                                 |       |      |   |          | 
|Total service revenues               |  | $                               | 199.6 |      | $ | 150.8    | 
|                                     |  |                                 |       |      |   |          | 



The increase in software license
updates and support (maintenance) revenues was primarily due to the continued expansion of our installed customer base, a greater percentage of customers renewing maintenance contracts and favorable changes in foreign exchange rates. As increases in
our installed base are driven by sales of software licenses, changes to the growth rate of license fees could impact the future growth rate of maintenance revenues.



The increase in professional services revenue was primarily due to our strategy to build long-term client relationships and identify
problems and provide our clients with solutions to those clients using our products. To a lesser extent, professional services increased due to favorable changes in foreign currency exchange rates.



Revenue by Geography



Revenue Growth by Geography (in Millions of U.S. Dollars)



|              |  | For the First Three Quarters of |       |      |   |        | 
|------------- |  | ------------------------------- | ----- | ---- | - | ------ | 
|              |  | 2003                            |       | 2002 |   | Change | 
|Americas      |  | $                               | 163.7 |      | $ | 158.9  | 
|Europe        |  |                                 | 184.1 |      |   | 148.0  | 
|Rest of world |  |                                 | 28.8  |      |   | 21.7   | 
|              |  |                                 |       |      |   |        | 
|              |  | $                               | 376.6 |      | $ | 328.6  | 
|              |  |                                 |       |      |   |        | 



Total revenue increased in all major
geographies led by Europe with 24% growth. While European revenue benefited greatly from favorable changes in foreign currency exchange rates, European revenue grew in euros for in the second consecutive quarter showing improvement, even in
difficult economic times.



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##### Table of Contents

Cost of Revenues



Cost of Revenues (as a Percentage of Related Revenues)



|                       |  | For the First Three Quarters of |   |  |      |  
|---------------------- |  | ------------------------------- | - |  | ---- | -
|                       |  | 2003                            |   |  | 2002 |  
|Cost of revenues:      |  |                                 |   |  |      |  
|Net license fees       |  | 2                               | % |  | 1    | %
|Services               |  | 31                              | % |  | 35   | %
|Total cost of revenues |  | 17                              | % |  | 17   | %



Cost of net license fees increased by
one percentage point primarily due to the amortization of developed technology acquired through the acquisition of Acta which was completed in the third quarter of 2002.



Cost of services revenues decreased by four percentage points as we better utilized our existing capacity to drive higher levels of revenue
and because higher margin maintenance revenue represented a larger percentage of total services revenue.



Operating Expenses



Sales and
Marketing Expense



Change in Sales and Marketing Expense (in
Millions of U.S. Dollars)



|                    |  | For the First Three Quarters of |       |   |      |   |       |        | 
|------------------- |  | ------------------------------- | ----- | - | ---- | - | ----- | ------ | 
|                    |  | 2003                            |       |   | 2002 |   |       | Change | 
|Sales and marketing |  | $                               | 174.7 |   |      | $ | 162.9 |        | 
|% of revenue        |  |                                 | 46    | % |      |   | 50    | %      | 



The increase in sales and marketing
expenses was primarily due to fluctuations in foreign currency exchange rates as a significant portion of our sales and marketing expenses are denominated in foreign currencies.



The decrease as a percentage of revenues was primarily because sales and marketing expenses were impacted less by changes in foreign
currency exchange rates than total revenues were.



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##### Table of Contents

Research and Development Expense



Change in Research and Development Expense(in Millions of U.S. Dollars)



|                         |  | For the First Three Quarters of |      |   | Change |   |      | % Change | 
|------------------------ |  | ------------------------------- | ---- | - | ------ | - | ---- | -------- | 
|                         |  | 2003                            |      |   | 2002   |   |      |         
|Research and development |  | $                               | 69.0 |   |        | $ | 53.3 |          | 
|% of revenue             |  |                                 | 18   | % |        |   | 16   | %        | 



The increase was primarily due to
fluctuations in foreign currency exchange rates as the majority of our research and development expenses were incurred in euros and to expenses related to Acta research and development employees who joined Business Objects in August of 2002.



General and Administrative Expense



Change in General and Administrative Expense(in Millions of U.S. Dollars)



|                           |  | For the First Three Quarters of |      |   | Change |   |      | %Change | 
|-------------------------- |  | ------------------------------- | ---- | - | ------ | - | ---- | ------- | 
|                           |  | 2003                            |      |   | 2002   |   |      |        
|General and administrative |  | $                               | 29.0 |   |        | $ | 21.5 |         | 
|% of revenue               |  |                                 | 8    | % |        |   | 7    | %       | 



General and administrative expenses
increased as a percentage of revenues primarily due to increased employee related costs and integration planning expenses related to the Companys planned acquisition of Crystal Decisions in the fourth quarter of 2003.



Acquired In-Process Research and Development Expense



A one time charge of $2.0 million was incurred to write-off in-process technology acquired
from Acta in the third quarter of 2002.



Restructuring Expense



There were no restructuring expenses year to date compared with $3.8
million in restructuring expenses in the second quarter of 2002.



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##### Table of Contents

Interest and Other Income, Net



Composition of Interest and Other Income, Net(in Millions of U.S. Dollars)



|                                                                  |  | For the First Three Quarters of |      |   |      |   |      |        | 
|----------------------------------------------------------------- |  | ------------------------------- | ---- | - | ---- | - | ---- | ------ | 
|                                                                  |  | 2003                            |      |   | 2002 |   |      | Change | 
|Net interest income                                               |  | $                               | 6.3  |   |      | $ | 5.9  |        | 
|Net foreign exchange gains (losses)                               |  |                                 | (0.2 | ) |      |   | (0.8 | )      | 
|Patent infringement settlement income, net of litigation expenses |  |                                 | 5.3  |   |      |   | 10.2 |        | 
|                                                                  |  |                                 |      |   |      |   |      |        | 
|Interest and other income, net                                    |  | $                               | 11.4 |   |      | $ | 15.3 |        | 
|                                                                  |  |                                 |      |   |      |   |      |        | 



Interest and other income, net
decreased primarily because of a decrease in patent infringement income as shown below:



Composition of Patent Infringement Settlement Income(in Millions of U.S. Dollars)



|                                                     |  | For the First Three Quarters of |     |      |   |     
|---------------------------------------------------- |  | ------------------------------- | --- | ---- | - | ----
|                                                     |  | 2003                            |     | 2002 |   |     
|Income from Cognos for one time payment for past use |  | $                               |    |      | $ | 10.0
|Quarterly Cognos payments                            |  |                                 | 5.3 |      |   | 1.8 
|Brio payments                                        |  |                                 |    |      |   | 1.5 
|Related legal expenses                               |  |                                 |    |      |   | (3.1
|                                                     |  |                                 |     |      |   |     
|                                                     |  | $                               | 5.3 |      | $ | 10.2
|                                                     |  |                                 |     |      |   |     



Year to date Business Objects received
and recognized three quarterly payments of $1.75 million from Cognos in accordance with the May 2002 agreement to settle our patent infringement lawsuit against Cognos. As of September 30, 2003 $6.25 million remained to be paid under the agreement,
payable in three quarterly installments of $1.75 million. Our agreement with Cognos is explained in greater detail in our Form 10-K for the year ended December 31, 2002.



In the second quarter of 2002 Business Objects recognized a one time $10.0 million payment from Cognos for past use of our technology in
2002 and in the third quarter of 2002, recognized the first of 8 quarterly payments of $1.75 million. In addition, the company recognized the last payment from the Brio Software Inc. (Brio) patent infringement settlement in the third quarter of
2002. As of September 30, 2002 the Brio settlement was paid in full.



Income
Taxes



Our effective tax rate was 38%. We provide for income taxes for
each interim period based on the estimated annual effective tax rate for the year.



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##### Table of Contents

III. Liquidity and Capital Resources



Cash Flows



Our principal source of liquidity is our operating cash flow.



Cash Flow (in Millions of U.S. Dollars)



|                                                                     |  | For the FirstThree Quarters of
|-------------------------------------------------------------------- |  | ------------------------------
|                                                                     |  | 2003                          
|Operating cash flow                                                  |  | $                             
|Net increase in cash and cash equivalents and short-term investments |  |                               



Business Objects year to date
operating cash flow was primarily provided by net income before non cash charges, increases in deferred revenue, and collections of accounts receivable. Deferred revenue increased since December 31, 2002 primarily due to a growing installed customer
base that generally pays in advance for maintenance services that are recognized as revenue ratably over a 12 month period as the services are performed. In addition, our cash was positively impacted by changes in foreign currency exchange rates.



|                                                                     |  | For the FirstThree Quarters of
|-------------------------------------------------------------------- |  | ------------------------------
|                                                                     |  | 2003                          
|Effect of foreign exchange rate changes on cash and cash equivalents |  | $                             



Cash and Short-Term Investments
(in Millions of U.S. Dollars)



|                                                         |  | As of December 31,
|-------------------------------------------------------- |  | ------------------
|                                                         |  | 2003              
|Ending cash, cash equivalents and short-term investments |  | $                 



In the past our operations have funded
themselves and we have, at times, used our cash resources to finance business acquisitions as we did in the third quarter of 2002 when we used $62.5 million in cash to purchase Acta.



Future Liquidity Requirements



We expect to pay approximately $300.0 million in cash in the fourth quarter of 2003 as part of the combined cash and stock price to purchase Crystal Decisions, pending
shareholder and other customary closing conditions. Based on our cash forecasts we believe that our existing cash and short-term investments, the cash and short-term investments of Crystal Decisions and cash generated from operations will be
sufficient to meet our consolidated cash requirements in the foreseeable future. However, as we hold cash in various legal entities and currencies we expect to seek short-term lines of credit in the future to support effective cash management
practices.



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##### Table of Contents

IV. The Potential Impact of Known Facts or Uncertainties on Future Operating Results, Cash Flows and Financial
Position



The following could have a material impact on our future
operating results and financial condition:



| |  | Pending acquisition of Crystal Decisions;
| | - | -----------------------------------------



| |  | Risk factors related to the pending acquisition of Crystal Decisions, our business and our industry; and
| | - | --------------------------------------------------------------------------------------------------------



| |  | Recently issued accounting standards.
| | - | -------------------------------------



Acquisition Activity



If the acquisition of Crystal Decisions occurs in the fourth quarter of 2003 as we expect, we will incur one time and ongoing accounting charges related to the accounting of the acquisition. In addition, charges are
likely to be incurred to restructure and integrate the combined companys operations which could have a material impact on the Companys results of operations, cash flows and financial position.



Risk Factors



In addition to other information contained in this Form 10-Q, you should carefully consider the risks and uncertainties described below
before making an investment decision. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial also may become important factors that may adversely affect our company.



Risks related to our pending acquisition of Crystal Decisions



The announcement of the transaction could have an adverse effect on our revenues and
profitability in the near term if customers delay, defer or cancel purchases pending completion of the transaction.



In response to the announcement of the transaction, our customers may seek to cancel existing purchases or delay or defer purchasing decisions which could have an adverse
effect on our business, regardless of whether the transaction is ultimately completed. In particular, prospective customers could be reluctant to purchase licenses for our products or services if the customers are uncertain about the strategic
direction of the combined company, the continuation of specific product offerings or the willingness of the combined company to support and maintain existing products. Uncertainty created among persons and organizations contemplating purchases of
products or services as a result of the announcement of the transaction could cause a significant customer or a significant number of customers to not purchase or to delay purchase decisions pending consummation of the planned transaction, which
could have an adverse effect on our results of operations and our quarterly revenues such that they could be substantially below the expectations of market analysts, which could cause a reduction in the analysts expectations of our results of
operations and the market price of our shares.



Uncertainty regarding the
transaction and the effects of the transaction could cause our strategic partners or key employees to make decisions which could adversely affect our business and operations.



Some of our original equipment manufacturers, distributors and other strategic partners could decide to terminate or cancel their existing
arrangements, or fail to renew those arrangements as a result of the pending transaction. In addition, key employees may decide to terminate their employment due to the pending transaction and other employees may experience uncertainty



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about their future with the combined company, which could adversely affect our ability to retain key management, sales, technical and marketing personnel.



Failure to complete the transaction could negatively impact our future
business and operations.



Completion of the transaction is subject to the
satisfaction or waiver of a number of closing conditions and there can be no assurances that those closing conditions will be satisfied or waived. If the transaction is not completed for any reason, we may be subject to a number of negative
consequences, including the following:



| |  | benefits that we expect to realize from the transaction, such as the enhanced financial and competitive position of the combined company, would not be realized;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the price of our shares may decline to the extent that the current market price reflects a market assumption that the transaction will be completed;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  | costs related to the transaction, such as legal, accounting and printing fees, as well as a portion of the financial advisors fees, must be paid even if the transaction is not
completed;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | depending on the reason for termination of the merger agreement, we may be required to pay Crystal Decisions a termination fee of $21 million; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the diversion of management attention from the day-to-day business and the associated disruption to our employees and our relationships with customers and suppliers, during the
period that the transaction is pending may make it difficult for us to regain our financial and market position if the transaction does not occur.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If we decide to seek another merger or business combination, there can be no assurance that we will be able to find a suitable partner or be able to negotiate terms
similar to those provided for in the merger agreement with Crystal Decisions.



If there is a significant drop in the market price of our shares, the condition to the transaction relating to the treatment of certain mergers in the transaction as reorganizations for U.S. tax purposes may not be satisfied,
and, as a result, the transaction may not be completed.



Completion of the
transaction is conditioned upon the receipt of opinions of counsel to the effect that the mergers involving Seagate Softare (Cayman) Holdings Corporation and the mergers involving Crystal Decisions each will constitute a reorganization within the
meaning of section 368(a) of the Internal Revenue Code, and that for U.S. federal income tax purposes, no gain or loss will generally be recognized by a stockholder, except to the extent of the lesser of cash received or gain on the transaction. If
the market price of our shares drops significantly, it may be difficult or impossible to satisfy certain requirements under the Internal Revenue Code and applicable regulations, and, therefore, counsel may not be able to provide such opinions.



We expect to incur significant costs in connection with the transaction.



We estimate that direct transaction costs of approximately $14.0 million
will be incurred in connection with the transaction, which will be included as part of the total purchase price for financial accounting purposes. For the three months ended October 3, 2003, Crystal Decisions incurred $4.8 million of expenses
related to the transaction. In addition, because Crystal Decisions has elected to proceed with the transaction in lieu of its previously announced initial public offering, Crystal Decisions expensed approximately $3.5 million of legal, accounting
and financial advisor fees associated with the initial public offering that would not have otherwise been recorded as current expenses.



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In the quarter in which the transaction is completed or in the following quarters, the combined company may incur charges
to operations, such as costs associated with integrating the Crystal Decisions business with our business, which currently cannot be reasonably estimated. We cannot provide any assurance that the combined company will not incur additional material
charges in subsequent quarters to reflect additional costs associated with the transaction.



Provisions of the merger agreement may discourage other companies from entering into a merger or other business combination with us which might otherwise benefit our shareholders.



The merger agreement prohibits us, subject to certain limited exceptions, from soliciting or
encouraging any discussions regarding a proposal to enter into any business combination, such as a merger, that would result in a change of control of us or a sale of all or substantially all of our shares or assets, if any such business combination
would be reasonably likely to adversely affect our ability to consummate the transaction with Crystal Decisions without material delay or require a vote of our shareholders prior to our meeting of shareholders to approve the transaction. These
restrictions may discourage other companies from entering into a merger or other business combination with us which might otherwise benefit our shareholders.



Risks Related to Our Business



We target our products to one market and if sales of our products in this market decline, our operating results will be seriously harmed.



We generate substantially all of our revenues from licensing and service fees generated from
the sale of our products in the business intelligence software market and we expect to continue to do so in the future. Accordingly, our future revenues and profits will depend significantly on our ability to further penetrate the business
intelligence software market. If we are not successful in selling our products in our targeted market due to competitive pressures, technological advances by others or otherwise, our operating results would suffer. The United States and Europe are
two of the largest geographic markets. We expect that the softening of demand for business intelligence software caused by a weak economy in Europe and economic uncertainties in the United States will continue through at least the quarter ending
December 31, 2003.



Our quarterly operating results are subject to
fluctuations, which may affect our stock price.



Historically, our
quarterly operating results have varied substantially from quarter to quarter and we anticipate this pattern to continue. This is principally because our net license fees are variable from quarter to quarter, while a high percentage of our operating
expenses are relatively fixed and are based on anticipated levels of revenues. In addition, we expect our expenses to increase as our business grows. If revenues earned in any particular quarter fall short of anticipated revenue levels, our
quarterly operating results and our stock price could be significantly harmed.



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While the variability of our net license fees is partially due to factors that would influence the quarterly results of
any company, our business is particularly susceptible to quarterly variations because:



| |  | We typically receive a substantial amount of our revenues in the last weeks of the last month of a quarter, rather than evenly throughout the quarter;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our strongest quarter each year is typically our fourth quarter, as our customers often wait for the end of their annual budget cycle before deciding whether to purchase new
software. Consequently, our revenues are generally lower in our first quarter. In addition, our third quarter is a relatively slow quarter due to less economic activity throughout Europe during the summer months;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Customers may delay purchasing decisions in anticipation of our new products or product enhancements or platforms or announced pricing changes by us or our competitors;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We partly depend on large orders which may take several months to finalize. A delay in closing a large order may result in the realization of potentially significant net license
fees being postponed from one quarter to the next; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our revenues are also sensitive to the timing of our competitors offers of new products that successfully compete with ours on the basis of functionality, price or otherwise.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of the above, quarter-to-quarter comparisons of our
revenues and operating results may not be meaningful and you should not rely on them as indicative of our future performance.



Our stock price is susceptible to our operating results and to stock market fluctuations.



In future quarters, our operating results may be below the expectations of public market analysts and investors and the price of our shares
may fall. In addition, the stock markets in the United States and France have experienced significant price and volume fluctuations, which have particularly affected the market prices of many software companies and which have often been unrelated to
the operating performance of these companies. These market fluctuations have affected our stock price and could affect our stock price in the future.



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



Our products and platforms are internally complex and occasionally contain defects or
errors, especially when first introduced or when new versions or enhancements are released. Despite extensive testing, we may not detect errors in our new products, platforms or product enhancements until after we have commenced commercial
shipments. We began shipment of our new release, Enterprise 6, the update to our suite of business intelligence products in the second quarter of 2003. If defects and errors are discovered after commercial release of either Enterprise 6 or other new
versions or enhancements of our products and platforms:



| |  | Potential customers may delay or forego purchases;
| | - | --------------------------------------------------



| |  | Our reputation in the marketplace may be damaged;
| | - | -------------------------------------------------



| |  | We may incur additional service and warranty costs; and
| | - | -------------------------------------------------------



| |  | We may have to divert additional development resources to correct the defects and errors.
| | - | -----------------------------------------------------------------------------------------



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If any or all of the foregoing occur, we may lose revenues or incur higher operating expenses and lose market share, any
of which could severely harm our financial condition and operating results.



We may have difficulties providing and managing the increased technical stability, performance and support requirements of an evolving market, which could cause a decline in our revenues and an increase in our expenses.



We are increasingly focusing our selling efforts on larger, enterprise-wide deployments
of our products. We may have difficulty providing and managing these increased technical requirements. These potential difficulties could cause us to lose existing customers, limit us to smaller deployments and cause us to expand our research and
development and technical support costs which could cause a decline in our revenues and an increase in our expenses.



The protection of our intellectual property is crucial to our business and, if third parties use our intellectual property without our consent, it could damage our
business.



Our success depends, in part, on our ability to protect our
proprietary rights in our intellectual property. Despite precautions we take to protect these rights, unauthorized third parties could copy aspects of our current or future software and platforms or obtain and use information that we regard as
proprietary. Policing unauthorized use of software is difficult and some foreign laws do not protect our proprietary rights to the same extent as in the United States or France.



In addition, although our name, together with our logo, is registered as a trademark in France, the United States and a number of other
countries, we may have difficulty asserting our ownership rights in the name Business Objects as some jurisdictions consider the name Business Objects to be generic or descriptive in nature. As a result, we may be unable to
effectively police unauthorized use of our name or otherwise prevent the name of our software products from becoming a part of the public domain.



To protect our proprietary rights, we may become involved in litigation, which could be costly and negatively impact our operating results. For example, we successfully
settled patent infringement claims against Brio in 1999 and Cognos in May of 2002 and are currently involved with a patent infringement claim against MicroStrategy Inc. and Informatica (see note 9 of the condensed consolidated financial statements).
Litigating claims related to our proprietary rights can be very expensive in terms of management time and resources, which could cause our financial condition and operating results to suffer.



Third parties could assert that our technology infringes their proprietary rights, which
could adversely affect our ability to distribute our products and result in costly litigation.



We believe that software products offered in our target markets increasingly will be subject to infringement claims as the number of products and competitors in our industry segment grows and product functionalities
begin to overlap.



The potential effects on our business operations resulting
from any third party infringement claim that may be filed against us in the future include the following:



| |  | We could be forced to cease selling our products;
| | - | -------------------------------------------------



| |  | We would be forced to commit management resources to resolve the claim;
| | - | -----------------------------------------------------------------------



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| |  | We may incur substantial litigation costs in defense of the claim;
| | - | ------------------------------------------------------------------



| |  | We may be required to indemnify our customers;
| | - | ----------------------------------------------



| |  | We may have to expand significant development resources to redesign our products as a result of these claims; and
| | - | -----------------------------------------------------------------------------------------------------------------



| |  | We may be required to enter into royalty and licensing agreements with a third party bringing an infringement claim against us and these agreements may contain terms that are
unfavorable to us.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See Note 9 in Item 1 of this Form 10-Q for a
summary of current patent related legal proceedings.



We depend on strategic
relationships and business alliances for continued growth of our business.



Our development, marketing and distribution strategies rely increasingly on our ability to form long-term strategic relationships with major vendors, many of whom are substantially larger than Business Objects. These business relationships
often consist of joint marketing programs or partnerships with original end manufacturer or value added resellers. Although certain aspects of some of these relationships are contractual in nature, many important aspects of these relationships
depend on the continued cooperation of each party with us. Divergence in strategy, change in focus, competitive product offerings or contract defaults by any of these companies may interfere with our ability to develop, market, sell, or support our
products, which in turn could harm our business. Although no one of our resellers accounted for a material percent of our total revenue in 2002, in 2003 one of our largest resellers terminated its co-marketing agreement. This termination did not
have a material effect on our results of operations for the second or third quarter of 2003. If one or more of our other largest resellers were to terminate their co-marketing agreement with us it could have a material adverse effect on our
business, financial condition and results of operations. In addition, one or more of these companies may use the information they gain from their relationship with us to develop or market competing products.



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



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



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Our executive officers and key personnel are critical to our business; we may not be able to recruit and retain the
personnel we need to succeed.



Our success depends to a significant extent
upon a number of key management and technical personnel, including Bernard Liautaud, our chief executive officer and co-founder, the loss of whom could adversely affect our business. The loss of the services of other key personnel or our inability
to attract and retain highly skilled technical, management, sales and marketing personnel could also harm our business. Competition for such personnel in the computer software industry is intense and we may be unable to successfully attract and
retain such personnel.



We have multinational operations that are subject to
risks inherent in international operations, including currency exchange rate fluctuations.



Because we conduct our business throughout the world, we are subject to a number of risks inherent in international operations, including different economies, compliance with various foreign laws, regulations and tax
structures and longer accounts receivable payment cycles outside of the United States.



In addition, we conduct a significant portion of our business in currencies other than the U.S. dollar, the currency in which we report our financial statements. We generate a significant portion of our revenues and expenses in the euro. As
a result, our operating results expressed in U.S. dollars have been in the past and may be in the future, adversely impacted by currency exchange rate fluctuations on the U.S. dollar value of foreign currency-denominated revenues and expenses. As of
September 30, 2003, we were not engaged in a foreign currency hedging program to cover our currency transaction or translation exposure. The impact of foreign currency exchange rate fluctuations on the results of operations for the third quarter and
first three quarters of 2003 and 2002 are discussed in this Managements Discussion and Analysis under the title Earnings.



We may be required to recognize additional non-cash charges against earnings if our management were to determine in the future that the remaining balance of goodwill
was impaired.



Based upon a valuation of Acta Technologys intangible
assets, a significant portion of the purchase price was allocated to goodwill. In accordance with FAS 142, goodwill recorded as a result of this transaction will not be amortized but will be tested for impairment annually, or more frequently if
there are indicators of impairment. If our management were to determine in the future that the goodwill was impaired, we would be required to recognize a non-cash charge to write down the value of this goodwill which would reduce our earnings.



Business disruptions could seriously harm our future revenue and financial
condition and increase our costs and expenses.



A number of factors,
including natural disasters, computer viruses or failure to successfully evolve operational systems to meet evolving business conditions could cause disruption in our business which could seriously harm our revenue or financial condition and
increase our costs and expenses.



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Some of our offices are in potential earthquake or flood zones which could subject these offices, product development
facilities and associated computer systems to disruption in the event of natural disasters.



Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate our confidential information or temporarily disrupt our operations. As a result, we could incur significant
expenses in addressing problems created by security breaches of our own network. The costs to eliminate computer viruses and alleviate other security problems could be significant. The efforts to address these problems could result in interruptions,
delays or cessation of our operations.



Further, we are continually working to
upgrade and enhance our computer systems, and we anticipate implementing several system upgrades during the coming years. Failure to smoothly migrate existing systems to newer systems could cause business disruptions.



Even short-term disruptions from any of the above mentioned causes or other causes could
result in revenue disruptions, delayed product deliveries or customer service disruptions, which could result in decreases in revenue or increases in costs of operations.



Risks Related to Our Industry



Our market is highly competitive and competition could harm our ability to sell products and services and reduce our market share.



Competition could seriously harm our ability to sell software and services at prices and
terms favorable to us. If we cannot compete effectively, we may lose market share. Some of our competitors have been in business longer than us and have significantly greater financial, technical, sales, marketing and other resources than we do. In
addition, some of our competitors enjoy greater name recognition and a larger installed customer base than we do. Moreover, some of our competitors, particularly companies that offer relational database management software systems, enterprise
resource planning software systems and customer relationship management systems have well-established relationships with some of our existing and targeted customers.



In the future, any of our competitors could introduce products with more features at lower prices. Some of these companies could also bundle
existing or new products, with other more established products that they offer and compete more effectively against our products. Some of these competitors have already, or may in the future, provide their products or components of their products to
customers at no cost to the customer to gain market share. Because our products are specifically designed and targeted to the business intelligence software market, we may lose sales to competitors offering a broader range of products. Furthermore,
other companies larger than us could enter the market through internal expansion or by strategically aligning themselves with one of our current competitors and provide products that cost less than our products. We believe that the business
intelligence software tools market will continue to grow and develop and that more and more large companies may find it a desirable market in which to compete. To the extent that we are unable to effectively compete against our current and future
competitors, as a result of some or all of the factors stated above, our financial condition and operating results would suffer.



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The software market that we target is subject to rapid technological change and new product introductions.



The market for business intelligence software tools is characterized by:



| |  | rapid technological advances;
| | - | -----------------------------



| |  | changes in customer requirements; and
| | - | -------------------------------------



| |  | frequent new product introductions and enhancements.
| | - | ----------------------------------------------------



To be successful, we must develop new products, platforms and enhancements to our existing products that keep pace with technological developments, changing industry
standards and the increasingly sophisticated requirements of our customers. If we are unable to respond quickly and successfully to these developments and changes, we may lose our competitive position. In addition, even if we are able to develop new
products, platforms or enhancements to our existing products, these products, platforms and product enhancements may not be accepted in the marketplace. Our customers may defer or forego purchases of our existing products if we do not adequately
time the introduction or the announcement of new products or enhancement to our existing products, or if our competitors introduce or announce new products, platforms and product enhancements. Any of these factors could severely harm our business,
financial condition and operating results.



Recently Issued Accounting
Standards



See Note 17 to the condensed consolidated financial statements
in Item 1 of this Form 10-Q for a discussion of recent accounting pronouncements. We do not believe that either of the pronouncements discussed will have a material impact on the companys financial position, results of operations or cash
flows.



V. Critical Accounting Policies



Our consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States (GAAP). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based
upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements,
as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. We
believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of its consolidated financial statements:



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



| |  | Allowances for Doubtful Accounts
| | - | --------------------------------



| |  | Contingencies and Litigation
| | - | ----------------------------



| |  | Business Combinations
| | - | ---------------------



| |  | Impairment of Long-Lived Assets
| | - | -------------------------------



| |  | Deferred Income Tax Assets
| | - | --------------------------



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In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require
managements judgment in its application. There are also areas in which managements judgment in selecting among available alternatives would not produce a materially different result. Our senior management has reviewed these critical
accounting policies and related disclosures with our Audit Committee. See the notes to the Consolidated Financial Statements in Item 8 of our 2002 Form 10-K, which contain additional information regarding our accounting policies and other
disclosures required by GAAP.



Revenue Recognition



Our revenue recognition policy, as described in Note 4 to the condensed consolidated
financial statements in Item 1 of this Form 10-Q, is significant because revenue is a key component of our results from operations. In addition, revenue recognition determines the timing of certain expenses, such as incentive compensation. We follow
very specific and detailed guidelines in measuring revenue; however, certain judgments and estimates affect the application of the revenue policy. Revenue results are difficult to predict and any shortfall in revenue or delay in recognizing revenue
could cause operating results to vary significantly from quarter to quarter and could result in future operating losses.



Allowances for Doubtful Accounts



We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions
are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable. In determining these percentages, we
analyze our historical collection experience and current economic trends. If the historical data we use to calculate the allowance provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional
provisions for doubtful accounts may be needed and the future results of operations could be materially affected.



Contingencies and Litigation



We evaluate contingent liabilities including threatened or pending litigation in accordance with SFAS No. 5, Accounting for Contingencies. If the potential loss from any
claim or legal proceeding is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. Because of uncertainties related to these matters, accruals are based on the best information available at the time. As
additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions in the estimates of the potential liabilities could have a material impact on our
results of operations and financial position. In addition, see Part II, Item 1 of this Form 10-Q for a description of our material legal proceedings.



Business Combinations



We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, as well as to in-process research and development (IPR&D),
based on their estimated fair values.



We will perform the purchase price
allocation for the acquisition of Crystal Decisions when the transaction closes. We will be required to make significant estimates and assumptions to determine the fair values of assets acquired and liabilities assumed, especially with respect to
intangible assets.



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Critical estimates in valuing certain intangible assets include but are not limited to: future expected cash flows from
customer contracts, customer lists, distribution agreements and acquired developed technologies; expected costs to develop IPR&D into commercially viable products and estimating cash flows from projects when completed and discount rates.
Managements estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.



Other estimates associated with the accounting for acquisitions may change as additional
information becomes available regarding the assets acquired and liabilities assumed, as more fully discussed in Note 5 to the Consolidated Financial Statements in Item 8 of our 2002 Form 10-K. In addition, the Acta acquisition-related restructuring
accrual for the shutdown of excess facilities is subject to change as management executes the approved plan. For a description of valuation assumptions and estimates relating to the Acta acquisition and certain other acquisitions, see notes 5 and 13
to the Consolidated Financial Statements in Item 8 of our 2002 Form

10-K.



Impairment of Long-Lived Assets



We evaluate our identifiable intangible assets, goodwill and other long-lived assets for impairment on an annual basis and 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. Future impairment evaluations could result in impairment charges, which would result in a reduction in the
carrying value of these assets.



Deferred Income Tax Assets



We record a valuation allowance to reduce our deferred tax assets to the amount of future
tax benefit that is more likely than not to be realized. We have considered future taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event that we determine that we would not be
able to realize all or part of our net deferred tax assets, an adjustment to the deferred tax assets would be charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the net
deferred tax assets would be realized, then the previously provided valuation allowance would be reversed. Our current valuation allowance covers the estimated tax benefit from the exercise of employee stock options. When these tax benefits are
realized the valuation allowance will be reversed and credited to additional paid in capital.



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|Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk
|------- |  | ----------------------------------------------------------



The following discusses our exposure to market risk related to changes in interest rates, equity prices and foreign currency exchange rates. This discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forth in the Risk Factors section.



We maintain an investment portfolio in a variety of financial instruments, including fixed
rate corporate bonds, money market instruments, commercial paper and bank certificates of deposit. All of our cash, cash equivalents and short-term investments were classified as available-for-sale and recorded on our balance sheet at fair value
with unrealized gains or losses reported as a separate component of shareholders equity at September 30, 2003 and 2002.



As of September 30, 2003, some of our short-term investments included fixed-rate corporate bonds. These investments carry a degree of interest rate risk, as the fair
market values of fixed-rate securities decline if interest rates rise. Additionally, although the principal portion of our other investments are not subject to interest rate risk, declines in interest rates over time will reduce our interest income.
A hypothetical 10% decrease in interest rates would not have had a material effect on our consolidated financial position, earnings or cash flows.



We conduct a significant portion of our business in currencies other than the U.S. dollar, the currency in which we report our financial statements. Assets and
liabilities of our subsidiaries are translated into U.S. dollars at exchange rates in effect as of the applicable balance sheet date and any resulting translation adjustments are included as an adjustment to shareholders equity. Revenues and
expenses generated from these subsidiaries are translated at average exchange rates during the quarter the transactions occur. Gains and losses from these currency transactions are included in net earnings. Historically, we have generated a
significant portion of our revenues and incurred a significant portion of our expenses in euro, British pounds sterling and the Japanese yen. As a result, our operating results have been in the past and may be in the future, adversely impacted by
currency exchange rate fluctuations on the U.S. dollar value of foreign currency-denominated revenues and expenses. We cannot predict the effect of exchange rate fluctuations upon our future operating results. As of September 30, 2003, we were not
engaged in a foreign currency hedging program to cover our currency transaction or translation exposure.



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|Item 4. |  | Controls and Procedures
|------- |  | -----------------------



(a) Evaluation of Disclosure Controls and Procedures.



We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in our filings and submissions under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the SECs rules and forms.



(b)
Changes in internal controls.



There were no changes in our internal control
over financial reporting that occurred during the quarter ended September 30, 2003, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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##### Table of Contents

Part II. OTHER INFORMATION



|Item 1. |  | Legal Proceedings
|------- |  | -----------------



Note 9 in Item 1 of this Form 10-Q contains a summary of the Companys legal proceedings which is incorporated herein by reference.



|Item 4. |  | Submissions of Matters
|------- |  | ----------------------



None.



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



| | a) | Exhibits
| | -- | --------



2.1

Agreement and Plan of Merger, dated as of July 18, 2003, by and among Business Objects S.A., Borg Merger Sub I, Inc., Borg Merger Sub II, Inc., Borg Merger Sub III, Inc., Seagate
Software (Cayman) Holdings and Crystal Decisions, Inc. (this exhibit is incorporated by reference to the Registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on July 25, 2003 (File No.
000-24720)).2.2

Assignment, dated as of August 27, 2003, by and between Borg Merger Sub II, Inc. and Business Objects Americas (this exhibit is incorporated by reference to the Registrants
Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2003 (File No. 000-24720)).2.3

First Amendment to Agreement and Plan of Merger, dated as of August 29, 2003, by and among Business Objects S.A., Borg Merger Sub I, Inc., Business Objects Americas (as assignee
of Borg Merger Sub II, Inc.), Borg Merger Sub III, Inc., Seagate Software (Cayman) Holdings Corporation and Crystal Decisions, Inc. (this exhibit is incorporated by reference to the Registrants Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 5, 2003 (File No. 000-24720)).2.4

Amended and Restated Stockholders Agreement, dated as of October 15, 2003, by and among Business Objects S.A., New SAC, CB Cayman and certain shareholders of New SAC (this exhibit
is incorporated by reference to the Registrants Form 8-K filed with the Securities and Exchange Commission on October 17, 2003 (File No. 000-24720)).2.5

Support Agreement, dated as of July 18, 2003, by and among Business Objects S.A., Borg Merger Sub I, Inc., Borg Merger Sub II, Inc., Borg Merger Sub III, Inc. and New SAC (this
exhibit is incorporated by reference to the Registrants Form 8-K filed with the Securities and Exchange Commission on July 25, 2003 (File No. 000-24720)).




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2.6

Company Support Agreement, dated as of July 18, 2003, by and among Business Objects S.A., Borg Merger Sub I, Inc. Borg Merger Sub II, Inc., Borg Merger Sub III, Inc., and Seagate
Software (Cayman) Holdings (this exhibit is incorporated by reference to the Registrants Form 8-K filed with the Securities and Exchange Commission on July 25, 2003 (File No. 000-24720)).2.7

Support Agreement, dated as of October 15, 2003, by and among Business Objects S.A., Borg Merger Sub I, Inc., Borg Merger Sub II, Inc., Borg Merger Sub III, Inc., Business Objects
Americas and CB Cayman (this exhibit is incorporated by reference to the Registrants Form 8-K filed with the Securities and Exchange Commission on October 17, 2003 (File No. 000-24720)).2.8

Form of Voting Agreement by and among Business Objects S.A., Crystal Decisions, Inc. and certain shareholders of Business Objects, Inc. (this exhibit is incorporated by reference
to the Registrants Form 8-K filed with the Securities and Exchange Commission on July 25, 2003 (File No. 000-24720)).4.1

Form of Deposit Agreement, as amended and restated on October 15, 2003, by and among Business Objects S.A. and The Bank of New York (as Depositary and holder from time to time of
ADSs issued thereunder) and Exhibit A to the Deposit Agreement (this exhibit is incorporated by reference to the Registrants registration statement on Form F-6 filed with the Securities and Exchange Commission on October 15, 2003 (File No.
333-109712)).31.1

Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.31.2

Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.32.1

Certification of Chief Executive Officer furnished pursuant to Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C.
1350).32.2

Certification of Chief Financial Officer furnished pursuant to Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C.
1350).




| | b) | Reports on Form 8-K:
| | -- | --------------------



The Company filed or furnished five reports on Form 8-K during its third quarter ended September 30, 2003.



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##### Table of Contents

|Date Filed orFurnished |  | Description                                                                                          
|---------------------- |  | -----------------------------------------------------------------------------------------------------
|July 18, 2003          |  | The company announced preliminary second quarter earnings results.                                   
|                       | 
|July 21, 2003          |  | The company announced an agreement to acquire Crystal Decisions                                      
|                       | 
|July 25, 2003          |  | The company annonced its agreement and plan of merger to acquire Crystal Decisions.                  
|                       | 
|July 31, 2003          |  | The company announced announced its second quarter earnings results.                                 
|                       | 
|September 5, 2003      |  | The company announced an ammendment to its agreement and plan of merger to acquire Crystal Decisions.



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Business Objects S.A.



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|Date: November 14, 2003 |  |  | 
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|Date: November 14, 2003 |  |  | 
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