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

FORM 10-Q

[ X ]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2002
 
OR
 [   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to ________
 
Commission file number: 0-27358

DOCUMENTUM, INC.

(exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 95-4261421                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

|                                                 |  |           
|------------------------------------------------ |  | ----------
|6801 Koll Center Parkway, Pleasanton, California |  | 94566-7047
|(Address of principal executive offices)         |  | (Zip Code)

(Registrants telephone number, including area code): (925) 600-6800
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Act:
Nasdaq National Market
Common Stock, $0.001 par value(Title of Class)

Indicate by check mark whether the registrant 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.

The number of outstanding shares of the registrants Common Stock, par
value $0.001 per share, was
39,541,161 on April 30, 2002.



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TABLE OF CONTENTS



|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                          
|                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEET                
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS      
|                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW       
|                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION   
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                    



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FORM 10-Q
 Index

|          |  |                                                                                                   |  |        
|--------- |  | ------------------------------------------------------------------------------------------------- |  | -------
|PART I    |  | FINANCIAL INFORMATION                                                                             |  |        
|         
|Item 1.   |  | Condensed Consolidated Financial Statements                                                       |  |        
|         
|          |  | Condensed Consolidated Balance Sheet as of March 31, 2002 and December 31, 2001                   |  | Page 3 
|         
|          |  | Condensed Consolidated Statement of Operations for the three months
ended March 31, 2002 and 2001 |  | Page 4 
|         
|          |  | Condensed Consolidated Statement of Cash Flow for the three months ended
March 31, 2002 and 2001  |  | Page 5 
|         
|          |  | Notes to Condensed Consolidated Financial Statements                                              |  | Page 6 
|         
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations             |  | Page 11
|         
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                                        |  | Page 24
|         
|PART II   |  | OTHER INFORMATION                                                                                 |  |        
|         
|Item 6.   |  | Exhibits and Reports on Form 8-K                                                                  |  | Page 25
|         
|Signature |  |                                                                                                   |  | Page 26



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PART I. FINANCIAL INFORMATION




ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




DOCUMENTUM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except par value per share data; unaudited)*

|                                     |                                                                                                                          |                            |         |           |         |              |         |         |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------- | --------- | ------- | ------------ | ------- | ------- | ------- | 
|                                     |                                                                                                                          |                            |         | March 31, |         | December 31,
|                                     |                                                                                                                          |                            |         | 2002      |         | 2001        
|                                     |                                                                                                                          |                            |         |           |         |             
|ASSETS                               |                                                                                                                          |                            |         |           |         |              |         |        
|Current assets:                      |                                                                                                                          |                            |         |           |         |              |         |        
|                                     | Cash and cash equivalents                                                                                                |                            | $       | 52,978    |         |              | $       | 48,420  |        
|                                     | Short-term investments                                                                                                   |                            |         | 43,096    |         |              |         | 37,842  |        
|                                     | Accounts receivable, net                                                                                                 |                            |         | 38,346    |         |              |         | 45,811  |        
|                                     | Other current assets                                                                                                     |                            |         | 26,151    |         |              |         | 24,664  |        
|                                     |                                                                                                                          |                            |         |           |         |              |         |        
|                                     |                                                                                                                          | Total current assets       |         |           | 160,571 |              |         |         | 156,737 | 
|Property and equipment, net          |                                                                                                                          |                            | 31,933  |           |         |              | 34,135  |        
|Long-term investments                |                                                                                                                          |                            | 8,083   |           |         |              | 6,589   |        
|Other assets                         |                                                                                                                          |                            | 19,175  |           |         |              | 18,429  |        
|                                     |                                                                                                                          |                            |         |           |         |              |         |        
|                                     |                                                                                                                          | $                          | 219,762 |           |         | $            | 215,890 |        
|                                     |                                                                                                                          |                            |         |           |         |              |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                          |                            |         |           |         |              |         |        
|Current liabilities:                 |                                                                                                                          |                            |         |           |         |              |         |        
|                                     | Accounts payable                                                                                                         |                            | $       | 3,805     |         |              | $       | 3,056   |        
|                                     | Accrued liabilities                                                                                                      |                            |         | 39,477    |         |              |         | 46,052  |        
|                                     | Deferred revenue                                                                                                         |                            |         | 32,529    |         |              |         | 27,088  |        
|                                     | Current portion of capital lease obligation                                                                              |                            |         | 46        |         |              |         | 77      |        
|                                     |                                                                                                                          |                            |         |           |         |              |         |        
|                                     |                                                                                                                          | Total current liabilities  |         |           | 75,857  |              |         |         | 76,273  | 
|                                     |                                                                                                                          |                            |         |           |         |              |         |        
|Other long-term liabilities          |                                                                                                                          |                            | 662     |           |         |              | 686     |        
|                                     |                                                                                                                          |                            |         |           |         |              |         |        
|Stockholders equity:                |                                                                                                                          |                            |         |           |         |              |         |        
|                                     | Preferred stock, $0.001 par value; 5,000 shares
authorized;
none issued and outstanding                                  |                            |         |          |         |              |         |        |        
|                                     | Common stock, $0.001 par value; 100,000 shares
authorized; 39,524 and 38,979 shares issued and outstanding,
respectively |                            |         | 40        |         |              |         | 39      |        
|                                     | Additional paid-in capital                                                                                               |                            |         | 203,277   |         |              |         | 196,874 |        
|                                     | Accumulated other comprehensive loss                                                                                     |                            |         | (1,315    | )       |              |         | (911    | )      
|                                     | Accumulated deficit                                                                                                      |                            |         | (58,759   | )       |              |         | (57,071 | )      
|                                     |                                                                                                                          |                            |         |           |         |              |         |        
|                                     |                                                                                                                          | Total stockholders equity |         |           | 143,243 |              |         |         | 138,931 | 
|                                     |                                                                                                                          |                            |         |           |         |              |         |        
|                                     |                                                                                                                          | $                          | 219,762 |           |         | $            | 215,890 |        
|                                     |                                                                                                                          |                            |         |           |         |              |         |        

*Certain prior year balances have been reclassified to conform to current years presentation.
 
See accompanying notes to condensed consolidated financial statements.



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DOCUMENTUM, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data; unaudited)*

|                                              |                            |                         |        |                    |        |      |         |        |        | 
|--------------------------------------------- | -------------------------- | ----------------------- | ------ | ------------------ | ------ | ---- | ------- | ------ | ------ | 
|                                              |                            |                         |        | Three Months Ended
|                                              |                            |                         |        | March 31,         
|                                              |                            |                         |        |                   
|                                              |                            |                         |        | 2002               |        | 2001
|                                              |                            |                         |        |                    |        |     
|Revenue:                                      |                            |                         |        |                    |        |      |         |       
|                                              | License                    |                         | $      | 25,132             |        |      | $       | 20,841 |       
|                                              | Service                    |                         |        | 25,466             |        |      |         | 25,000 |       
|                                              |                            |                         |        |                    |        |      |         |       
|                                              |                            |                         | 50,598 |                    |        |      | 45,841  |       
|                                              |                            |                         |        |                    |        |      |         |       
|Cost of revenue:                              |                            |                         |        |                    |        |      |         |       
|                                              | License                    |                         |        | 1,749              |        |      |         | 1,680  |       
|                                              | Service                    |                         |        | 12,851             |        |      |         | 13,531 |       
|                                              |                            |                         |        |                    |        |      |         |       
|                                              |                            |                         | 14,600 |                    |        |      | 15,211  |       
|                                              |                            |                         |        |                    |        |      |         |       
|Gross profit                                  |                            |                         | 35,998 |                    |        |      | 30,630  |       
|                                              |                            |                         |        |                    |        |      |         |       
|Operating expense:                            |                            |                         |        |                    |        |      |         |       
|                                              | Sales and marketing        |                         |        | 23,765             |        |      |         | 28,651 |       
|                                              | Research and development   |                         |        | 9,000              |        |      |         | 9,675  |       
|                                              | General and administrative |                         |        | 6,088              |        |      |         | 6,903  |       
|                                              |                            |                         |        |                    |        |      |         |       
|                                              |                            | Total operating expense |        |                    | 38,853 |      |         |        | 45,229 | 
|                                              |                            |                         |        |                    |        |      |         |       
|Loss from operations                          |                            |                         | (2,855 | )                  |        |      | (14,599 | )     
|Interest and other income, net                |                            |                         | 444    |                    |        |      | 1,191   |       
|                                              |                            |                         |        |                    |        |      |         |       
|Loss before income taxes                      |                            |                         | (2,411 | )                  |        |      | (13,408 | )     
|Provision for (benefit from) income taxes     |                            |                         | (723   | )                  |        |      | 1,341   |       
|                                              |                            |                         |        |                    |        |      |         |       
|Net loss                                      |                            | $                       | (1,688 | )                  |        | $    | (14,749 | )     
|                                              |                            |                         |        |                    |        |      |         |       
|Basic loss per share                          |                            | $                       | (0.04  | )                  |        | $    | (0.40   | )     
|                                              |                            |                         |        |                    |        |      |         |       
|Diluted loss per share                        |                            | $                       | (0.04  | )                  |        | $    | (0.40   | )     
|                                              |                            |                         |        |                    |        |      |         |       
|Shares used to compute basic loss per share   |                            |                         | 39,259 |                    |        |      | 37,327  |       
|                                              |                            |                         |        |                    |        |      |         |       
|Shares used to compute diluted loss per share |                            |                         | 39,259 |                    |        |      | 37,327  |       
|                                              |                            |                         |        |                    |        |      |         |       

*Certain prior year balances have been reclassified to conform to current years presentation.
 
See accompanying notes to condensed consolidated financial statements.



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DOCUMENTUM, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(in thousands; unaudited)

|                                                 |                                                                                           |                                            |                                       |                                                     |       |                              |        |         |       |        |        |  
|------------------------------------------------ | ----------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------- | --------------------------------------------------- | ----- | ---------------------------- | ------ | ------- | ----- | ------ | ------ | -
|                                                 |                                                                                           |                                            |                                       |                                                     |       | Three Months Ended March 31,
|                                                 |                                                                                           |                                            |                                       |                                                     |       |                             
|                                                 |                                                                                           |                                            |                                       |                                                     |       | 2002                         |        | 2001   
|                                                 |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|Cash flows from operating activities:            |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|                                                 | Net loss                                                                                  |                                            | $                                     | (1,688                                              | )     |                              | $      | (14,749 | )    
|                                                 | Adjustments to reconcile net loss to net cash
provided by (used in)
operating activities: |                                            |                                       |                                                     |       |                              |        |         |      
|                                                 |                                                                                           | Loss on sale of fixed assets               |                                       |                                                     | 72    |                              |        |         |      |       
|                                                 |                                                                                           | Depreciation and amortization              |                                       |                                                     | 3,615 |                              |        |         | 3,163 |       
|                                                 |                                                                                           | Provision for doubtful accounts            |                                       |                                                     | 954   |                              |        |         | 1,171 |       
|                                                 |                                                                                           | In
process research and development charge |                                       |                                                     | 25    |                              |        |         |      |       
|                                                 |                                                                                           | Changes in assets and liabilities:         |                                       |                                                     |       |                              |        |         |       |       
|                                                 |                                                                                           |                                            | Accounts receivable                   |                                                     |       | 6,511                        |        |         |       | 8,458  |       
|                                                 |                                                                                           |                                            | Other current assets and other assets |                                                     |       | (837                         | )      |         |       | (784   | )     
|                                                 |                                                                                           |                                            | Accounts payable                      |                                                     |       | 749                          |        |         |       | (2,235 | )     
|                                                 |                                                                                           |                                            | Accrued liabilities                   |                                                     |       | (6,879                       | )      |         |       | (7,616 | )     
|                                                 |                                                                                           |                                            | Deferred revenue                      |                                                     |       | 5,441                        |        |         |       | 8,103  |       
|                                                 |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|                                                 |                                                                                           |                                            |                                       | Net cash provided by (used in) operating activities |       |                              | 7,963  |         |       |        | (4,489 | )
|                                                 |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|Cash flows from investing activities:            |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|                                                 | Purchases of investments                                                                  |                                            |                                       | (39,269                                             | )     |                              |        | (15,518 | )    
|                                                 | Sales and maturities of investments                                                       |                                            |                                       | 32,281                                              |       |                              |        | 18,651  |      
|                                                 | Purchases of property and equipment                                                       |                                            |                                       | (1,476                                              | )     |                              |        | (2,201  | )    
|                                                 | Cash used in acquisition of business                                                      |                                            |                                       | (1,138                                              | )     |                              |        |        |      
|                                                 |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|                                                 |                                                                                           |                                            |                                       | Net cash provided by (used in) investing activities |       |                              | (9,602 | )       |       |        | 932    |  
|                                                 |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|Cash flows from financing activities:            |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|                                                 | Issuance of common stock                                                                  |                                            |                                       | 6,404                                               |       |                              |        | 6,875   |      
|                                                 | Payments on capital lease obligations                                                     |                                            |                                       | (43                                                 | )     |                              |        | (65     | )    
|                                                 |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|                                                 |                                                                                           |                                            |                                       | Net cash provided by financing activities           |       |                              | 6,361  |         |       |        | 6,810  |  
|                                                 |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|Effect of exchange rate changes on cash          |                                                                                           |                                            | (164                                  | )                                                   |       |                              | (627   | )      
|                                                 |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|Net increase in cash and cash equivalents        |                                                                                           |                                            | 4,558                                 |                                                     |       |                              | 2,626  |        
|Cash and cash equivalents at beginning of period |                                                                                           |                                            | 48,420                                |                                                     |       |                              | 43,918 |        
|                                                 |                                                                                           |                                            |                                       |                                                     |       |                              |        |        
|Cash and cash equivalents at end of period       |                                                                                           | $                                          | 52,978                                |                                                     |       | $                            | 46,544 |        
|                                                 |                                                                                           |                                            |                                       |                                                     |       |                              |        |        

See accompanying notes to condensed consolidated financial statements.



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DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 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 for interim financial information and with the instructions
in Form 10-Q and Article 10 of Regulation S-X. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments except as
described in Notes 6, 7, and 11, have been recorded as necessary to present
fairly Documentums (the Companys) consolidated financial position, results of
operations and cash flow for the periods presented. These financial statements
should be read in conjunction with the Companys audited consolidated financial
statements included in the Companys 2001 Annual Report on Form 10-K. The
consolidated results of operations for the period ended March 31, 2002 are not
necessarily indicative of the results that may be expected for any future
period.

Note 2. Use of Estimates

The preparation of these financial statements requires that the Company make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent
assets and liabilities. On an ongoing basis, the Company evaluates its
estimates including those related to revenue recognition, allowance for bad
debts, income taxes, commission expense accrual, and useful lives of intangible
assets and property and equipment, among others. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from the estimates made by management with respect to these items
and other items that require managements estimates.

During the quarter ended March 31, 2002, the Company recognized a benefit, net
of tax, of approximately $0.5 million to revise the estimate used to determine
the accrual for commission expense at December 31, 2001 to the actual expense
incurred.

Note 3. Change in Accounting Principles

On January 1, 2002, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 142, Goodwill and Other Intangible Assets, SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, and the
Financial Accounting Standards Board (FASB) staff issued Topic No. D-103,
Income Statement Characterization of Reimbursements Received for Out of Pocket
Expenses Incurred (Topic D-103).

SFAS No. 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for impairment at
least annually, and more frequently upon the occurrence of certain events.
The Companys recorded goodwill and intangible assets at January 1, 2002
related soley to the acquisition of certain assets of Bulldog, Inc., on
December 5, 2001. The useful lives assigned to the acquired intangibles at the
time of the acquisition was considered appropriate at March 31, 2002.
Intangibles not subject to amortization are considered insignificant.
Accordingly, the Company has determined that no transitional impairment exists
as a result of the full adoption of SFAS No. 142 at March 31, 2002. Goodwill
will be tested for impairment annually on August 1. As of March 31, 2002,
the Company does not have any goodwill that it considers impaired.

In accordance with SFAS No. 144, the Company evaluates long-lived assets,
including intangible assets other than goodwill, for impairment whenever events
or changes in circumstances indicate that the carrying value of an asset may
not be recoverable based on expected undiscounted cash flows attributable to
that asset. At March 31, 2002, the Company does not have any long-lived assets
that it considers to be impaired.

Topic D-103 requires companies to characterize reimbursements received for
out-of-pocket expenses as revenue in the income statement instead of as a
reduction to the related expense. Upon the adoption of Topic D-103,



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DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

comparative financial statements for prior periods must be reclassified to
comply with the guidance in this announcement. The adoption of Topic D-103
resulted in a reclassification of $0.5 million and $0.6 million from cost of
service revenue to service revenue for the three month periods ended March 31,
2002 and 2001, respectively.

Note. 4. Recent Accounting Pronouncements

In March 2002, the FASBs Emerging Issues Task Force (EITF) reached a final
consensus on EITF No. 02-7, Unit of Measure for Testing Impairment of
Indefinite-Lived Intangible Assets. EITF No. 02-7, defines the unit of measure
for testing impairment of indefinite-lived intangible assets (whether acquired
or internally-developed) that are operated as a single asset to be essentially
inseparable from one another.

In July 2001, the EITF reached a final consensus on EITF No. 00-25, Vendor
Income Statement Characterization of Consideration Paid to a Reseller of the
Vendors Products. EITF 00-25 generally requires that consideration, including
equity instruments, given to a customer be classified in a vendors financial
statements not as an expense, but as a reduction to revenue up to the amount of
cumulative revenue recognized or to be recognized. In November 2001, the EITF
reached a consensus on EITF No. 01-09, Accounting for Consideration Given by a
Vendor to a Customer or Reseller of the Vendors Products. EITF 01-09
clarifies and modifies certain items discussed in EITF 00-25. The impact of
adoption of EITF No. 00-25 and EITF No. 01-09 was immaterial for the three
months ended March 31, 2002 and 2001.

Note 5. Foreign Currency, Derivative Financial Instruments and Hedging
Activities

The Company considers the U.S. dollar to be its functional currency for certain
of its foreign subsidiaries and the local currency for all other foreign
subsidiaries. For subsidiaries where the local currency is the functional
currency, the assets and liabilities are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Income and expense items
are translated at the daily current exchange rates. Gains and losses from
translation are included in Accumulated other comprehensive loss. Gains and
losses resulting from remeasuring monetary asset and liability accounts that
are denominated in currencies other than a subsidiarys functional currency are
included in Interest and other income, net. Total foreign currency losses
were $0.1 million and $0.3 million for the three months ended March 31, 2002
and 2001, respectively.

As indicated in the Companys 2001 Annual Report on Form 10-K, the Company
adopted SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities as amended by SFAS No. 138, effective January 1, 2001, which
requires that all derivatives be recorded on the balance sheet at fair value.

The Company uses foreign currency forward contracts to hedge receivables and
payables denominated in foreign currency and intercompany receivables and
payables. The principal foreign currencies hedged are the British pound and the
Euro using foreign currency forward contracts ranging in periods from one to
nine months. Forward contracts are accounted for on a mark-to-market basis,
with realized and unrealized gains or losses recognized in the current period.
Gains or losses arising from forward contracts that were effective as a hedge
are included in the basis of the designated transactions. The related
receivable or liability with counterparties to the forward contracts are
recorded in the consolidated balance sheet. Cash flows from settlements of
forward contracts are included in operating activities in the consolidated
statements of cash flows. Forward contracts to hedge foreign currency
transaction exposure of $7.0 million were outstanding at March 31, 2002.

Note 6. Business Acquisitions

On January 23, 2002, the Company acquired privately-held Boxcar Software, Inc.
in exchange for consideration totaling $1.4 million, which was comprised of
cash consideration of $1.3 million and $0.1 million in acquisition costs. The
acquisition was accounted for using the purchase method of accounting on the
date of acquisition. Boxcar is a provider of content aggregation and
distribution technology allowing companies to gather content, from any source,
including web sites, public folders, file systems and legacy applications and
distribute the content in any format and to any destination. In connection with
the purchase, the Company recorded goodwill of $0.9 million and



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DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

various intangible and other assets totaling $0.5 million. Intangible assets
primarily relate to the value of existing technology and non-compete agreements
and are being amortized on a straight-line basis over the estimated useful
lives of five years and three years, respectively. The goodwill of $0.9 million
is not subject to amortization. Pro forma disclosures, as if the business had
been acquired on January 1, 2002 and 2001, respectively, have been omitted as
revenue, net income and earnings per share would not differ materially from the
amounts reported.

Note 7. Restructuring Charges

In the second quarter of fiscal 2001, in connection with managements plan to
reduce costs and improve operating efficiencies, the Company recorded a
restructuring charge of $3.8 million. The restructuring charge was comprised
primarily of severance and benefits related to the involuntary termination of
approximately 124 employees and cancellation of outstanding accepted offers of
employment. Approximately 86% of these individuals were based in the United
States and the remainder were based in Europe.

In the fourth quarter of fiscal 2001, in connection with managements plan to
further reduce the Companys expense structure and improve operating
efficiencies, the Company recorded a restructuring charge of $2.5 million. The
restructuring charge was comprised primarily of severance and benefits related
to the involuntary termination
of approximately 83 employees, of which approximately 80% were based in the
United States and the remainder were based in Europe.

The Companys restructuring charge in the quarter ended June 30, 2001 included
an accrual to be used to offset future lease payments, net of estimated
sublease income that relates to abandoned properties. The Company worked with
external real estate experts in each of the markets where the properties are
located to determine the best estimate of the accrual. However, if the real
estate market continues to worsen and the Company is not able to sublease the
properties as expected, additional adjustments to the accrual may be required,
which would result in additional restructuring costs in the period such
determination is made. Likewise, if the real estate market strengthens, and the
Company is able to sublease the properties earlier or at more favorable rates
than projected, adjustments to the accrual may be required that would increase
net income in the period such determination is made.

The following table sets forth an analysis of the components of the
restructuring charges recorded in the second and fourth quarters of fiscal
2001:

|                       |  |           |           |         |  |       |         |  |  |   |           | 
|---------------------- |  | --------- | --------- | ------- |  | ----- | ------- |  |  | - | --------- | 
|                       |  | Severance |           |         |  |       |         |  |  |  
|                       |  | and       |           | Other   |  |       |         | 
|Quarter ended          |  | Benefits  |           | Charges |  | Total
|                       |  |           |           |         |  |      
|December 31, 2001:     |  |           |           |         |  |       |         |  |  |   |           | 
|Severance and benefits |  | $         | 2,410,288 |         |  | $     |        |  |  | $ | 2,410,288 | 
|Other                  |  |           |          |         |  |       | 43,362  |  |  |   | 43,362    | 
|                       |  |           |           |         |  |       |         |  |  |   |           | 
|Total
charge           |  | $         | 2,410,288 |         |  | $     | 43,362  |  |  | $ | 2,453,650 | 
|                       |  |           |           |         |  |       |         |  |  |   |           | 
|June 30, 2001:         |  |           |           |         |  |       |         |  |  |   |           | 
|Severance and benefits |  | $         | 3,359,837 |         |  | $     |        |  |  | $ | 3,359,837 | 
|Accrued lease costs    |  |           |          |         |  |       | 355,728 |  |  |   | 355,728   | 
|Other                  |  |           |          |         |  |       | 101,863 |  |  |   | 101,863   | 
|                       |  |           |           |         |  |       |         |  |  |   |           | 
|Total
charge           |  | $         | 3,359,837 |         |  | $     | 457,591 |  |  | $ | 3,817,428 | 
|                       |  |           |           |         |  |       |         |  |  |   |           | 



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DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table sets forth the Companys restructuring reserves as of March
31, 2002:

|                          |  |           |            |         |  |       |          |   |  |   |            |  
|------------------------- |  | --------- | ---------- | ------- |  | ----- | -------- | - |  | - | ---------- | -
|                          |  | Severance |            |         |  |       |          |   |  |  
|                          |  | and       |            | Other   |  |       |          |  
|Restructuring reserves    |  | Benefits  |            | Charges |  | Total
|                          |  |           |            |         |  |      
|Restructuring charges     |  | $         | 5,770,125  |         |  | $     | 500,953  |   |  | $ | 6,271,078  |  
|Cash paid                 |  |           | (5,294,513 | )       |  |       | (256,454 | ) |  |   | (5,550,967 | )
|                          |  |           |            |         |  |       |          |   |  |   |            |  
|Balance at March 31, 2002 |  | $         | 475,612    |         |  | $     | 244,499  |   |  | $ | 720,111    |  
|                          |  |           |            |         |  |       |          |   |  |   |            |  

The Companys remaining reserve balance of $0.7 million consists of $0.6
million of current liabilities to be paid out during fiscal 2002, and $0.1
million of long-term liabilities related to facilities lease obligations, net
of sub-lease income, under non-cancelable leases through fiscal 2005.

Note 8. Comprehensive loss

Comprehensive loss is comprised of net loss and other non-owner changes in
stockholders equity, including foreign currency translation gains/losses and
unrealized gains or losses on available-for-sale marketable securities. The
Companys unrealized gains and losses on available-for-sale marketable
securities were insignificant for the period ended March 31, 2002 and 2001. The
Companys total comprehensive loss was as follows (in thousands):

|                          |                                         |                    |        |                              |        |      |         |      |         |  
|------------------------- | --------------------------------------- | ------------------ | ------ | ---------------------------- | ------ | ---- | ------- | ---- | ------- | -
|                          |                                         |                    |        | Three Months Ended March 31,
|                          |                                         |                    |        |                             
|                          |                                         |                    |        | 2002                         |        | 2001
|                          |                                         |                    |        |                              |        |     
|Net loss                  |                                         | $                  | (1,688 | )                            |        | $    | (14,749 | )   
|Other comprehensive loss: |                                         |                    |        |                              |        |      |         |     
|                          | Foreign currency translation adjustment |                    |        | (404                         | )      |      |         | (627 | )      
|                          |                                         |                    |        |                              |        |      |         |     
|                          |                                         | Comprehensive loss |        | $                            | (2,092 | )    |         | $    | (15,376 | )
|                          |                                         |                    |        |                              |        |      |         |     

Note 9. Basic and Diluted Net Loss Per Share

Basic net loss per share is computed using the weighted average number of
shares of common stock. Diluted net loss
per share is computed using the weighted average number of shares of common
stock and common equivalent shares outstanding during the period. Common
equivalent shares consist of stock options (using the treasury stock method).
Common equivalent shares are excluded from the computation if their effect is
anti-dilutive.

Weighted average options to purchase 3,888,407 and 7,239,352 shares of common
stock at prices ranging from $0.50 to $21.50 and $0.50 to $32.06 were
outstanding during the three months ended March 31, 2002 and 2001,
respectively, but were excluded from the computation of diluted net loss per
share if either the options exercise price was greater than the average market
price of the common shares or inclusion of such options would have been
anti-dilutive.

Note 10. Segment Reporting

The Companys management considers its business activities to be focused on the
license of its products and related services to customers. Since managements
primary form of internal reporting is aligned with the offering of



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DOCUMENTUM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

products and services, the Company believes it operates in these two segments.
The Company does not track operating results by segment below the gross profit
line nor does the Company track long-lived assets by segment.

Internationally, the Company markets and supports its products and services
segments primarily through its subsidiaries and various distributors. Service
revenue consists of customer maintenance, consulting and education services.
Revenues are generally attributed to geographic areas based on the country in
which the customer is domiciled. For the three month period ended March 31,
2002 and 2001, no one customer accounted for more than 10% of total revenue.
Long-lived assets are attributed to geographic areas based on the country where
the assets are located.

The following table presents a breakdown of revenue and long-lived assets by
geographic region for the three months ended March 31, 2002 and 2001 (in
thousands):

|                                          |  |         |        |         |  |         |        |            |  |  |        |  |  |  |        | 
|----------------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ---------- |  |  | ------ |  |  |  | ------ | 
|                                          |  | License |        | Service |  | Total   |        | Long-Lived
|For the three months ended March 31, 2002 |  | Revenue |        | Revenue |  | Revenue |        | Assets    
|                                          |  |         |        |         |  |         |        |           
|                                          |  | $       |        | $       |  | $       |        | $         
|North America                             |  |         | 14,487 |         |  |         | 18,906 |            |  |  | 33,393 |  |  |  | 28,587 | 
|Europe                                    |  |         | 6,465  |         |  |         | 6,325  |            |  |  | 12,790 |  |  |  | 2,522  | 
|Asia/Pacific                              |  |         | 1,160  |         |  |         | 235    |            |  |  | 1,395  |  |  |  | 824    | 
|Other                                     |  |         | 3,020  |         |  |         |       |            |  |  | 3,020  |  |  |  |       | 
|                                          |  |         |        |         |  |         |        |            |  |  |        |  |  |  |        | 
|Total                                     |  |         | 25,132 |         |  |         | 25,466 |            |  |  | 50,598 |  |  |  | 31,933 | 
|                                          |  |         |        |         |  |         |        |            |  |  |        |  |  |  |        | 

|                                          |  |         |        |         |  |         |        |            |  |  |        |  |  |  |        | 
|----------------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ---------- |  |  | ------ |  |  |  | ------ | 
|                                          |  | License |        | Service |  | Total   |        | Long-Lived
|For the three months ended March 31, 2001 |  | Revenue |        | Revenue |  | Revenue |        | Assets    
|                                          |  |         |        |         |  |         |        |           
|                                          |  | $       |        | $       |  | $       |        | $         
|North America                             |  |         | 9,647  |         |  |         | 20,416 |            |  |  | 30,063 |  |  |  | 30,983 | 
|Europe                                    |  |         | 8,982  |         |  |         | 4,442  |            |  |  | 13,424 |  |  |  | 2,865  | 
|Asia/Pacific                              |  |         | 2,018  |         |  |         | 142    |            |  |  | 2,160  |  |  |  | 857    | 
|Other                                     |  |         | 194    |         |  |         |       |            |  |  | 194    |  |  |  |       | 
|                                          |  |         |        |         |  |         |        |            |  |  |        |  |  |  |        | 
|Total                                     |  |         | 20,841 |         |  |         | 25,000 |            |  |  | 45,841 |  |  |  | 34,705 | 
|                                          |  |         |        |         |  |         |        |            |  |  |        |  |  |  |        | 

Note 11. Subsequent Events

On April 5, 2002 the Company sold $125 million (the face value) in senior
convertible notes due April 1, 2007 (the Notes). The Notes are convertible
into shares of Documentum common stock at a conversion price of $30.02 per
share and accrue interest at a stated annual rate of 4.5% subject to customary
adjustments. The market value of the Companys common stock at April 5, 2002
was $20.29 per share. The Company received net proceeds of $121.3 million,
resulting in an effective interest rate on the Notes of 5.2%. Holders of the
Notes are entitled at any time after April 5, 2002, and before the close of
business on April 1, 2007, subject to prior redemption or repurchase, to
convert the Notes into shares of common stock. The Notes will be limited to
$125 million aggregate principal amount. The Notes may be redeemed by the
Company on or after April 5, 2005. The Notes will effectively rank behind all
other secured debt to the extent of the value of the assets securing those
debts.



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

Forward-Looking Statements

The following discussion contains forward-looking statements regarding the
Company, its business, prospects and results of operations that are subject to
certain risks and uncertainties posed by many factors and events that could
cause the Companys actual business, prospects and results of operations to
differ materially from those that may be anticipated by such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed herein as well as those discussed under
the caption Risk Factors. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date of this
report. The Company undertakes no obligation to revise any forward-looking
statements in order to reflect events or circumstances that may subsequently
arise. Readers are urged to carefully review and consider the various
disclosures made by the Company in this report and in the Companys other
reports filed with the Securities and Exchange Commission that attempt to
advise interested parties of the risks and factors that may affect the
Companys business.

Overview

Documentum provides enterprise content management (ECM) software solutions that
bring intelligence and automation to the creation, management, personalization,
and distribution of vast quantities and types of content-documents, Web pages,
XML files, and rich media - in one common content platform and repository.
Documentums platform makes it possible for companies to distribute content
globally across all internal and external systems, applications, and user
communities. From its inception in 1990 through December 1992, the Companys
activities consisted primarily of developing its products, establishing its
infrastructure and conducting market research. The Company shipped the first
commercial version of its Documentum Server product in late 1992, and since
that time substantially all of the Companys revenue has been from licenses of
its family of internet-scale content management system products and related
services, which include maintenance and support, education and consulting
services.

The Company continues to invest in research and development in order to update
its family of products and expand its market focus to deliver products to
support content management for customers, partners, and employees. In 1999, the
Company introduced Documentum 4i, an open, standards-based content management
platform. This platform allows for the creation, delivery, management and
personalization of content and the delivery of that content to an information
device, including the Web, cellular phone, pager, fax machine, printer, CD or
PDA device. In 2000 and 2001 the Company introduced four packaged Editions
based on the Documentum 4i platform. These Editions  Web Content Management,
Portal Content Management, B2B Content Management, and Compliance  offer a
tailored mix of core technology from Documentum 4i that can manage volumes of
content. In 2002, a fifth Edition  Digital Asset Management Edition  was
released.

The Company expects that license and service revenue from Documentum 4i and
newer product offerings will account for substantially all of the Companys
revenue for the foreseeable future. As a result, the Companys future operating
results are dependent upon continued market acceptance of these products.

Since inception, the Company has invested significant resources in developing
its software and related solutions, as well as building its sales, services,
marketing, and general administrative organizations. As a result, since
inception the Companys operating expenses have increased in absolute dollar
amounts and are expected to continue to increase.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Certain of our accounting policies are particularly important to develop an
understanding of our financial position and results of operations. Application
of many of these policies requires management to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses
and related disclosures. In general, these estimates or judgments are based on
the historical experience of our management, prevailing industry trends,
information provided by our customers, and information available from other
outside sources, each as appropriate. Actual results may differ from these
estimates. The Company believes the following critical accounting



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policies relate to the more significant judgments and estimates used in the
preparation of its consolidated financial statements.

Revenue Recognition

The Companys revenue is derived from the sale of licenses for its
internet-scale content management solutions and related services, which include
maintenance and support, consulting and education services. The Company
recognizes revenue in accordance with Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP
97-2, Software Revenue Recognition, with Respect to Certain Transactions and
SAB No. 101 Revenue Recognition in Financial Statements. Revenue from license
arrangements is recognized upon contract execution, provided that all shipment
obligations have been met, fees are fixed or determinable, and collection is
probable. If an undelivered element of the arrangement exists, revenue is
deferred based on vendor-specific objective evidence of the fair value of the
undelivered element. If vendor-specific objective evidence of fair value does
not exist for all undelivered elements, all revenue is deferred until
sufficient evidence exists or all elements have been delivered. Allowances for
estimated future returns are provided upon shipment. The Company recognizes
revenue on transactions with payment terms beyond its normal due date to the
extent such payments are due within nine months from contract execution date
and to the extent the Company has a history of successfully collecting under the
original payment terms for transactions with similar types of customers and
similar economics without providing concessions. License revenue from resellers
or distributors is recognized when product is sold through to the end user and
such sell through is reported to the Company. Amounts billed or payments
received in advance of revenue recognition are recorded as deferred revenue.
Revenue from annual maintenance and support agreements are deferred and
recognized ratably over the term of the contract. Revenue from consulting and
training are deferred and recognized when the services are performed and
collectibility is deemed probable.

Allowance for Bad Debts

The Company maintains an allowance for doubtful accounts which is based on
estimated losses resulting from the inability of our customers to make required
payments. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required, which would result in additional operating expense
in the period such determination was made.

Accounting for Income Taxes

The Company records a valuation allowance to reduce its deferred tax assets to
an amount that is more likely than not to be realized. If the
Companys assessment of the deferred tax asset or the
corresponding valuation allowance were to change, the related
adjustment would be charged to income in the period such
determination was made.

Sales Commission Expense

The Company uses estimates to determine the accrual for expenses that are
incurred in connection with commission accelerators that are paid to sales
personnel. Commission accelerators are typically paid to sales personnel that
have exceeded quota for a given period of time that are above and beyond their
typical commission rate. In general, these estimates are based on the
historical experience of our sales personnel, sales forecasts and the current
performance of the sales personnel based upon the most current information
available to management. However, because of the multiplier effect of the
commission accelerators actual results may differ from the period-end
accruals.

Impairment of Long-Lived Assets

The Company tests goodwill for impairment in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 requires that
goodwill be tested for impairment at least annually and more frequently upon
the occurrence of certain events, as defined by SFAS 142. Goodwill will be
tested for impairment annually on August 1.

The Company evaluates all of its long-lived assets, including intangible assets
other than goodwill, for impairment in accordance with the provisions of SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144). SFAS 144 requires that long-lived assets and intangible assets other than
goodwill be evaluated for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable based on expected undiscounted cash flows attributable to that
asset. Should events indicate that any of



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the Companys assets are impaired, the amount of such impairment will be
measured as the difference between the carrying value and the fair value of the
impaired asset and recorded in earnings during the period of such impairment.

Results of Operations

The following table sets forth the condensed consolidated statement of
operations expressed as a percentage of total revenue for the periods
indicated:

|                                          |                            |                         |     |                    |    |      |     |    |    |  
|----------------------------------------- | -------------------------- | ----------------------- | --- | ------------------ | -- | ---- | --- | -- | -- | -
|                                          |                            |                         |     | Three Months Ended
|                                          |                            |                         |     | March 31,         
|                                          |                            |                         |     |                   
|                                          |                            |                         |     | 2002               |    | 2001
|                                          |                            |                         |     |                    |    |     
|Revenue:                                  |                            |                         |     |                    |    |      |     |   
|                                          | License                    |                         |     | 50                 | %  |      |     | 45 | % 
|                                          | Service                    |                         |     | 50                 | %  |      |     | 55 | % 
|                                          |                            |                         |     |                    |    |     
|                                          |                            |                         | 100 | %                  |    |      | 100 | % 
|                                          |                            |                         |     |                    |    |     
|Cost of revenue:                          |                            |                         |     |                    |    |      |     |   
|                                          | License                    |                         |     | 4                  | %  |      |     | 4  | % 
|                                          | Service                    |                         |     | 25                 | %  |      |     | 29 | % 
|                                          |                            |                         |     |                    |    |     
|                                          |                            |                         | 29  | %                  |    |      | 33  | % 
|                                          |                            |                         |     |                    |    |     
|Gross profit                              |                            |                         | 71  | %                  |    |      | 67  | % 
|                                          |                            |                         |     |                    |    |     
|Operating expense:                        |                            |                         |     |                    |    |      |     |   
|                                          | Sales and marketing        |                         |     | 47                 | %  |      |     | 63 | % 
|                                          | Research and development   |                         |     | 18                 | %  |      |     | 21 | % 
|                                          | General and administrative |                         |     | 12                 | %  |      |     | 15 | % 
|                                          |                            |                         |     |                    |    |     
|                                          |                            | Total operating expense |     |                    | 77 | %    |     |    | 99 | %
|                                          |                            |                         |     |                    |    |     
|Loss from operations                      |                            |                         | (6  | %)                 |    |      | (32 | %)
|Interest and other income, net            |                            |                         | 1   | %                  |    |      | 3   | % 
|Loss before income taxes                  |                            |                         | (5  | %)                 |    |      | (29 | %)
|Provision for (benefit from) income taxes |                            |                         | (2  | %)                 |    |      | 3   | % 
|                                          |                            |                         |     |                    |    |     
|Net loss                                  |                            |                         | (3  | %)                 |    |      | (32 | %)
|                                          |                            |                         |     |                    |    |     
|As a Percentage of Related Revenue:       |                            |                         |     |                    |    |      |     |   
|Cost of license revenue                   |                            |                         | 7   | %                  |    |      | 8   | % 
|Cost of service revenue                   |                            |                         | 50  | %                  |    |      | 54  | % 

Revenue

The Company saw a slight increase in
demand for its enterprise content management solutions, as evidenced by an
increase in new customers and number of orders, compared to the same period a
year ago. The increase in number of orders resulted in higher than anticipated
total revenue and improved operating results during the current quarter, as
compared to the same period a year ago. Although the Company saw evidence of
improvement during the quarter, the environment continues to remain challenging
as technology spending continues to be highly controlled and demand for
enterprise-wide software purchases remains uncertain. No direct indicators of
an



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international economic recovery have been noted, and visibility surrounding
international economic conditions remains limited. The Company plans to
continue monitoring the status of the United States, European and Asia/Pacific
economies and, will adjust its operating plan accordingly.

License revenue increased by 21%, or $4.3 million, to $25.1 million for the
three months ended March 31, 2002 from $20.8 million for the three months ended
March 31, 2001, representing 50% and 45% of total revenue in the respective
periods. The increase in license revenue for the three months ended March 31,
2002 over the same period in 2001 in absolute dollars and as a percentage of
total revenue was due to an increase in the number of licenses sold to new
customers and an increase in the number of existing customers who purchased
additional products. The Company continues to see weakness in certain
industries affected by the poor economic conditions, including airlines and
travel and entertainment. The Company did not have any sales to a single
customer that accounted for greater than 10% of license revenue for the three
months ended March 31, 2002. For the three month period ended March 31, 2001,
the Company had sales to a single customer which accounted for $2.2 million or
11% of total license revenue.

The Companys customers include a number of its suppliers and, on occasion, the
Company has purchased goods or services for the Companys operations from these
vendors at or about the same time the Company has licensed its software to
these organizations. These transactions are separately negotiated, settled in
cash and recorded at terms the Company considers to be arms-length. During the
three month period ended March 31, 2002, the Company recognized revenue of $967
thousand from the sale of software licenses to one of the worlds largest
enterprise software companies. During the same period, the Company purchased
$392 thousand of software from this same company for use in managing its
internal corporate portal. The Company has determined that the price paid to
purchase the software is representative of fair value for the software
purchased. Accordingly, the Company has recorded both transactions at fair
value.

Service revenue increased by 2% to $25.5 million for the three months ended
March 31, 2002 from $25.0 million for the three months ended March 31, 2001,
representing 50% and 55% of total revenue in the respective periods. Service
revenue includes revenue from consulting, education, and maintenance and
support. Specifically, the Companys maintenance revenue increased by $2.0
million while consulting and education services decreased by $1.5 million
during the period ended March 31, 2002, as compared to the comparable prior
period. The maintenance increase was attributable to a larger installed base of
customers receiving ongoing maintenance and support services. The Company
continues to see maintenance renewal rates of approximately 90% of customers
making first time product license purchases. Variances in the Companys license fees during a given
quarter may impact its future consulting and education service revenue since
these revenues typically follow license fee revenues. As a result, the
decrease in the consulting and service revenue for the period ended March 31,
2002 is primarily due to lower license revenues seen in the fourth quarter of
fiscal 2001 as compared to the fourth quarter of fiscal 2000. The decrease of
service revenue as a percentage of total revenue was due to the increase in
license revenue for the period ended March 31, 2002 as described above. The
continued growth of the Companys service revenue depends on the growth of the
Companys software license revenues. With the general availability of future
upgrades of Documentums 4i enterprise content management solution, the Company
expects that demand from its installed base and new customers for consulting,
education and maintenance services will increase over the next several
quarters. However, the Company cannot give assurance that it will be successful
in expanding its consulting and education services.

The Company markets its products through its direct sales force and its
indirect channel partners. While historically the Company has generated the
majority of its revenue from its direct sales force, the Company has also
focused on complementing its direct sales channel with indirect channels,
consisting of systems integrators, technology partners, original equipment
manufacturers, distributors, and application service providers. Revenues from
indirect channel partners comprised approximately 60% and 40% of license
revenues for the three months ended March 30, 2002 and 2001, respectively. The
Company has continued to invest in channel programs and will continue to
emphasize partner relationships to expand its channels of distribution.
Revenue from indirect partners for any period is subject to significant
variations. As a result, the Company believes that period-to-period
comparisons of indirect revenue are not necessarily meaningful and should not
be relied upon as an indication of future performance.

International revenue represented 43% and 54% of license revenue for the three
months ended March 31, 2002 and 2001, respectively. The decrease in
international revenue as a percent of license revenue in 2002 was primarily due



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to an increase in total license revenue combined with a shift in the geographic
mix of license revenue, in the first three months of 2002 as compared to the
same period in 2001. As noted by the above, domestic license revenue growth
surpassed that seen in the Companys international markets. The Company
continues to experience softness in its European and Asia/Pacific markets as
customers continue to scrutinize their budgets more closely in light of limited
visibility surrounding an economic recovery. In many instances, especially with
large purchases by multinational companies, the customer has the right to
deploy the licenses anywhere in the world. Thus, the percentages discussed
herein are based upon where licenses were sold, and may or may not represent
where the products are used. As a result, the Company believes that period to
period comparisons of international revenue are not necessarily meaningful and
should not be relied upon as an indication of future performance.

Cost of revenue

Cost of license revenue consists primarily of royalties paid to third-party
vendors, packaging, documentation, production, and freight costs. Royalties,
which are paid to third parties for selected products, include both fixed and
variable fees. Cost of license revenue increased by 6% to $1.8 million for the
three months ended March 31, 2002 from $1.7 million for three months ended
March 31, 2001, representing 7% and 8% for the related license revenue for the
three months ended March 31, 2002 and 2001, respectively. The increase in cost
of license revenue for the three months ended March 31, 2002 in absolute
dollars was related to the increased license sales for the three months ended
March 31, 2002 over the comparable period in 2001. Cost of revenue decreased as
a percentage of license revenue for the three months ended March 31, 2002 over
the comparable period in 2001 due a change in the mix of products being sold as
the Company sold less royalty-bearing products as a percentage of license
revenue as compared to the same period a year ago. The Company expects the
cost of license revenue to fluctuate in absolute dollar amount and as a
percentage of total license revenue as the related license revenue fluctuates.

Cost of service revenue consists primarily of personnel-related costs incurred
in providing consulting services, education to customers and maintenance
services, which includes telephone support. Cost of service revenue decreased
by 4% to $12.9 million for the three months ended March 31, 2002 from $13.5
million for the three months ended March 31, 2001, representing 50% and 54% of
the related service revenue for the three months ended March 31, 2002 and 2001,
respectively. The decrease in cost of service revenue in absolute dollar
amount and as a percentage of total license revenue is primarily due to a
decrease in consulting and education revenues, as described above.

Operating expenses

Sales and marketing.Sales and marketing expenses consist primarily of
salaries, benefits, sales commissions and other expenses related to the direct
sales force, various marketing expenses and costs of other market development
programs. Sales and marketing expenses decreased by 17% to $23.8 million for
the three months ended March 31, 2002 from $28.7 million for the three months
ended March 31, 2001, representing 47% and 63% of total revenue for the three
months ended March 31, 2002 and 2001, respectively. The decrease in absolute
dollar and as a percentage of total revenue in the three months ended March 31,
2002 over the comparable period in 2001, was primarily due to a decrease in
sales compensation related to a decrease in headcount which occurred in
connection with two separate restructurings conducted in fiscal 2001 (see the
Companys 2001 Annual Report on Form 10-K for further details) and managements
further implementation of cost control initiatives, including reduction in
discretionary expenditures such as travel, as part of an overall program to
improve operational efficiencies and in response to the weakening global
economy. The Company expects that sales and marketing expense will increase in
absolute dollar amount as the Company expands its sales and marketing efforts,
but will decrease as a percentage of total revenue.

Research and development.Research and development expenses consist primarily
of salaries and benefits for software developers, contracted development
efforts and related facilities costs. Research and development expenses
decreased 7% to $9.0 million for the three months ended March 31, 2002 from
$9.7 million for the three months ended March 31, 2001, representing 18% and
21% of total revenue for the three months ended March 31, 2002 and 2001,
respectively. The decrease in absolute dollars and as a percentage of total
revenue reflects the Companys continued focus on cost-reduction efforts,
including reduced spending on product enhancements and other localization
efforts, offset by increased spending on product integration costs incurred as
a result of the Bulldog, Inc. and Boxcar Software, Inc. acquisitions. Based on
the Companys research and development process, costs incurred between the
establishment of technological feasibility and general release have been
insignificant and therefore have



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been expensed as incurred. The Company expects research and development costs
will continue to remain constant in absolute dollar amount in order to maintain
a consistent level of development of both existing and new products.

General and Administrative.General and administrative expenses consist
primarily of personnel costs for finance, information technology, legal, human
resources and general management, as well as outside professional services.
General and administrative expenses decreased by 12% to $6.1 million for the
three months ended March 31, 2002 from $6.9 million for the three months ended
March 31, 2001, representing 12% and 15% of total revenue for the three months
ended March 31, 2002 and 2001, respectively. The decrease in absolute dollar
amount and as a percentage of total revenue was primarily due to decreased
staffing and professional fees necessary to manage and support the Companys
decreased scale of operations. The Company believes that general and
administrative expenses in terms of absolute dollars and as percentage of total
revenues will remain comparable or decrease in the second quarter of fiscal
2002 compared to the levels in the first quarter of fiscal 2002.

Interest and other income, net

Interest and other income, net, consists primarily of interest income earned on
the Companys cash, cash equivalents, short-term investments, long-term
investments, and other items including foreign exchange gains and losses,
losses on sale of fixed assets and interest expense. Interest and other
income, net, decreased by $0.8 million for the three months ended March 31,
2002 to $0.4 million from $1.2 million for the three months ended March 31,
2001. The decrease for the three months ended March 31, 2002 over the same
period in 2001 was primarily due to a decrease in interest income earned on the
Companys cash, cash equivalents and short-term investments. This decrease was
due to considerably lower interest rates during the first quarter of fiscal
2002, compared to the same period in 2001, and losses during the period in
connection with the Companys various hedge activities.

To date, the Companys international sales are made mostly from the Companys
foreign sales subsidiaries in the local countries and are typically denominated
in the local currency of each. However, for transactions that are initiated in
the United States that are denominated in a foreign currency, the Company has
engaged in hedging activities as the exposure to currency fluctuations has been
significant. In the future, as the Company expands its international
operations, the Company may have an increased amount of non-U.S. dollar
denominated contracts.

Income taxes

Income tax provision (benefit) for the interim periods is based on estimated
annual income tax rates. The Companys effective tax rate for the three months
ended March 31, 2002 and 2001 was 30% and 10%, respectively. The tax rate may
vary by quarter based on the Companys results and the mix of domestic and
international income, however, the expected effective tax rate for the year is
30%.

Restructuring Costs

In the second quarter of fiscal 2001, in connection with managements plan to
reduce costs and improve operating efficiencies, the Company recorded a
restructuring charge of $3.8 million. The restructuring charge was comprised
primarily of severance and benefits related to the involuntary termination of
approximately 124 employees and cancellation of outstanding accepted offers of
employment. Approximately 86% of these individuals were based in the United
States and the remainder were based in Europe.

In the fourth quarter of fiscal 2001, in connection with managements plan to
further reduce the Companys expense structure and improve operating
efficiencies, the Company recorded a restructuring charge of $2.5 million. The
restructuring charge was comprised primarily of severance and benefits related
to the involuntary termination of approximately 83 employees, of which
approximately 80% were based in the United States and the remainder were based
in Europe.

The Companys restructuring charge in the quarter ended June 30, 2001 included
an accrual to be used to offset future lease payments, net of estimated
sublease income that is related to abandoned properties. The Company has worked
with external real estate experts in each of the markets where the properties
are located to determine the best estimate of the accrual. However, if the real
estate market continues to worsen and the Company is not able to sublease the
properties as expected, additional adjustments to the accrual may be required,
which would result in additional restructuring costs in the period such
determination is made. Likewise, if the real estate market strengthens,



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and the Company is able to sublease the properties earlier or at more favorable
rates than projected, adjustments to the accrual may be required that would
increase net income in the period such determination is made.

The following table sets forth an analysis of the components of the
restructuring charges recorded in the second and fourth quarters of fiscal
2001:

|                       |  |           |           |         |  |       |         |  |  |   |           | 
|---------------------- |  | --------- | --------- | ------- |  | ----- | ------- |  |  | - | --------- | 
|                       |  | Severance |           |         |  |       |         |  |  |  
|                       |  | and       |           | Other   |  |       |         | 
|Quarter ended          |  | Benefits  |           | Charges |  | Total
|                       |  |           |           |         |  |      
|December 31, 2001:     |  |           |           |         |  |       |         |  |  |   |           | 
|Severance and benefits |  | $         | 2,410,288 |         |  | $     |        |  |  | $ | 2,410,288 | 
|Other                  |  |           |          |         |  |       | 43,362  |  |  |   | 43,362    | 
|                       |  |           |           |         |  |       |         |  |  |   |           | 
|Total
charge           |  | $         | 2,410,288 |         |  | $     | 43,362  |  |  | $ | 2,453,650 | 
|                       |  |           |           |         |  |       |         |  |  |   |           | 
|June 30, 2001:         |  |           |           |         |  |       |         |  |  |   |           | 
|Severance and benefits |  | $         | 3,359,837 |         |  | $     |        |  |  | $ | 3,359,837 | 
|Accrued lease costs    |  |           |          |         |  |       | 355,728 |  |  |   | 355,728   | 
|Other                  |  |           |          |         |  |       | 101,863 |  |  |   | 101,863   | 
|                       |  |           |           |         |  |       |         |  |  |   |           | 
|Total
charge           |  | $         | 3,359,837 |         |  | $     | 457,591 |  |  | $ | 3,817,428 | 
|                       |  |           |           |         |  |       |         |  |  |   |           | 

The following table sets forth the Companys restructuring reserves as of March
31, 2002:

|                             |  |           |            |         |  |       |          |   |  |   |            |  
|---------------------------- |  | --------- | ---------- | ------- |  | ----- | -------- | - |  | - | ---------- | -
|                             |  | Severance |            |         |  |       |          |   |  |  
|                             |  | and       |            | Other   |  |       |          |  
|Restructuring reserves       |  | Benefits  |            | Charges |  | Total
|                             |  |           |            |         |  |      
|Restructuring charges        |  | $         | 5,770,125  |         |  | $     | 500,953  |   |  | $ | 6,271,078  |  
|Cash paid                    |  |           | (5,294,513 | )       |  |       | (256,454 | ) |  |   | (5,550,967 | )
|                             |  |           |            |         |  |       |          |   |  |   |            |  
|Balance at December 31, 2001 |  | $         | 475,612    |         |  | $     | 244,499  |   |  | $ | 720,111    |  
|                             |  |           |            |         |  |       |          |   |  |   |            |  

The Companys remaining reserve balance of $0.7 million consists of $0.6
million of current liabilities to be paid out during fiscal 2002, and $0.1
million of long-term liabilities related to facilities lease obligations, net
of sub-lease income, under non-cancelable leases through fiscal 2005.

Business Acquisitions

On January 23, 2002, the Company acquired privately-held Boxcar Software, Inc.
in exchange for consideration totaling $1.4 million, which was comprised of
cash consideration of $1.3 million and $0.1 million in acquisition costs. The
acquisition was accounted for using the purchase method of accounting on the
date of acquisition. Boxcar is a provider of content aggregation and
distribution technology allowing companies to gather content, from any source,
including web sites, public folders, file systems and legacy applications and
distribute the content in any format and to any destination. In connection with
the purchase, the Company recorded goodwill of $0.9 million and various
intangible and other assets totaling $0.5 million. Intangible assets primarily
relate to the value of existing technology and non-compete agreements and are
amortized on a straight-line basis over the estimated useful lives of five
years and three years, respectively. The goodwill of $0.9 million is not
subject to amortization. Pro forma



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disclosures, as if the business had been acquired on January 1, 2002 and 2001,
respectively, have been omitted as revenue, net income and earnings per share
would not differ materially from the amounts reported.

Liquidity and Capital Resources

The Companys cash, cash equivalents and short-term investments totaled $96.1
million at March 31, 2002, representing 44% of total assets. The Company has
invested its cash in excess of current operating requirements in investment
grade securities. The investments have variable and fixed interest rates and
primarily short-term maturities. In accordance with SFAS 115, Accounting for
Certain Investments in Debt and Equity Securities, such investments are
classified as available-for sale.

Cash provided by operating activities was $8.0 million for the period ended
March 31, 2002, as compared to cash used in operations of $4.5 million for the
comparable period. The inflow of cash from operations in 2002 was primarily
driven by the Companys reduced net loss, cash collection on outstanding trade
accounts receivable, and non-cash charges related to depreciation and provision
for bad debts. The reduction in net loss during the period was due to increased
total revenue and reduction in operating expenses.

At March 31, 2002, the Company had net working capital of $84.7 million, as
compared with $80.5 million at December 31, 2001. The working capital increase
was primarily driven by increases in short-term investments of $5.3 million,
cash and cash equivalents of $4.5 million and other current assets of $1.5
million and decreases in accrued liabilities of $6.6 million, offset by
decreases in accounts receivable of $7.5 million and increases in deferred
revenue of $5.4 million and accounts payable of $0.8 million.

In addition to its purchases, sales and maturities of investments, the
Companys primary investing activities during the three months ended March 31,
2002 consisted of the acquisition of Boxcar Software, Inc. and purchases of
property, plant and equipment. The above activities combined, represented $9.6
million of cash used in investing activities in 2002, compared to $0.9 million
of cash provided by investing activities in the comparable period.

Historically, the Company has financed its operations through the sale of
stock. The Companys primary financing activity during the three months ended
March 31, 2002 and 2001 was the issuance of its common stock. During the three
months ended March 31, 2002, the Company received $3.4 million and $3.0 million
in proceeds from employee option exercises and employee stock purchase plan
purchases, respectively. These activities represented substantially all of the
Companys $6.4 million provided by financing activities for the three months
ended March 31, 2002 as compared to $6.8 million for the comparable period in
2001. The decrease in the current period was, in part, due to lower prices for
the Companys stock in the first quarter of 2002.

In June 1998, the Company signed and made a deposit of $2.5 million to lease
approximately 122,000 square feet and 63,000 square feet in Pleasanton,
California beginning in June 1999 and November 1999, respectively, and expiring
in May 2005 and March 2006, respectively. In January 2000, the Company signed
an amendment to the existing leases, which provides for the rental of an
additional 37,138 square feet of space, beginning July 2000 and expiring in
March 2006. In July 2001, the Company signed an amendment to the existing
leases, which provides for the rental of an additional 13,975 square feet of
space, beginning July 2001 and expiring in March 2005. The Pleasanton,
California space serves as the Companys headquarters and contains the
principal administrative, engineering, marketing and sales facilities. The
Company has made and may continue to make significant capital purchases related
to leasehold improvements and office furniture for new facilities. The Company
currently has no other significant capital spending or purchase commitments
other than normal purchase commitments and commitments under facilities leases.

In August 2001, the Company entered into a capital lease arrangement for the
rental of computer equipment in the amount of $108,000. The lease agreement
requires quarterly principal and interest payments in the amount of $12,000.
During the quarter ended March 31, 2002, the Company made principal payments
totaling $11,000 and interest payments of $1,000. Through March 31, 2002, the
Company had made principal and interest payments in the amount of $31,000
related to this lease and had recorded the current portion of this capital
lease obligation in the amount of $46,000. The lease has an interest rate of
5.77% and has a maturity date of December 2003. Also, in connection with the
acquisition of select assets of Bulldog, Inc. the Company acquired capital assets
under capital leases totaling $32,000 (see Companys 2001 Annual Report on Form
10-K for further details surrounding the



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Bulldog acquisition). During the quarter ended March 31, 2002, the Company
settled all payment obligations surrounding the acquired capital leases.

In April 2002 the Company sold $125 million (the face value) in senior
convertible notes due April 1, 2007 (the Notes). The Notes are convertible
into shares of Documentum common stock at a conversion price of $30.02 per
share and accrue interest at a stated annual rate of 4.5% subject to customary
adjustments. The market value of the Companys common stock at April 5, 2002
was $20.29 per share. The Company received net proceeds of $121.3 million,
resulting in an effective interest rate on the Notes of 5.2%. Holders of the
Notes are entitled at any time after April 5, 2002, and before the close of
business on April 1, 2007, subject to prior redemption or repurchase, to
convert the Notes into shares of common stock. The Notes will be limited to
$125 million aggregate principal amount. The Notes may be redeemed by the
Company on or after April 5, 2005. The Notes will effectively rank behind all
other secured debt to the extent of the value of the assets securing those
debts.

Our liquidity is affected by many factors, some of which are based on the
normal ongoing operations of our businesses and some of which arise from
fluctuations related to global economies and markets. Some of those factors
include, but are not limited to, the Companys lengthy sales and implementation
cycles, a reliance on one family of products and related services, intense
competition that could cause an inability to compete successfully, and an
industry that is characterized by vigorous protection and pursuit of
intellectual property rights. The Company believes that its existing cash, cash
equivalents and short-term investment balances, its available bank financing
and the cash flows generated from operations, if any, will be sufficient to
meet its anticipated cash needs for working capital and capital expenditures
for at least the next twelve months. However, if we are not successful in
generating sufficient cash flow from operations, we may need to raise
additional capital at the end of such period. We cannot provide assurance that
additional financing, if needed, will be available on favorable terms, if at
all. Even if our cash is sufficient to fund our needs, we may elect to sell
additional equity or debt securities, or obtain credit facilities to further
enhance our liquidity position. The sale of additional securities could result
in additional dilution to our stockholders. A portion of the Companys cash
could be used to acquire or invest in complementary businesses or products or
obtain the right to use complementary technologies. The Company periodically
evaluates, in the ordinary course of business, potential investments such as
businesses, products or technologies. See Risk Factors  Risks Associated
with Acquisitions.

Risk Factors

The Companys operating results are unpredictable and may vary from quarter to
quarter.Our future operating results may vary significantly and are difficult
to predict due to a number of factors, of which many are beyond our control.
These factors include:



| |  | demand for our products;                                                                                          
|- |  | ------------------------------------------------------------------------------------------------------------------
| 
| |  | the level of product and price competition;                                                                       
| 
| |  | the length of our sales cycle;                                                                                    
| 
| |  | the size and timing of individual license transactions;                                                           
| 
| |  | the delay or deferral of customer implementations;                                                                
| 
| |  | our success in expanding our customer support organization, direct sales force and indirect distribution channels;
| 
| |  | the timing of new product introductions and product enhancements;                                                 
| 
| |  | changes in our pricing policy;                                                                                    
| 
| |  | the publication of opinions concerning us, our products or technology by industry analysts;                       
| 
| |  | the mix of products and services sold;                                                                            
| 
| |  | levels of international sales;                                                                                    
| 
| |  | activities of and acquisitions by competitors;                                                                    
| 
| |  | the timing of new hires;                                                                                          
| 
| |  | changes in foreign currency exchange rates;                                                                       
| 
| |  | our ability to develop and market new products and control costs; and                                             
| 
| |  | domestic and international economic and political conditions.                                                     

One or more of the foregoing factors may cause our operating expenses to be
disproportionately high during any given period or may cause our net revenue
and operating results to fluctuate significantly.



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Readers should not rely on our quarterly operating results as an indication of
our future results because they are subject to significant fluctuations.These
fluctuations may negatively impact our stock price. Our net revenue and
operating results may vary drastically from quarter to quarter because of
numerous factors largely beyond our control, including the following:



| |  | the potential delay in recognizing revenue from license transactions;                                    
|- |  | ---------------------------------------------------------------------------------------------------------
| 
| |  | the discretionary nature of our customers budget and purchase cycles;                                   
| 
| |  | variations in our customers fiscal or quarterly cycles;                                                 
| 
| |  | the size and complexity of our license transactions;                                                     
| 
| |  | the timing of new product releases;                                                                      
| 
| |  | seasonal variations in operating results; and                                                            
| 
| |  | the tendency to realize a substantial amount of revenue in the last weeks, or even days, of each quarter.

The United States, Europe and Asia/Pacific have experienced a general decline
in economic conditions over the past five quarters. The downturn in general
economic conditions has led to reduced demand for a variety of goods and
services, including many technology products. During the three months ended
March 31, 2002, the Company experienced fluctuations in product demand as a
result of domestic and international economic conditions.

Each customer makes a discretionary decision to implement our products that is
subject to its resources and budget cycles. Additionally, our license sales
generally reflect a relatively high amount of revenue per order, and as a
result, the loss or delay of individual orders could have a significant impact
on quarterly operating results and revenue. Furthermore, the timing of license
revenue is difficult to predict because of the length of our sales cycle, which
typically ranges from three to nine months from initial contact. Also, our
strategy of providing customers with complete content management solutions
typically results in software licenses being bundled with services. In these
cases, the delivery of services may delay recognition of license revenue.
Because our operating expenses are based on anticipated revenue trends and
because a high percentage of these expenses is relatively fixed, any shortfall
from anticipated revenue or a delay in the recognition of revenue from license
transactions could cause significant variations in operating results from
quarter to quarter and could result in operating losses. If these expenses
precede, or are not followed by, increased revenue, our operating results could
be lower than expected and our common stock price may fall.

As a result of the foregoing and other factors, operating results for any
quarter are subject to significant variation, and we believe that
period-to-period comparisons of our results of operations are not necessarily
meaningful in terms of their relation to future performance. You should not
rely upon these comparisons as indications of future performance. Furthermore,
it is likely that our future quarterly operating results from time to time will
not meet the expectations of public market analysts or investors, in which case
there would likely be a drop in the price of our common stock.

The Companys sales and implementation cycles are lengthy and difficult to
predict.In general, the timing of the sales and implementation of our
products is lengthy and not predictable with any degree of certainty. You
should not rely on prior sales and implementation cycles as an indication of
future cycles.

The licensing of our software products is often an enterprise-wide decision by
prospective customers and generally requires us to engage in a lengthy sales
cycle (generally between three and nine months) to provide a significant level
of education to prospective customers regarding the use and benefits of our
products. The size and complexity of any particular transaction can also cause
delays in the sales cycle. Additionally, the implementation of our products
can involve a significant commitment of resources by customers over an extended
period of time and is commonly associated with substantial information system
changes or upgrade efforts by the customer. For these and other reasons, the
sales and customer implementation cycles are subject to a number of significant
delays over which we have little or no control. A delay in the sale of even a
limited number of license transactions could result in lower than expected
revenue and cause our operating results to vary significantly from quarter to
quarter.

A substantial portion of the Companys revenue is attributable to one family of
products and related services.To date, substantially all of our revenue has
been attributable to sales of licenses of the Documentum EDMS and Documentum 4i
family of products and related services. We expect that Documentum 4i, newer
product offerings and related services to continue to account for a substantial
majority of our future revenue. As a result, factors



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adversely affecting the pricing of or demand for such products, such as
competition or technological change, could harm our business, financial
condition and results of operations.

Our failure to identify new product opportunities or to develop new products or
versions could harm our business.The content management software and services
market in which we compete is characterized by (1) rapid technological change,
(2) frequent introduction of new products and enhancements, (3) changing
customer needs, and (4) evolving industry standards. The introduction of
products embodying new technologies and the emergence of new industry standards
can render existing products obsolete and unmarketable. Accordingly, the life
cycles of our products are difficult to estimate. To keep pace with
technological developments, evolving industry standards and changing customer
needs, we must support existing products and develop new products. Our future
success also depends in part on our abilities to execute on our strategy of
developing web content management and business-to-business solutions and to
maintain and enhance relations with technology partners, including RDBMS
vendors, in order to provide our customers with integrated product solutions.

We may not be successful in maintaining and enhancing the aforementioned
relationships or in developing, marketing and releasing new products or new
versions of our products that respond to technological developments, evolving
industry standards or changing customer requirements. We may also experience
difficulties that could delay or prevent the successful development,
introduction and sale of these enhancements. In addition, these enhancements
may not adequately meet the requirements of the marketplace and may not achieve
any significant degree of market acceptance. If we fail to successfully
maintain or enhance relationships with our technology partners or to execute on
our integrated product solution strategy, or if release dates of any future
products or enhancements are delayed, or if these products or enhancements fail
to achieve market acceptance when released, our business, operating results and
financial condition could be harmed. We have in the past experienced delays in
the release dates of enhancements to our products. While the delays we have
experienced to date have been minor (not exceeding six months), there can be no
assurance that we will not experience significant future delays in product
introduction.

The Company is dependent on the market for content management solutions, which
may not continue to grow.The market for content management software and
services is intensely competitive, highly fragmented and rapidly changing. Our
future financial performance will depend primarily on the continued growth of
the market for content management software and services and the adoption of our
products by organizations in this market. If the content management software
and services market fails to grow or grows more slowly than we currently
anticipate, our business, financial condition and operating results would be
harmed.

The Company faces intense competition from several competitors and may be
unable to compete successfully.Our products target the emerging market for
Web-based and client/server software solutions. This market is intensely
competitive, rapidly changing and significantly affected by new product
introductions and other market activities of industry participants. We
encounter direct competition from a number of public and private companies that
offer a variety of products and services addressing this market. These
companies include FileNet, OpenText, Interwoven, Stellent and Vignette.
Additionally, several other enterprise software vendors, such as Microsoft,
Oracle and Lotus (a division of IBM) are potential competitors in the future.
Many of these current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base
of customers than we do. In addition, several of these companies, including
Microsoft, Oracle, Lotus and others, have well-established relationships with
our current and potential customers and strategic partners, as well as
extensive resources and knowledge of the enterprise software industry that may
enable them to more easily offer a single-vendor solution. As a result, these
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products, than we can.

The Company also faces indirect competition from systems integrators.We rely
on a number of systems consulting and systems integration firms for
implementation and other customer support services, as well as for
recommendations of our products during the evaluation stage of the purchase
process. Although we seek to maintain close relationships with these service
providers, many of them have similar, and often more established, relationships
with our competitors. If we were unable to develop and maintain effective,
long-term relationships with these third parties, our competitive position
would be materially and adversely affected. Further, many of these third
parties possess industry-specific expertise and have significantly greater
resources than we do, and may market software products that compete with us in
the future.



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There are many factors that may increase competition in the market for
Web-based and client/server software solutions, including (1) entry of new
competitors, (2) alliances among existing competitors and (3) consolidation in
the software industry. Increased competition may result in price reductions,
reduced gross margins and loss of market share, any of which could harm our
business, financial condition and operating results. If we cannot compete
successfully against current and future competitors or overcome competitive
pressures, our business, operating results and financial condition may be
harmed.

The Company is dependent on a relatively small number of customers and those
customers tend to be concentrated in several industries.Our success depends
on maintaining relationships with our existing customers. A relatively small
number of customers have accounted for a significant percentage of our revenue.
Additionally, our customers are somewhat concentrated in the process and
discrete manufacturing, pharmaceutical, financial services and high technology
industries. We expect that sales of our products to a limited number of
customers and industry segments will continue to account for a significant
percentage of revenue for the foreseeable future. The loss of a small number
of customers or any reduction or delay in orders by any such customer, or our
failure to market successfully our products to new customers and new industry
segments could harm our business and our prospects.

The Company relies on a number of relationships with third parties for sales,
distribution and integration; failure to maintain these relationships, or
establish new relationships, could harm our business.We have established
strategic relationships with a number of organizations that we believe are
important to our sales, marketing and support activities and the implementation
of our products. We believe that our relationships with these organizations,
including indirect channel partners and other consultants, provide marketing
and sales opportunities for our direct sales force, expand the distribution of
our products and broaden our product offerings through product bundling. These
relationships allow us to keep pace with the technological and marketing
developments of major software vendors and provide us with technical assistance
for our product development efforts. Our failure to maintain these
relationships, or to establish new relationships in the future, could harm our
business.

The Company depends on the service of key personnel.Our future performance
depends in significant part on the continued service of our key technical,
sales and senior management personnel, none of whom is bound by an employment
agreement with us. The loss of services of one or more of our executive
officers or key technical personnel could harm our business, operating results
and financial condition.

Our future success also depends on our continuing ability to attract and retain
highly qualified technical, sales and managerial personnel. Competition for
such personnel is intense, and there can be no assurance that we can retain key
employees or that we can attract, assimilate or retain other highly qualified
personnel in the future.

The Company is subject to risks associated with international operations.Our
revenue is primarily derived from large multi-national companies. To service
the needs of these companies, we must provide worldwide product support
services. The Company has offices in London, Paris, Munich, Tokyo, Melbourne,
Hong Kong, Singapore, Taipei, and Seoul. The Company operates its international
technical support operations in the London, Munich and Melbourne offices. We
have expanded, and intend to continue expanding, our international operations
and enter additional international markets. This will require significant
management attention and financial resources that could adversely affect our
operating margins and earnings. We may not be able to maintain or increase
international market demand for our products. If we do not, our international
sales will be limited, and operating results could suffer.

Our international operations are subject to a variety of risks, including (1)
foreign currency fluctuations, (2) economic or political instability, (3)
shipping delays, (4) various trade restrictions, (5) our limited experience in,
and the costs of, localizing products for foreign countries, (6) longer
accounts receivable payment cycles, and (7) difficulties in managing
international operations, including, among other things, the burden of
complying with a wide variety of foreign laws.

The Companys industry is characterized by vigorous protection and pursuit of
intellectual property rights that could result in substantial cost to the
Company.We rely primarily on a combination of copyright, trademark and trade
secret laws, confidentiality procedures and contractual provisions to protect
our proprietary rights. We also believe that factors such as the technological
and creative skills of our personnel, new product developments, frequent
product enhancements, name recognition and reliable product maintenance are
essential to establishing and



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maintaining a technology leadership position. We seek to protect our software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection.

Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that
we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights as fully as do the laws of the United States. Our means of
protecting our proprietary rights in the United States or abroad may not be
adequate. Additionally, our competition may independently develop similar
technology.

Although we do not believe that we are infringing on any proprietary rights of
others, third parties may claim that we have infringed their intellectual
property rights. Furthermore, former employers of our former, current or
future employees may assert claims that such employees have improperly
disclosed to us the confidential or proprietary information of such former
employers. Any such claims, with or without merit, could (1) be time-consuming
to defend, (2) result in costly litigation, (3) divert managements attention
and resources, (4) cause product shipment delays, and (5) require us to pay
money damages or enter into royalty or licensing agreements. A successful
claim of intellectual property infringement against us and our failure or
inability to license or create a workaround for such infringed or similar
technology may result in substantial damages, payments or termination of sales
of infringing products.

We license certain software from third parties, including software that is
integrated with internally developed software and used in our products to
perform key functions. These third-party software licenses may not continue to
be available to us on acceptable terms. The loss of, or inability to maintain,
any of these software licenses could result in shipment delays or reductions,
resulting in lower than expected operating results.

The Company may face product liability claims from our customers.Our license
agreements with our customers typically contain provisions designed to limit
our exposure to potential product liability claims. It is possible, however,
that the limitation of liability provisions contained in our license agreements
may not be effective under the laws of certain jurisdictions. A successful
product liability claim brought against us could result in payment of
substantial damages.

The Company is subject to the risks associated with product defects and
incompatibilities.Software products frequently contain errors or failures,
especially when first introduced or when new versions are released. Also, new
products or enhancements may contain undetected errors, or bugs, or
performance problems that, despite testing, are discovered only after a product
has been installed and used by customers. Errors or performance problems could
cause delays in product introduction and shipments or require design
modifications, either of which could lead to a loss in or delay in recognition
of revenue.

Our products are typically intended for use in applications that may be
critical to a customers business. As a result, we expect that our customers
and potential customers will have a greater sensitivity to product defects than
the market for software products generally. Despite extensive testing by us
and by current and potential customers, errors may be found in new products or
releases after commencement of commercial shipments, resulting in loss of
revenue or delay in market acceptance, damage to our reputation, diversion of
development resources, the payment of monetary damages or increased service or
warranty costs, any of which could harm our business, operating results and
financial condition.

The Company is subject to risks associated with acquisitions.As part of our
business strategy, we frequently evaluate strategic opportunities available to
us and expect to make acquisitions of, or significant investments in,
businesses that offer complementary products and technologies. Any future
acquisitions or investments would expose us to the risks commonly encountered
in acquisitions of businesses. Future acquisitions of complementary
technologies, products or businesses will result in the diversion of
managements attention from the day-to-day operations of our business and the
potential disruption of our ongoing business. Additionally, such acquisitions
may include numerous other risks, including difficulties in the integration of
the operations, products and personnel of the acquired companies. Future
acquisitions may also result in dilutive issuances of equity securities, the
incurrence of debt and write-down or impairment expenses related to goodwill
and other intangible assets. Our failure to successfully manage future
acquisitions may harm our business and financial results.



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The Companys stock price is extremely volatile.The trading price of our
common stock is subject to significant fluctuations in response to variations
in quarterly operating results, the gain or loss of significant orders, changes
in earning estimates by analysts, announcements of technological innovations or
new products by us or our competitors, general conditions in the software and
computer industries and other events or factors. In addition, the stock market
in general has experienced extreme price and volume fluctuations which have
affected the market price for many companies in industries similar or related
to ours and which have been unrelated to the operating performance of these
companies. These market fluctuations may decrease the market price of our
common stock.

Some provisions in our certificate of incorporation and our bylaws could delay
or prevent a change in control.Our Board of Directors is authorized to issue
up to 5,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further approval by our stockholders. The preferred stock
could be issued with voting, liquidation, dividend and other rights superior to
those of the common stock. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire a majority of our outstanding voting stock. We have
instituted a classified Board of Directors in our Amended and Restated
Certificate of Incorporation. We have also implemented a Share Purchase Plan
(or Rights Plan) under which all stockholders of record as of February 24,
1999 received rights to purchase shares of a new series of preferred stock. The
rights are exercisable only if a person or group acquires 20% or more of our
common stock or announces a tender offer for 20% or more of the common stock.
These provisions and certain other provisions of our Amended and Restated
Certificate of Incorporation and certain provisions of our Amended and Restated
Bylaws and of Delaware law, could delay or make more difficult a merger, tender
offer or proxy contest.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

As of March 31, 2002, the Companys investment portfolio includes $38.7 million
of short-term corporate and municipal bonds that are subject to no interest
rate risk when held to maturity but may increase or decrease in value if
interest rates change prior to maturity. The remaining $4.4 million of
short-term investments are held in short-term securities bearing stated
interest rates and are therefore subject to no interest rate risk.

In addition, the Companys investment portfolio includes $8.1 million of
long-term investments bearing stated interest rates and are therefore subject
to no interest rate risks.

An immediate 10% change in interest rates would be immaterial to the Companys
financial condition or results of operations.

The following table details the Companys short-term investments at March 31,
2002:

|                          |  |                |        | 
|------------------------- |  | -------------- | ------ | 
|                          |  | (In thousands)
|U.S. government agencies  |  |                | 26,138 | 
|Corporate bonds and notes |  |                | 5,049  | 
|Medium term notes         |  |                | 7,533  | 
|Commercial paper          |  |                | 4,376  | 
|                          |  |                |        | 
|                          |  |                | 43,096 | 
|                          |  |                |        | 

Foreign Currency Exchange Risk

The Companys revenue originating outside the United States was 24% and 10% of
total revenue for the period ended March 31, 2002 and 2001, respectively.
International sales are made mostly from the Companys foreign sales
subsidiaries in the local countries and are typically denominated in the local
currency of each country. These subsidiaries incur most of their expenses in
the local currency as well.



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The Companys international business is subject to risks typical of an
international business, including, but not limited to the following: differing
economic conditions, changes in political climate, differing tax structures,
other regulations and restrictions, and foreign exchange rate volatility.
Accordingly, the Companys future results could be materially adversely
impacted by changes in these or other factors.

The Companys exposure to foreign exchange fluctuations arise from intercompany
accounts which are typically denominated in the functional currency of the
foreign subsidiary, from receivables and payables denominated in foreign
currency, and from transactions initiated in the United States that are
denominated in a foreign currency. The Company is also exposed to foreign
exchange rate fluctuations as the financial results of foreign subsidiaries are
translated into U.S. dollars in consolidation. As exchange rates vary, these
results, when translated, may vary from expectations and adversely impact
overall expected profitability.

The Company considers the U.S. dollar to be its functional currency for certain
of its foreign subsidiaries and the local currency for all other foreign
subsidiaries. For subsidiaries where the local currency is the functional
currency, the assets and liabilities are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Income and expense items
are translated at the daily current exchange rates. Gains and losses from
translation are included in Accumulated other comprehensive loss. Gains and
losses resulting from remeasuring monetary asset and liability accounts that
are denominated in currencies other than a subsidiarys functional currency are
included in Interest and other income, net. Total foreign currency losses
were $0.1 million and $0.3 million for the three months ended March 31, 2002
and 2001, respectively.

As indicated in the Companys 2001 Annual Report on Form 10-K, the Company
adopted SFAS No. 133 Accounting for Derivative Instruments and Hedging
Activities as amended by SFAS No. 138, effective January 1, 2001, which
requires that all derivatives be recorded on the balance sheet at fair value.

The Company uses foreign currency forward contracts to hedge receivables and
payables denominated in foreign currency, intercompany receivables and
payables, and transactions initiated in the United States that are denominated
in foreign currency. The principal foreign currencies hedged are the British
pound and the Euro using foreign currency forward contracts ranging in periods
from one to nine months. Forward contracts are accounted for on a
mark-to-market basis, with realized and unrealized gains or losses recognized
in the current period. Gains or losses arising from forward contracts that were
effective as a hedge are included in the basis of the designated transactions.
The related receivable or liability with counterparties to the forward
contracts are recorded in the consolidated balance sheet. Cash flows from
settlements of forward contracts are included in operating activities in the
consolidated statements of cash flows. Forward contracts to hedge foreign
currency transaction exposure of $7.0 million were outstanding at March 31,
2002.




PART II. OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits filed with this report.
None.                                                                                                                                                                 
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | On March 20, 2002, the Company filed a report on Form 8-K
relating to the Companys dismissal of Arthur Andersen LLP
(Andersen) and appointment of KPMG LLP as independent accountants
for the Company.
|
| |     |  | On April 11, 2002, the Company filed an amendment to the above
referenced Form 8-K on Form 8-K/A to clarify the nature of the
dismissal of Andersen.                                                   



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SIGNATURE

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report on Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized, on this 15th day of May, 2002.

| |                                                                 |                 
| | --------------------------------------------------------------- | ----------------
| | DOCUMENTUM, INC.
(Registrant)                                  
|
| | By:                                                             | /s/ Bob L. Corey
| |                                                                
| | Bob L. Corey
Executive Vice President & Chief Financial Officer



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