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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 June 30, 2002

OR

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

For the transition period from __________ to __________

Commission file number: 0-27358

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 39,846,960 on July 31, 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 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS                                    
|                                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                                    
|Section 906 of the Sarbanes-Oxley Act of 2002
|Section 906 of the Sarbanes-Oxley Act of 2002



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FORM 10-Q

Index

|          |         |                                                                                                          |                                                                                       |         |         |         |  |  | 
|--------- | ------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------- | ------- | ------- |  |  | 
|PART I    |         | FINANCIAL INFORMATION                                                                                    |                                                                                       |         |         |        
|          | Item 1. |                                                                                                          | Condensed Consolidated Financial Statements                                           |         |         |         | 
|          |         | Condensed Consolidated Balance Sheet as of June 30, 2002 and December 31, 2001                           |                                                                                       | Page 3 
|          |         | Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2002 and 2001 |                                                                                       | Page 4 
|          |         | Condensed Consolidated Statement of Cash Flow for the six months ended June 30, 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 14
|          | Item 3. |                                                                                                          | Quantitative and Qualitative Disclosures About Market Risk                            |         | Page 31
|PART II   |         | OTHER INFORMATION                                                                                        |                                                                                       |         |         |        
|Item 4.   |         | Submission of Matters to Vote of Security Holders                                                        |                                                                                       | Page 32
|Item 6.   |         | Exhibits and Reports on Form 8-K                                                                         |                                                                                       | Page 32
|Signature |         |                                                                                                          |                                                                                       |         |         | Page 33

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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)*


|                                     |                                                                                                                          |                            |         |          |         |              |         |         |         | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------- | -------- | ------- | ------------ | ------- | ------- | ------- | 
|                                     |                                                                                                                          |                            |         | June 30, |         | December 31,
|                                     |                                                                                                                          |                            |         | 2002     |         | 2001        
|                                     |                                                                                                                          |                            |         |          |         |             
|ASSETS                               |                                                                                                                          |                            |         |          |         |              |         |        
|Current assets:                      |                                                                                                                          |                            |         |          |         |              |         |        
|                                     | Cash and cash equivalents                                                                                                |                            | $       | 64,033   |         |              | $       | 48,420  |        
|                                     | Short-term investments                                                                                                   |                            |         | 87,673   |         |              |         | 37,842  |        
|                                     | Accounts receivable, net                                                                                                 |                            |         | 38,579   |         |              |         | 45,811  |        
|                                     | Other current assets                                                                                                     |                            |         | 28,188   |         |              |         | 24,664  |        
|                                     |                                                                                                                          |                            |         |          |         |              |         |        
|                                     |                                                                                                                          | Total current assets       |         |          | 218,473 |              |         |         | 156,737 | 
|Property and equipment, net          |                                                                                                                          |                            | 28,128  |          |         |              | 34,135  |        
|Long-term investments                |                                                                                                                          |                            | 79,109  |          |         |              | 6,589   |        
|Goodwill                             |                                                                                                                          |                            | 8,317   |          |         |              | 7,449   |        
|Intangible assets, net               |                                                                                                                          |                            | 2,562   |          |         |              | 2,617   |        
|Other assets                         |                                                                                                                          |                            | 11,981  |          |         |              | 8,363   |        
|                                     |                                                                                                                          |                            |         |          |         |              |         |        
|                                     |                                                                                                                          | $                          | 348,570 |          |         | $            | 215,890 |        
|                                     |                                                                                                                          |                            |         |          |         |              |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                          |                            |         |          |         |              |         |        
|Current liabilities:                 |                                                                                                                          |                            |         |          |         |              |         |        
|                                     | Accounts payable                                                                                                         |                            | $       | 3,059    |         |              | $       | 3,056   |        
|                                     | Accrued liabilities                                                                                                      |                            |         | 42,764   |         |              |         | 46,052  |        
|                                     | Deferred revenue                                                                                                         |                            |         | 31,767   |         |              |         | 27,088  |        
|                                     | Current portion of capital lease obligation                                                                              |                            |         | 47       |         |              |         | 77      |        
|                                     |                                                                                                                          |                            |         |          |         |              |         |        
|                                     |                                                                                                                          | Total current liabilities  |         |          | 77,637  |              |         |         | 76,273  | 
|                                     |                                                                                                                          |                            |         |          |         |              |         |        
|Senior convertible notes             |                                                                                                                          |                            | 125,000 |          |         |              |        |        
|Other long-term liabilities          |                                                                                                                          |                            | 695     |          |         |              | 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;
39,576 and 38,979 shares issued and outstanding, respectively |                            |         | 40       |         |              |         | 39      |        
|                                     | Additional paid-in capital                                                                                               |                            |         | 203,676  |         |              |         | 196,874 |        
|                                     | Accumulated other comprehensive income (loss)                                                                            |                            |         | 754      |         |              |         | (911    | )      
|                                     | Accumulated deficit                                                                                                      |                            |         | (59,232  | )       |              |         | (57,071 | )      
|                                     |                                                                                                                          |                            |         |          |         |              |         |        
|                                     |                                                                                                                          | Total stockholders equity |         |          | 145,238 |              |         |         | 138,931 | 
|                                     |                                                                                                                          |                            |         |          |         |              |         |        
|                                     |                                                                                                                          | $                          | 348,570 |          |         | $            | 215,890 |        
|                                     |                                                                                                                          |                            |         |          |         |              |         |        

*Certain prior year amounts 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 |        | Six Months Ended
|                                              |                               |                         |        | June 30,           |        | June 30,        
|                                              |                               |                         |        |                    |        |                 
|                                              |                               |                         |        | 2002               |        | 2001             |         | 2002   |        | 2001
|                                              |                               |                         |        |                    |        |                  |         |        |        |     
|Revenue:                                      |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|                                              | License                       |                         | $      | 26,997             |        |                  | $       | 21,421 |        |      | $      | 52,129 |         |   | $       | 42,262 |       
|                                              | Service                       |                         |        | 26,975             |        |                  |         | 24,687 |        |      |        | 52,441 |         |   |         | 49,687 |       
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|                                              |                               | Total revenue           |        |                    | 53,972 |                  |         |        | 46,108 |      |        |        | 104,570 |   |         |        | 91,949 | 
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|Cost of revenue:                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|                                              | License                       |                         |        | 1,959              |        |                  |         | 1,492  |        |      |        | 3,708  |         |   |         | 3,172  |       
|                                              | Service                       |                         |        | 12,374             |        |                  |         | 12,501 |        |      |        | 25,225 |         |   |         | 26,032 |       
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|                                              |                               | Total cost of revenue   |        |                    | 14,333 |                  |         |        | 13,993 |      |        |        | 28,933  |   |         |        | 29,204 | 
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|Gross profit                                  |                               |                         | 39,639 |                    |        |                  | 32,115  |        |        |      | 75,637 |        |         |   | 62,745  |       
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|Operating expense:                            |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|                                              | Sales and marketing           |                         |        | 22,866             |        |                  |         | 25,486 |        |      |        | 46,631 |         |   |         | 54,137 |       
|                                              | Research and development      |                         |        | 9,783              |        |                  |         | 8,734  |        |      |        | 18,783 |         |   |         | 18,409 |       
|                                              | General and administrative    |                         |        | 6,426              |        |                  |         | 6,045  |        |      |        | 12,514 |         |   |         | 12,948 |       
|                                              | Restructuring/severance costs |                         |        | 1,043              |        |                  |         | 3,817  |        |      |        | 1,043  |         |   |         | 3,817  |       
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|                                              |                               | Total operating expense |        |                    | 40,118 |                  |         |        | 44,082 |      |        |        | 78,971  |   |         |        | 89,311 | 
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|Loss from operations                          |                               |                         | (479   | )                  |        |                  | (11,967 | )      |        |      | (3,334 | )      |         |   | (26,566 | )     
|Interest and other income (expense), net      |                               |                         | (197   | )                  |        |                  | 1,151   |        |        |      | 247    |        |         |   | 2,342   |       
|Permanent impairment of investment            |                               |                         |       |                    |        |                  | (2,012  | )      |        |      |       |        |         |   | (2,012  | )     
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|Loss before income tax provision              |                               |                         | (676   | )                  |        |                  | (12,828 | )      |        |      | (3,087 | )      |         |   | (26,236 | )     
|Provision for (benefit from) income taxes     |                               |                         | (203   | )                  |        |                  | 1,283   |        |        |      | (926   | )      |         |   | 2,624   |       
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|Net loss                                      |                               | $                       | (473   | )                  |        | $                | (14,111 | )      |        | $    | (2,161 | )      |         | $ | (28,860 | )     
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|Basic loss per share                          |                               | $                       | (0.01  | )                  |        | $                | (0.37   | )      |        | $    | (0.05  | )      |         | $ | (0.77   | )     
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|Diluted loss per share                        |                               | $                       | (0.01  | )                  |        | $                | (0.37   | )      |        | $    | (0.05  | )      |         | $ | (0.77   | )     
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|Shares used to compute basic loss per share   |                               |                         | 39,556 |                    |        |                  | 37,741  |        |        |      | 39,408 |        |         |   | 37,535  |       
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       
|Shares used to compute diluted loss per share |                               |                         | 39,556 |                    |        |                  | 37,741  |        |        |      | 39,408 |        |         |   | 37,535  |       
|                                              |                               |                         |        |                    |        |                  |         |        |        |      |        |        |         |   |         |       

*Certain prior year amounts 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)


|                                                 |                                                                                 |                                                     |                                       |                                                     |       |                           |          |          |       |        |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------- | --------------------------------------------------- | ----- | ------------------------- | -------- | -------- | ----- | ------ | ------ | -
|                                                 |                                                                                 |                                                     |                                       |                                                     |       | SIX MONTHS ENDED JUNE 30,
|                                                 |                                                                                 |                                                     |                                       |                                                     |       |                          
|                                                 |                                                                                 |                                                     |                                       |                                                     |       | 2002                      |          | 2001    
|                                                 |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|Cash flows from operating activities:            |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|                                                 | Net loss                                                                        |                                                     | $                                     | (2,161                                              | )     |                           |          | (28,860  | )    
|                                                 | Adjustments to reconcile net loss to net cash provided by
operating activities: |                                                     |                                       |                                                     |       |                           |          |          |      
|                                                 |                                                                                 | Loss on sale and disposal of fixed assets           |                                       |                                                     | 1,673 |                           |          |          | 6     |       
|                                                 |                                                                                 | Depreciation                                        |                                       |                                                     | 7,678 |                           |          |          | 6,652 |       
|                                                 |                                                                                 | Amortization of intangibles and debt issuance costs |                                       |                                                     | 334   |                           |          |          |      |       
|                                                 |                                                                                 | Provision for doubtful accounts                     |                                       |                                                     | 1,409 |                           |          |          | 2,219 |       
|                                                 |                                                                                 | Permanent impairment of investment                  |                                       |                                                     |      |                           |          |          | 2,012 |       
|                                                 |                                                                                 | In process research and development                 |                                       |                                                     | 25    |                           |          |          |      |       
|                                                 |                                                                                 | Changes in assets and liabilities:                  |                                       |                                                     |       |                           |          |          |       |       
|                                                 |                                                                                 |                                                     | Accounts receivable                   |                                                     |       | 5,824                     |          |          |       | 11,468 |       
|                                                 |                                                                                 |                                                     | Other current assets and other assets |                                                     |       | (3,143                    | )        |          |       | (4,672 | )     
|                                                 |                                                                                 |                                                     | Accounts payable                      |                                                     |       | 3                         |          |          |       | (3,239 | )     
|                                                 |                                                                                 |                                                     | Accrued liabilities                   |                                                     |       | (3,590                    | )        |          |       | (2,016 | )     
|                                                 |                                                                                 |                                                     | Deferred revenue                      |                                                     |       | 4,679                     |          |          |       | 8,250  |       
|                                                 |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|                                                 |                                                                                 |                                                     |                                       | Net cash provided by (used in) operating activities |       |                           | 12,731   |          |       |        | (8,180 | )
|                                                 |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|Cash flows from investing activities:            |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|                                                 | Purchases of investments                                                        |                                                     |                                       | (258,313                                            | )     |                           |          | (111,964 | )    
|                                                 | Sales of investments                                                            |                                                     |                                       | 136,724                                             |       |                           |          | 122,264  |      
|                                                 | Purchases of property and equipment                                             |                                                     |                                       | (3,334                                              | )     |                           |          | (6,874   | )    
|                                                 | Cash used in acquisition of business                                            |                                                     |                                       | (1,138                                              | )     |                           |          |         |      
|                                                 |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|                                                 |                                                                                 |                                                     |                                       | Net cash provided by (used in) investing activities |       |                           | (126,061 | )        |       |        | 3,426  |  
|                                                 |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|Cash flows from financing activities:            |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|                                                 | Proceeds from issuance of common stock                                          |                                                     |                                       | 6,803                                               |       |                           |          | 8,347    |      
|                                                 | Payments on capital lease obligations                                           |                                                     |                                       | (55                                                 | )     |                           |          | (65      | )    
|                                                 | Net proceeds from convertible debt offering                                     |                                                     |                                       | 121,294                                             |       |                           |          |         |      
|                                                 |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|                                                 |                                                                                 |                                                     |                                       | Net cash provided by financing activities           |       |                           | 128,042  |          |       |        | 8,282  |  
|                                                 |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|Effect of exchange rate changes                  |                                                                                 |                                                     | 901                                   |                                                     |       |                           | (714     | )       
|                                                 |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|Net increase in cash and cash equivalents        |                                                                                 |                                                     | 15,613                                |                                                     |       |                           | 2,814    |         
|Cash and cash equivalents at beginning of period |                                                                                 |                                                     | 48,420                                |                                                     |       |                           | 43,918   |         
|                                                 |                                                                                 |                                                     |                                       |                                                     |       |                           |          |         
|Cash and cash equivalents at end of year         |                                                                                 |                                                     | 64,033                                |                                                     |       |                           | 46,732   |         

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 8, 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 three and six months ended June 30,
2002 and 2001 are not necessarily indicative of the results that may be
expected for any future period.

Note 2. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Documentum International, Inc., Relevance
Technologies, Inc. (Relevance) and Documentum Canada Holdings, Inc. in the
United States, Nihon Documentum KK, in Japan, Documentum Software Europe Ltd.,
in the United Kingdom, Documentum GmbH, in Germany, Documentum FSC and
Documentum Holdings, Ltd. in Barbados, Documentum PTE, Ltd. in Singapore,
Documentum Ireland Holdings, Ltd. in Ireland, Documentum SARL in France and
Documentum Canada Company in Nova Scotia, Canada. All significant intercompany
accounts and transactions have been eliminated in consolidation.

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
doubtful accounts, warranty reserves, income taxes, restructuring accruals,
sales commission, 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 amounts realized or paid could
differ from the estimates made by management with respect to these items and
other items that require managements estimates.

During the six months ended June 30, 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 actuals.

Revenue Recognition

The Companys revenue is derived from the sale of licenses for its enterprise
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

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

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. The Company
recognizes revenue on transactions with extended payment terms 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 shipped to the reseller,
distributor or 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 is 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.

Deferred Revenue

Deferred revenue primarily relates to support agreements that have been paid
for by customers prior to the performance of those services. Generally, the
services will be provided in the next twelve months. Payments received in
advance of revenue recognition for license fees are recorded as deferred
revenue.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.

Concentrations of credit risk

Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash, short-term investments, long-term
investments, and accounts receivable. The Company deposits substantially all
of its cash with three separate financial institutions.

The Company generally does not require collateral for its accounts receivable
and maintains reserves for potential credit losses. At June 30, 2002, one
customer comprised 15% of accounts receivable and at June 30, 2001 no one
customer comprised 10% or more of accounts receivable.

Property and equipment

Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets ranging
from three to seven years. Leasehold improvements are amortized over the
estimated useful life or the life of the lease, whichever is shorter.
Depreciation expense was $4.1 million and $3.5 million for the three months ended June 30, 2002
and 2001, respectively, and $7.7 million and $6.7 million for the six months ended June 30,
2002 and 2001, respectively. 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. During the quarter ended
June 30, 2002, the Company decided not to deploy certain purchased software as
the Company determined that the software was not going to be supported in the
future by the respective vendors. Accordingly, the Company recognized a charge
of $1.6 million to dispose of the software.

Software development costs

Software development costs are included in research and development and are
expensed as incurred. Statement of Financial Accounting Standards No. 86 (SFAS
86) requires the capitalization of certain software development costs once
technological feasibility is established. The capitalized cost is then
amortized on a straight-line basis over

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

the estimated product life, or on the ratio of current revenue to total
projected product revenue, whichever amount of amortization is greater. To
date, the period between achieving technological feasibility, which the Company
has defined as the establishment of a working model, and the general
availability of such software has been short and software development costs
qualifying for capitalization have been insignificant. Accordingly, the Company
has not capitalized any software development costs.

Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use

In accordance with the provisions of Statement of Position 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use
(SOP 98-1), certain costs of computer software developed or obtained for
internal use have been capitalized in connection with the implementation of the
software. The estimated useful life of costs capitalized is evaluated for each
specific project and ranges from one to three years. The Company capitalized an
insignificant amount of costs for the three and six months ended June 30, 2002
and $1.0 million for the three and six months ended June 30, 2001.

Advertising

The Company expenses costs of advertising as incurred. Advertising expense was
insignificant for the three months ended June 30, 2002 compared to $0.1 million
for the three months ended June 30, 2001 and $0.2 million and $0.4 million for
the six months ended June 30, 2002 and 2001, respectively. Advertising expense
is included in sales and marketing expense in the accompanying Condensed
Consolidated Statement of Operations.

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 EITF 01-14, Income
Statement Characterization of Reimbursements Received for Out of Pocket
Expenses Incurred (EITF 01-14).

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 June 30, 2002 related
solely to the acquisition of substantially all of the assets of Bulldog, Inc.,
on December 5, 2001 and Boxcar, Inc. on January 23, 2002. Goodwill of $0.9
million was recorded in connection with the Boxcar acquisition (see Note 6for
further information). The useful lives assigned to the acquired intangibles at
the time of the respective acquisitions was considered appropriate at June 30, 2002.
Intangibles not subject to amortization are considered insignificant. The
Company had gross intangible assets of $3.0 million and $2.7 million as of
June 30, 2002 and December 31, 2001, respectively. Total intangible
amortization expense for the six months ended June 30, 2002 was $0.4 million.
In connection with the completion of the first step of its transitional
analysis, the Company determined that it has two reporting units
which are identical to its operating segments.
The Company completed the transitional goodwill impairment test. No
impairment charges were recognized as a result of the transitional
impairment test. Goodwill will be
tested for impairment annually on August 1st beginning in fiscal year
2002. The changes in the carrying amount of goodwill for the six
month period ended June 30, 2002 are as follows:

|                              |  |         |       |         |  |       |       |  |  |   |       | 
|----------------------------- |  | ------- | ----- | ------- |  | ----- | ----- |  |  | - | ----- | 
|(in thousands)                |  | License |       | Service |  | Total
|                              |  |         |       |         |  |      
|Balance as of 12/31/01        |  | $       | 1,544 |         |  | $     | 5,905 |  |  | $ | 7,449 | 
|Goodwill
acquired during 2002 |  |         | 868   |         |  |       |       |  |  |   | 868   | 
|Balance as of 6/30/02         |  | $       | 2,412 |         |  | $     | 5,905 |  |  | $ | 8,317 | 
|                              |  |         |       |         |  |       |       |  |  |   |       | 

EITF 01-14 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 EITF 01-14,
comparative financial statements for prior periods must be reclassified to
comply with the guidance in this announcement. The adoption of EITF 01-14
resulted in a reclassification from cost of service revenue to service
revenue of $0.6 million and $0.5 million for the three months ended June 30,
2002 and 2001, respectively and $1.1
million for the six month periods ended June 30, 2002 and 2001.

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

Note 4. Recent Accounting Pronouncements

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 all periods presented.

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 immaterial for the three months ended June 30, 2002, $0.1 million for the
three months ended June 30, 2001, and $0.1 million and $0.4 million for the six
months ended June 30, 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 that do not qualify for hedge accounting be
recorded on the balance sheet at fair value.

The Company uses foreign currency forward contracts to serve as an economic
hedge on 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 an accounting 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 $5.0 million were
outstanding at June 30, 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 was 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 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, but will be tested for impairment on August 1st per annum. Pro
forma disclosures, as if the business had been acquired on January 1, 2002 and
2001, respectively, and transitional disclosures required under SFAS
No. 142, have been omitted as revenue, operating loss, net loss and
loss per share would not differ materially from the amounts reported.

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

The following tables summarize the Companys intangible assets as of June 30,
2002 and the estimated amortization expense through fiscal year 2006:

|                        |  |             |       |              |  |             |      |     |  |   |       | 
|----------------------- |  | ----------- | ----- | ------------ |  | ----------- | ---- | --- |  | - | ----- | 
|(in thousands)          |  |             |       |              |  |             |      |     |  |  
|                        |  |             |       |              |  | Accumulated |      | Net
|                        |  | Gross Costs |       | Amortization |  | Intangibles
|                        |  |             |       |              |  |            
|Amortized intangibles   |  |             |       |              |  |             |      |     |  |   |       | 
|Existing technology     |  | $           | 2,150 |              |  | $           | (266 | )   |  | $ | 1,884 | 
|Non-compete agreements  |  |             | 225   |              |  |             | (41  | )   |  |   | 184   | 
|In-place contracts      |  |             | 500   |              |  |             | (131 | )   |  |   | 369   | 
|                        |  |             |       |              |  |             |      |     |  |   |       | 
|Total                   |  |             | 2,875 |              |  |             | (438 | )   |  |   | 2,437 | 
|Unamortized intangibles |  |             |       |              |  |             |      |     |  |   |       | 
|Trademark               |  |             | 125   |              |  |             |     |     |  |   | 125   | 
|                        |  |             |       |              |  |             |      |     |  |   |       | 
|Total intangibles       |  | $           | 3,000 |              |  | $           | (438 | )   |  | $ | 2,562 | 
|                        |  |             |       |              |  |             |      |     |  |   |       | 

|                           |      |   |       |     | 
|-------------------------- | ---- | - | ----- | --- | 
|Fiscal year ending         |      |   |       |    
|                           | 2002 |   | $     | 765 | 
|                           | 2003 |   |       | 757 | 
|                           | 2004 |   |       | 588 | 
|                           | 2005 |   |       | 474 | 
|                           | 2006 |   |       | 124 | 
|                           |      |   |       |    
|Total amortization expense |      | $ | 2,708 |    
|                           |      |   |       |    

Note 7. Convertible Debt

On April 5, 2002, the Company sold $125 million (the face value) in senior
convertible notes that mature on April 1, 2007 (the Notes). The Notes bear
interest at a rate of 4.5% per annum, subject to . The
Company received proceeds of $121.3 million, net of debt issuance costs
totaling $3.9 million. 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 at a conversion price of $30.03 per share.
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. The Notes do not contain any restrictive financial covenants. For the
three months ended June 30, 2002, the Company recognized $1.5 million of
interest expense and amortization of debt issuance costs totaling $0.2 million
in connection with the offering of the Notes. Debt issuance costs are being
amortized over five years based on the effective interest rate method and are
included in other assets. As of June 30, 2002, the Companys debt obligation
totaled $125.0 million.

Note 8. Restructuring Charges

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

In fiscal 2001, and in the second quarter ended June 30, 2002, the Company
incurred restructuring costs to reduce its world-wide work force, and to
consolidate excess facilities. The following table details the restructuring
activity through June 30, 2002:

|                                                               |                                |   |            |           |         |   |          |   |  |   |            |           | 
|-------------------------------------------------------------- | ------------------------------ | - | ---------- | --------- | ------- | - | -------- | - |  | - | ---------- | --------- | 
|                                                               |                                |   | Severance  |           |         |   |          |   |  |   |           
|                                                               |                                |   | and        |           | Other   |   |          |   | 
|                                                               |                                |   | Benefits   |           | Charges |   | Total   
|                                                               |                                |   |            |           |         |   |         
|Restructuring
charges recognized in April and November of 2001 |                                | $ | 5,770,125  |           |         | $ | 500,953  |   |  | $ | 6,271,078  |          
|Cash paid                                                      |                                |   | (4,826,681 | )         |         |   | (248,024 | ) |  |   | (5,074,705 | )        
|Balance at December 31, 2001                                   |                                |   | 943,444    |           |         |   | 252,929  |   |  |   | 1,196,373  |          
|                                                               |                                |   |            |           |         |   |          |   |  |   |            |          
|Restructuring
charges                                          |                                |   |           |           |         |   |         |   |  |   |           |          
|Cash paid                                                      |                                |   | (467,832   | )         |         |   | (8,430   | ) |  |   | (476,262   | )        
|Balance at March 31, 2002                                      |                                |   | 475,612    |           |         |   | 244,499  |   |  |   | 720,111    |          
|                                                               |                                |   |            |           |         |   |          |   |  |   |            |          
|Restructuring
charges                                          |                                |   | 1,339,206  |           |         |   |         |   |  |   | 1,339,206  |          
|Adjustments                                                    |                                |   | (295,998   | )         |         |   |         |   |  |   | (295,998   | )        
|                                                               | Total charge for June 30, 2002 |   |            | 1,043,208 |         |   |          |  |  |   |            | 1,043,208 | 
|                                                               |                                |   |            |           |         |   |          |   |  |   |            |          
|Cash paid                                                      |                                |   | (232,914   | )         |         |   | (29,961  | ) |  |   | (262,875   | )        
|Balance at June 30, 2002                                       |                                | $ | 1,285,906  |           |         | $ | 214,538  |   |  | $ | 1,500,444  |          
|                                                               |                                |   |            |           |         |   |          |   |  |   |            |          

In connection with the Companys restructuring plan, which was initiated in the
second quarter of fiscal 2001, the Company recognized restructuring charges
that were primarily comprised of estimated severance and benefits
related to the involuntary termination or cancellation of offers of
approximately 240 employees of which 31 employees were terminated in
the current quarter, 220 were based in the United States and
the remainder based in Europe, Canada, and throughout Asia Pacific. The cost
estimates were made based on the remaining amounts due under various
contractual agreements and managements best estimates of the expected
obligations. During the three months ended June 30, 2002 the Company decreased
the severance and benefits accrual by a net $0.3 million. The adjustments were
the result of the Company settling certain severance and benefit obligations
for an amount less than originally estimated. The Companys reserve balance of
approximately $1.3 million will be paid to the remaining 19 employees during
fiscal 2002 and the first half of fiscal 2003.

The remaining charges which were recognized in connection with the Companys
restructuring plan primarily includes costs that the Company estimated it would
incur to exit certain facilities, net of estimated sub-lease income.
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.
During the current quarter, due to a continued weakening of the commercial real
estate market, the Company extended the estimated period of time that it would
take to sub-lease the abandoned facilities. As a result, the Company adjusted
the accrual to reflect the increased future rent commitments on these
facilities. Of the remaining reserve balance as of June 30, 2002 of $0.2
million, $0.1 million relates to miscellaneous restructuring costs to be paid
out throughout fiscal 2002 and the first half of fiscal 2003 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 9. Comprehensive income (loss)

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

Comprehensive income (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 recorded an unrealized gain on available-for-sale
marketable securities of $0.8 million for the three months ended June 30, 2002.
The tax impact of the unrealized gains on available gains on available for sale
investments was immaterial for the periods presented. The unrealized gain or
loss on available-for-sale marketable securities was insignificant for all
other periods presented. The Companys total comprehensive income (loss) was as
follows (in thousands):

|                                   |                                                   |                             |      |                             |       |                           |         |      |         |      |        |     |      |   |         |      |         |  
|---------------------------------- | ------------------------------------------------- | --------------------------- | ---- | --------------------------- | ----- | ------------------------- | ------- | ---- | ------- | ---- | ------ | --- | ---- | - | ------- | ---- | ------- | -
|                                   |                                                   |                             |      | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                   |                                                   |                             |      |                             |       |                          
|                                   |                                                   |                             |      | 2002                        |       | 2001                      |         | 2002 |         | 2001
|                                   |                                                   |                             |      |                             |       |                           |         |      |         |     
|Net loss                           |                                                   | $                           | (473 | )                           |       | $                         | (14,111 | )    |         | $    | (2,161 | )   |      | $ | (28,860 | )   
|Other comprehensive income (loss): |                                                   |                             |      |                             |       |                           |         |      |         |      |        |     |      |   |         |     
|                                   | Unrealized gain on available for sale investments |                             |      | 763                         |       |                           |         |     |         |      |        | 763 |      |   |         |     |        
|                                   | Foreign currency translation adjustment           |                             |      | 1,305                       |       |                           |         | (87  | )       |      |        | 901 |      |   |         | (714 | )      
|                                   |                                                   |                             |      |                             |       |                           |         |      |         |      |        |     |      |   |         |     
|                                   |                                                   | Comprehensive income (loss) |      | $                           | 1,595 |                           |         | $    | (14,198 | )    |        | $   | (497 | ) |         | $    | (29,574 | )
|                                   |                                                   |                             |      |                             |       |                           |         |      |         |      |        |     |      |   |         |     

Note 10. Net Loss Per Share

Basic and diluted net loss per share is computed using the weighted average
number of shares of common stock. 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 9,687,120 and 7,631,579 shares of common
stock were outstanding during the three months ended June 30, 2002 and 2001,
respectively, and 7,195,145 and 9,194,443 shares of common stock during the
six months ended June 30, 2002 and 2001, respectively, all priced from $0.56 to
$59.38. These
shares were excluded from the computation of diluted net loss per share because
the options exercise price was greater than the average market price of the
common shares and inclusion of such options would have been anti-dilutive.

Note 11. 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 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 and six month periods ended June 30, 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, cost of revenue, and
long-lived assets by geographic region for the three and six months ended June
30, 2002 and 2001 (in thousands):

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

|                               |  |         |        |         |  |         |        |                 |  |                 |        |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 
|------------------------------ |  | ------- | ------ | ------- |  | ------- | ------ | --------------- |  | --------------- | ------ | ------------- |  | ---------- | ----- |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|As of and for the three months |  | License |        | Service |  | Total   |        | Total Cost of   |  | Total Cost of   |        | Total Cost of |  | Long-Lived
|ended June 30, 2002            |  | Revenue |        | Revenue |  | Revenue |        | License Revenue |  | Service Revenue |        | Revenue       |  | Assets    
|                               |  |         |        |         |  |         |        |                 |  |                 |        |               |  |           
|                               |  | $       |        | $       |  | $       |        | $               |  | $               |        | $             |  | $         
|North America                  |  |         | 13,734 |         |  |         | 18,099 |                 |  |                 | 31,833 |               |  |            | 997   |  |  |  | 8,011  |  |  |  | 9,008  |  |  |  | 35,631 | 
|Europe                         |  |         | 11,665 |         |  |         | 8,459  |                 |  |                 | 20,124 |               |  |            | 846   |  |  |  | 3,837  |  |  |  | 4,683  |  |  |  | 2,572  | 
|Asia/Pacific                   |  |         | 1,450  |         |  |         | 417    |                 |  |                 | 1,867  |               |  |            | 105   |  |  |  | 526    |  |  |  | 631    |  |  |  | 804    | 
|Other                          |  |         | 148    |         |  |         |       |                 |  |                 | 148    |               |  |            | 11    |  |  |  |       |  |  |  | 11     |  |  |  |       | 
|                               |  |         |        |         |  |         |        |                 |  |                 |        |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 
|Total                          |  |         | 26,997 |         |  |         | 26,975 |                 |  |                 | 53,972 |               |  |            | 1,959 |  |  |  | 12,374 |  |  |  | 14,333 |  |  |  | 39,007 | 
|                               |  |         |        |         |  |         |        |                 |  |                 |        |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 

|                               |  |         |        |         |  |         |        |                 |  |                 |        |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 
|------------------------------ |  | ------- | ------ | ------- |  | ------- | ------ | --------------- |  | --------------- | ------ | ------------- |  | ---------- | ----- |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|As of and for the three months |  | License |        | Service |  | Total   |        | Total Cost of   |  | Total Cost of   |        | Total Cost of |  | Long-Lived
|ended June 30, 2001            |  | Revenue |        | Revenue |  | Revenue |        | License Revenue |  | Service Revenue |        | Revenue       |  | Assets    
|                               |  |         |        |         |  |         |        |                 |  |                 |        |               |  |           
|                               |  | $       |        | $       |  | $       |        | $               |  | $               |        | $             |  | $         
|North America                  |  |         | 12,473 |         |  |         | 20,377 |                 |  |                 | 32,850 |               |  |            | 869   |  |  |  | 8,549  |  |  |  | 9,418  |  |  |  | 31,946 | 
|Europe                         |  |         | 6,844  |         |  |         | 4,087  |                 |  |                 | 10,931 |               |  |            | 477   |  |  |  | 3,619  |  |  |  | 4,096  |  |  |  | 3,018  | 
|Asia/Pacific                   |  |         | 1,745  |         |  |         | 223    |                 |  |                 | 1,968  |               |  |            | 122   |  |  |  | 333    |  |  |  | 455    |  |  |  | 919    | 
|Other                          |  |         | 359    |         |  |         |       |                 |  |                 | 359    |               |  |            | 25    |  |  |  |       |  |  |  | 25     |  |  |  |       | 
|                               |  |         |        |         |  |         |        |                 |  |                 |        |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 
|Total                          |  |         | 21,421 |         |  |         | 24,687 |                 |  |                 | 46,108 |               |  |            | 1,492 |  |  |  | 12,501 |  |  |  | 13,993 |  |  |  | 35,883 | 
|                               |  |         |        |         |  |         |        |                 |  |                 |        |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 

|                             |  |         |        |         |  |         |        |                 |  |                 |         |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 
|---------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | --------------- |  | --------------- | ------- | ------------- |  | ---------- | ----- |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|As of and for the six months |  | License |        | Service |  | Total   |        | Total Cost of   |  | Total Cost of   |         | Total Cost of |  | Long-Lived
|ended June 30, 2002          |  | Revenue |        | Revenue |  | Revenue |        | License Revenue |  | Service Revenue |         | Revenue       |  | Assets    
|                             |  |         |        |         |  |         |        |                 |  |                 |         |               |  |           
|                             |  | $       |        | $       |  | $       |        | $               |  | $               |         | $             |  | $         
|North America                |  |         | 28,221 |         |  |         | 37,005 |                 |  |                 | 65,226  |               |  |            | 2,007 |  |  |  | 16,794 |  |  |  | 18,801 |  |  |  | 35,631 | 
|Europe                       |  |         | 18,130 |         |  |         | 14,784 |                 |  |                 | 32,914  |               |  |            | 1,290 |  |  |  | 7,462  |  |  |  | 8,752  |  |  |  | 2,572  | 
|Asia/Pacific                 |  |         | 2,610  |         |  |         | 652    |                 |  |                 | 3,262   |               |  |            | 186   |  |  |  | 969    |  |  |  | 1,155  |  |  |  | 804    | 
|Other                        |  |         | 3,168  |         |  |         |       |                 |  |                 | 3,168   |               |  |            | 225   |  |  |  |       |  |  |  | 225    |  |  |  |       | 
|                             |  |         |        |         |  |         |        |                 |  |                 |         |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 
|Total                        |  |         | 52,129 |         |  |         | 52,441 |                 |  |                 | 104,570 |               |  |            | 3,708 |  |  |  | 25,225 |  |  |  | 28,933 |  |  |  | 39,007 | 
|                             |  |         |        |         |  |         |        |                 |  |                 |         |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 

|                             |  |         |        |         |  |         |        |                 |  |                 |        |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 
|---------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | --------------- |  | --------------- | ------ | ------------- |  | ---------- | ----- |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|As of and for the six months |  | License |        | Service |  | Total   |        | Total Cost of   |  | Total Cost of   |        | Total Cost of |  | Long-Lived
|ended June 30, 2001          |  | Revenue |        | Revenue |  | Revenue |        | License Revenue |  | Service Revenue |        | Revenue       |  | Assets    
|                             |  |         |        |         |  |         |        |                 |  |                 |        |               |  |           
|                             |  | $       |        | $       |  | $       |        | $               |  | $               |        | $             |  | $         
|North America                |  |         | 22,120 |         |  |         | 40,793 |                 |  |                 | 62,913 |               |  |            | 1,660 |  |  |  | 17,455 |  |  |  | 19,115 |  |  |  | 31,946 | 
|Europe                       |  |         | 15,826 |         |  |         | 8,529  |                 |  |                 | 24,355 |               |  |            | 1,188 |  |  |  | 7,938  |  |  |  | 9,126  |  |  |  | 3,018  | 
|Asia/Pacific                 |  |         | 3,763  |         |  |         | 365    |                 |  |                 | 4,128  |               |  |            | 282   |  |  |  | 639    |  |  |  | 921    |  |  |  | 919    | 
|Other                        |  |         | 553    |         |  |         |       |                 |  |                 | 553    |               |  |            | 42    |  |  |  |       |  |  |  | 42     |  |  |  |       | 
|                             |  |         |        |         |  |         |        |                 |  |                 |        |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 
|Total                        |  |         | 42,262 |         |  |         | 49,687 |                 |  |                 | 91,949 |               |  |            | 3,172 |  |  |  | 26,032 |  |  |  | 29,204 |  |  |  | 35,883 | 
|                             |  |         |        |         |  |         |        |                 |  |                 |        |               |  |            |       |  |  |  |        |  |  |  |        |  |  |  |        | 

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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 enterprise 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 is scheduled to release Documentum 5.0 in the quarter ended
September 30, 2002. Version 5.0 is built upon the Companys flagship 4i
enterprise content management platform and will be enhanced with additional
trusted content features such as single-sign-on, encryption, and
authentication.

The Company expects that license and service revenue from Documentum 4i and the
release of Documentum 5.0 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. The Company expects total revenue of $54
to $56 million and total spending (which includes operating expenses and total
costs of revenue) of $53 to $54 million during the quarter ending September 30,
2002.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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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 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 enterprise
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. The Company
recognizes revenue on transactions with extended payment terms 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 shipped to the reseller,
distributor or 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 is 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 Doubtful Accounts

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.

Warranty Reserves

The Company maintains reserves for costs associated with future product
warranty obligations. With the release of Documentum 5.0 the Company may
significantly increase the reserve if the new product contains undetected
errors, or bugs, or performance problems, which are discovered only after the
product is installed and used by customers.

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. 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%.

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

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The Company completed the transitional impairment
test in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets (SFAS 142). No
impairment charges were recognized in connection with the
transitional impairment. 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 1st beginning in fiscal year 2002.

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

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 |     | Six Months Ended
|                                          |                               |                         |    | June 30,           |     | June 30,        
|                                          |                               |                         |    |                    |     |                 
|                                          |                               |                         |    | 2002               |     | 2001             |     | 2002 |     | 2001
|                                          |                               |                         |    |                    |     |                  |     |      |     |     
|Revenue:                                  |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|                                          | License                       |                         |    | 50                 | %   |                  |     | 46   | %   |      |    | 50 | %   |   |     | 46 | %  
|                                          | Service                       |                         |    | 50                 | %   |                  |     | 54   | %   |      |    | 50 | %   |   |     | 54 | %  
|                                          |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|                                          |                               | Total revenue           |    |                    | 100 | %                |     |      | 100 | %    |    |    | 100 | % |     |    | 100 | %
|                                          |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|Cost of revenue:                          |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|                                          | License                       |                         |    | 4                  | %   |                  |     | 3    | %   |      |    | 4  | %   |   |     | 4  | %  
|                                          | Service                       |                         |    | 23                 | %   |                  |     | 27   | %   |      |    | 24 | %   |   |     | 28 | %  
|                                          |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|                                          |                               | Total cost of revenue   |    |                    | 27  | %                |     |      | 30  | %    |    |    | 28  | % |     |    | 32  | %
|                                          |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|Gross profit                              |                               |                         | 73 | %                  |     |                  | 70  | %    |     |      | 72 | %  |     |   | 68  | % 
|                                          |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|Operating expense:                        |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|                                          | Sales and marketing           |                         |    | 42                 | %   |                  |     | 56   | %   |      |    | 44 | %   |   |     | 59 | %  
|                                          | Research and development      |                         |    | 18                 | %   |                  |     | 19   | %   |      |    | 18 | %   |   |     | 20 | %  
|                                          | General and administrative    |                         |    | 12                 | %   |                  |     | 13   | %   |      |    | 12 | %   |   |     | 14 | %  
|                                          | Restructuring/severance costs |                         |    | 2                  | %   |                  |     | 8    | %   |      |    | 1  | %   |   |     | 4  | %  
|                                          |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|                                          |                               | Total operating expense |    |                    | 74  | %                |     |      | 96  | %    |    |    | 75  | % |     |    | 97  | %
|                                          |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|Loss from operations                      |                               |                         | (1 | %)                 |     |                  | (26 | %)   |     |      | (3 | %) |     |   | (29 | %)
|Interest and other income, net            |                               |                         |   |                    |     |                  | 2   | %    |     |      |   |    |     |   | 3   | % 
|Permanent impairment of investment        |                               |                         |   |                    |     |                  | (4  | %)   |     |      |   |    |     |   | (2  | %)
|                                          |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|Loss before income tax provision          |                               |                         | (1 | %)                 |     |                  | (28 | %)   |     |      | (3 | %) |     |   | (28 | %)
|Provision for (benefit from) income taxes |                               |                         |   |                    |     |                  | 3   | %    |     |      | (1 | %) |     |   | 3   | % 
|                                          |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|Net loss                                  |                               |                         | (1 | %)                 |     |                  | (31 | %)   |     |      | (2 | %) |     |   | (31 | %)
|                                          |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|As a Percentage of Related Revenue:       |                               |                         |    |                    |     |                  |     |      |     |      |    |    |     |   |     |   
|Cost of license revenue                   |                               |                         | 7  | %                  |     |                  | 7   | %    |     |      | 7  | %  |     |   | 8   | % 
|Cost of service revenue                   |                               |                         | 46 | %                  |     |                  | 51  | %    |     |      | 48 | %  |     |   | 52  | % 

Revenue

The Company saw a slight increase in demand for its enterprise content
management solutions, as evidenced by an increase in new customers, number of
orders, and average deal size compared to the same period a year ago. These
factors resulted in higher total revenue and improved operating results during
the current quarter, as compared to the
same period a year ago. The increase in average deal size stemmed, in large
part, from a number of deals over $1.0

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million and less competitive pricing
pressure from customers in approximately half of the Companys total
transactions. The Companys larger deals were primarily closed as a result of
previous quarter efforts in selling smaller or pilot-sized enterprise content
management solutions. Internationally, the Company saw positive growth in its
EMEA sales region. For the three months ended June 30, 2002, license revenues
in Europe increased 72% or $4.9 million from the comparable period a year ago.
European service revenue in the region increased by 107% or $4.4 million over
the same period. Despite the Companys positive growth internationally, direct
indicators of an international economic recovery have yet to be noted, and
visibility surrounding international economic conditions remains limited. The
Company continues to operate in a challenging economic environment as
technology spending remains highly controlled and demand for enterprise-wide
software purchases remains uncertain. In addition, prospects surrounding a
near-term domestic economic recovery remain unclear. The Company plans to
continue monitoring the economic conditions in the United States, European and
Asia/Pacific economies and will adjust its operating plan accordingly.

License revenue increased by 26% to $27.0 million for the three months ended
June 30, 2002 from $21.4 million for the three months ended June 30, 2001,
representing 50% and 46% of total revenue in the respective periods and
increased by 23% to $52.1 million for the six months ended June 30, 2002 from
$42.3 million for the six months ended June 30, 2001, representing 50% and 46%
of total revenue in the respective periods. The growth in license revenue in
absolute dollars and as a percentage of total revenue for the periods presented
was due to an increase in number of orders, licenses sold, and the Companys
up-sell penetration into its existing customer base over the comparable
periods. The Company believes that the growth in licenses sold reflects
customer standardization on the Companys flagship 4i platform. Also, during
the quarter the Company saw solid growth in its government sales channel and
continued traction in various other key verticals including oil and gas,
pharmaceuticals, and utilities. During the three months ended June 30, 2002,
the Company had one sale accounting for $5.0 million or 19% of total license
revenue. No customer accounted for greater than 10% of total license revenue
for the six months ended June 30, 2002 or the three and six months ended June
30, 2001.

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 months ended June 30, 2002, the Company recognized revenue of $1.1
million from the sale of software licenses to a leading financial services
organization. In the same period the Company paid the financial services
organization $3.8 million in commissions in connection with the convertible
debt offering that was completed on April 5, 2002. During the first quarter of
fiscal 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 the
enterprise software company for use in managing its internal corporate portal.
No such transactions were noted during the comparable periods ending June 30,
2001.

Service revenue increased by 9% to $27.0 million for the three months ended
June 30, 2002 from $24.7 million for the three months ended June 30, 2001,
representing 50% and 54% of total revenue in the respective periods, and
increased by 5% to $52.4 million for the six months ended June 30, 2002 from
$49.7 million for the six months ended June 30, 2001, representing 50% and 54%
of total revenue in the respective periods. Specifically, the Companys
maintenance revenue increased by $2.9 million and $4.9 million for the three
and six months ended June 30, 2002, respectively, over the comparable periods
presented, and consulting and education services revenue decreased by $0.6
million and $2.2 million for the three and six months ended June 30, 2002,
respectively over the comparable periods presented. The increase in maintenance
revenue was attributable to a larger installed base of customers receiving
ongoing maintenance and support services, maintenance renewals of approximately
90% of customers making first time product license purchases and a growth in
back-maintenance. In the event a customer renews a maintenance agreement
after the maintenance term has expired, the Company will immediately recognize
revenue for the back-maintenance period. The back-maintenance period represents
the period of time that begins on the expiration date of the maintenance
agreement and extends through the date the maintenance agreement was renewed.
Back-maintenance was $1.4 million and $0.8 million for the three months ended
June 30, 2002 and 2001, respectively, and was $1.7 million and $1.3 million for
the six months ended June 30, 2002 and 2001, respectively. The Company believes
that the decrease in consulting and education service revenues for the periods
noted is primarily due to adverse macro-economic factors associated with
customer purchases and software deployment
methodologies. Customers have increased use of internal resources to deploy
purchased licenses and are limiting the number of attendees to the Companys
education seminars. The decrease of service revenue as a percentage of total

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revenue was due to the increase in license revenue for the three and six month
periods ended June 30, 2002 over the comparable prior year, 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. Revenue from
transactions that involved indirect channel partners comprised 78% and 53% of
license revenue for the three months ended June 30, 2002 and 2001,
respectively, and 72% and 34% of license revenue for the six months ended June
30, 2002 and 2001, respectively. The increase in indirect channel
revenue is due to the Companys continued investment in channel
programs, as evidenced by a restructured compensation program that was put in
place to incent the direct sales force to include partners in transactions. 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 52% and 44% of license revenue for the three
months ended June 30, 2002 and 2001, respectively, and 48% and 51% of license
revenue for the six months ended June 30, 2002 and 2001, respectively. The
increase over the three month periods presented is primarily driven by the rate
of license revenue growth seen in Europe as compared to domestic growth. Europe
license revenue increased by 70% while domestic license growth increased by 10%
for the three months ended June 30, 2002 over the same period a year ago.
Europes license revenue growth was primarily driven by enterprise-wide sales
to three customers in Europe totaling $4.3 million. The decrease over the
comparable six month periods presented is primarily due to an increase in
absolute dollar domestic license revenue growth over international based
revenue streams. 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 33% to $2.0 million for the
three months ended June 30, 2002 from $1.5 million for the three months ended
June 30, 2001 and increased by 16% to $3.7 million for the six months ended
June 30, 2002 from $3.2 million for the six months ended June 30, 2001,
representing 7% of the related license revenue for the three months ended June
30, 2002 and 2001 and 7% and 8% of the related license revenue for the six
months ended June 30, 2002 and 2001, respectively. The absolute dollar increase
in cost of license revenue for both the three and the six months ended June 30,
2002 over the comparable periods in 2001 is primarily due to the increased
license sales. Cost of revenue decreased as a percentage of license revenue for
the six months ended June 30, 2002 over the comparable period in 2001 primarily
due to 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 1% to $12.4 million for the three months ended June 30, 2002 from $12.5
million for the three months
ended June 30, 2001 and decreased by 3% to $25.2 million for the six months
ended June 30, 2002 from $26.0 million for the six months ended June 30, 2001,
representing 46% and 51% of the related service revenue for the

18



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three months ended June 30, 2002 and 2001, respectively, and 48% and 52% of the related
service revenue for the six months ended June 30, 2002 and 2001, respectively.
The decrease in cost of service revenue in absolute dollar amount and as a
percentage of service revenue is primarily due to a decrease in consulting and
education revenues, as described above, as well as a decrease in the use of
external consulting resources.

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 expense decreased by 10% to $22.9 million for
the three months ended June 30, 2002 from $25.5 million for the three months
ended June 30, 2001 and decreased 14% to $46.6 million for the six months
ended June 30, 2002 from $54.1 million for the six months ended June 30, 2001,
representing 42% and 56% of total revenue for the three months ended June 30,
2002 and 2001, respectively, and 44% and 59% of total revenue for the six
months ended June 30, 2002 and 2001, respectively. The decrease in absolute
dollar amount and as a percentage of total revenue was primarily due to a
decrease in sales compensation related to restructuring activities,
managements further implementation of cost control initiatives, and a redesign
of the Companys compensation plans that resulted in lower commission expense,
all of which were partially off-set by increased costs associated with the
Companys expansion of sales offices in Italy, Sweden, and Mexico. The Company
expects to monitor sales capacity worldwide in order to pursue global revenue
and market opportunities. Sales and marketing expense will increase in absolute
dollar amount as the Company expands its sales and marketing efforts, but is
expected to 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
increased by 13% to $9.8 million for the three months ended June 30, 2002 from
$8.7 million for the three months ended June 30, 2001, and increased by 2% to
$18.8 million for the six months ended June 30, 2002 from $18.4 million for the
six months ended June 30, 2001, representing 18% and 19% of total revenue for
the three months ended June 30, 2002 and 2001, respectively, and 18% and 20% of
total revenue for the six months ended June 30, 2002 and 2001, respectively.
The increase in absolute dollars for the periods presented is due to increased
spending on product integration costs incurred as a result of the Bulldog, Inc.
and Boxcar Software, Inc. acquisitions and costs attributed to the launch of
Documentum 5scheduled for the third fiscal quarter ending September 30, 2002.
The decrease in costs as a percentage of total revenue for the periods
presented is primarily due to an increase in total revenue. 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 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 increased by 7% to $6.4 million for the
three months ended June 30, 2002 from $6.0 million for the three months ended
June 30, 2001 and decreased by 3% to $12.5 million for the six months ended
June 30, 2002 from $12.9 million for the six months ended June 30, 2001,
representing 12% and 13% of total revenue for the three months ended June 30,
2002 and 2001, respectively, and 12% and 14% of total revenue for the six
months ended June 30, 2002 and 2001, respectively. The increase for the three
months ended June 30, 2002 as compared to the three months ended June 30 2001,
is primarily due to additional expenses necessary to manage and support an
increased level of business activity. The decrease in the amount of general and
administrative expenses for the six months ended June 30, 2002 over the six
months ended June 30, 2001 is primarily due to the Companys restructuring
efforts, specifically the decreased use of out-sourced staffing and
consultants, professional fees and reduction in discretionary costs as a result
of the Companys cost control initiatives. The decrease in costs as a
percentage of total revenue for the periods presented is primarily due to an
increase in total revenue. The Company believes that general and administrative
expenses in terms of absolute dollar amount and as a percentage of total
revenue will remain comparable or decrease in the third quarter of fiscal 2002
compared to the levels in the second quarter of fiscal 2002.

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##### Table of Contents



Restructuring Charges

In fiscal 2001, and in the second quarter ended June 30, 2002, the
Company incurred restructuring costs to reduce its world-wide work force, and
to consolidate excess facilities. The following table details the
restructuring activity through June 30, 2002:

|                                                            |                                |   |            |           |         |   |          |   |  |   |            |           | 
|----------------------------------------------------------- | ------------------------------ | - | ---------- | --------- | ------- | - | -------- | - |  | - | ---------- | --------- | 
|                                                            |                                |   | Severance  |           |         |   |          |   |  |   |           
|                                                            |                                |   | and        |           | Other   |   |          |   | 
|                                                            |                                |   | Benefits   |           | Charges |   | Total   
|                                                            |                                |   |            |           |         |   |         
|Restructuring
charges recognized in April and November 2001 |                                | $ | 5,770,125  |           |         | $ | 500,953  |   |  | $ | 6,271,078  |          
|Cash paid                                                   |                                |   | (4,826,681 | )         |         |   | (248,024 | ) |  |   | (5,074,705 | )        
|Balance at December 31, 2001                                |                                |   | 943,444    |           |         |   | 252,929  |   |  |   | 1,196,373  |          
|                                                            |                                |   |            |           |         |   |          |   |  |   |            |          
|Restructuring
charge                                        |                                |   |           |           |         |   |         |   |  |   |           |          
|Cash paid                                                   |                                |   | (467,832   | )         |         |   | (8,430   | ) |  |   | (476,262   | )        
|Balance at March 31, 2002                                   |                                |   | 475,612    |           |         |   | 244,499  |   |  |   | 720,111    |          
|                                                            |                                |   |            |           |         |   |          |   |  |   |            |          
|Restructuring
charge                                        |                                |   | 1,339,206  |           |         |   |         |   |  |   | 1,339,206  |          
|Adjustments                                                 |                                |   | (295,998   | )         |         |   |         |   |  |   | (295,998   | )        
|                                                            | Total charge for June 30, 2002 |   |            | 1,043,208 |         |   |          |  |  |   |            | 1,043,208 | 
|                                                            |                                |   |            |           |         |   |          |   |  |   |            |          
|Cash paid                                                   |                                |   | (232,914   | )         |         |   | (29,961  | ) |  |   | (262,875   | )        
|Balance at June 30, 2002                                    |                                | $ | 1,285,906  |           |         | $ | 214,538  |   |  | $ | 1,500,444  |          
|                                                            |                                |   |            |           |         |   |          |   |  |   |            |          

In connection with the Companys restructuring plan, which was initiated in the
second quarter of fiscal 2001, the Company recognized restructuring charges
that were primarily comprised of estimated severance and benefits related to
the involuntary termination or cancellation of offers of
approximately 240
employees of which 31 employees were terminated in the current
quarter, 220 were based in the United States and the remainder based
in Europe, Canada, and throughout Asia Pacific. The cost estimates were made
based on the remaining amounts due under various contractual agreements and
managements best estimates of the expected obligations. During the three
months ended June 30, 2002 the Company decreased the severance and benefits
accrual by a net $0.3 million. The adjustments were the result of the Company
settling certain severance and benefit obligations for an amount less than
originally estimated. The Companys reserve balance of approximately $1.3
million will be paid to the remaining 19 employees during fiscal 2002 and the
first half of fiscal 2003.

The remaining charges which were recognized in connection with the Companys
restructuring plan primarily includes costs that the Company estimated it would
incur to exit certain facilities, net of estimated sub-lease income. 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.
During the current quarter, due to a continued weakening of the commercial real
estate market, the Company extended the estimated period of time that it would
take to sub-lease the abandoned facilities. As a result, the Company adjusted
the accrual to reflect the increased future rent commitments on these
facilities. Of the remaining reserve balance as of June 30, 2002 of $0.2
million, $0.1 million relates to miscellaneous restructuring costs to be paid
out throughout fiscal 2002 and the first half of fiscal 2003 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.

The Company does not believe that the restructuring activities have had or will
have a material effect on its ongoing operations.

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The Company has an excess facility in the United Kingdom and is in the process
of evaluating whether future consolidation activities are necessary. In the
event that the Company formalizes a consolidation plan on the facility, the
Company expects to incur a charge ranging from $1.6 million to $3.6 million
for the quarter ending September 30, 2002.

Interest and other income (expense), net

Interest and other income (expense), 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 (expense), net decreased by $1.4 million for the three months ended June
30, 2002 to an expense of $0.2 million from income of $1.2 million for the
three months ended June 30, 2001 and decreased by $2.1 million for the six
months ended June 30, 2002 to $0.2 million from $2.3 million for the six months
ended June 30, 2001. The decrease over the periods presented is primarily due
to a prolonged reduction in interest rates and the timing difference between
the receipt of convertible debt proceeds and the time it took to invest the
proceeds in debenture instruments suitable to the Companys investment policy.

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 economic 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 rate for the three months and
six months ended June 30, 2002 was 30% and was 10% for the three and six months
ended June 30, 2001. 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%.

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 was 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 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, but will be tested for impairment on August 1st per annum. 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.

Liquidity and Capital Resources

The Companys cash, cash equivalents and short-term investments totaled $151.7
million at June 30, 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.

On April 5, 2002, the Company sold $125 million (the face value) in senior
convertible notes that mature on April 1, 2007 (the Notes). The Notes bear
interest at a rate of 4.5% per annum, subject to customary adjustments. The
Company received proceeds of $121.3 million, net of debt issuance costs
totaling $3.9 million. Holders of the Notes

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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 at a conversion price of $30.03 per share.
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. The Notes do not contain any restrictive financial covenants. For the
three months ended June 30, 2002, the Company recognized $1.5 million of
interest expense and amortization of debt issuance costs totaling $0.2 million
in connection with the offering of the Notes. As of June 30, 2002, the
Companys debt obligation totaled $125.0 million.

The indenture under which the Notes were issued provides that an event of
default will occur if (i) we fail to pay principal or premium on the Notes,
(ii) we fail to pay interest on the notes and fail to cure such non-payment
within 30 days, (iii) we fail to perform any other covenant that is
required of us in the indenture and the failure is not cured or waived within
60 days, or (iv) we or one of our significant subsidiaries fails to pay, at
final maturity or upon acceleration, any indebtedness for money borrowed in an
outstanding principal amount in excess of $10 million, and the indebtedness is
not discharged, or the default is not cured, waived or rescinded within 30 days
after notice is provided in accordance with the terms of the indenture. If any
of these events of default occurs, either the trustee or the holders of at
least 25% of the outstanding notes may declare the principal amount of the
Notes to be due and payable. In addition, an event of bankruptcy, insolvency or
reorganization (involving us or any of our significant subsidiaries) will
constitute an event of default under the indenture and, in that case, the
principal amount of the Notes will automatically become due and payable. To the
extent the Company is required to repay the Notes prior to the maturity date as
a result of an event of default, such repayment will negatively impact the
Companys liquidity.

As a result of the above and other commitments as of June 30, 2002, our total
future commitments for the remainder of fiscal year ended December 31, 2002
will be $12.2 million and for the fiscal year ended December 31, 2003 will be
$15.8 million, assuming that none of our obligations is accelerated.

Cash provided by operating activities was $12.7 million for the period ended
June 30, 2002 as compared to cash used in operations of $8.2 million for the
comparable period last year. 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 June 30, 2002, the Company had net working capital of $140.8 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 $49.8 million,
cash and cash equivalents of $15.6 million, other current assets of $3.5
million, and a reduction in accrued liabilities of $3.3 million, all of which
were off-set by decreases in accounts receivable of $7.2 million, and an
increase in deferred revenue of $4.7 million.

In addition to its purchases, sales and maturities of investments, related
primarily to the convertible note proceeds described herein, the Companys
investing activities during the six months ended June 30, 2002 also consisted
of the acquisition of Boxcar Software, Inc. and purchases of property, plant and
equipment. The above activities combined, represented $126.1 million of cash
used in investing activities in 2002, compared to $3.4 million of cash provided
by investing activities in the comparable period last year.

Historically, the Company has financed its operations through the sale of
stock, however, during the quarter ended June 30, 2002, the Company
complemented its stock sales with the completion of a convertible debt offering
raising gross proceeds of $125.0 million. In addition, during the six months
ended June 30, 2002 the Company received $3.8 million and $3.0 million in
proceeds from option exercises and employee stock purchase plans, respectively.
These activities represented substantially all of the Companys $128.0 million
provided by financing activities for the six months ended June 30, 2002 as
compared to $8.3 million for the comparable period in 2001. The increase was
primarily due to the sale of the Notes.

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

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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 June 30, 2002, the Company made principal payments
totaling $11,000 and interest payments of $1,000. Through June 30, 2002, the
Company had made principal and interest payments in the amount of $43,000
related to this lease and had recorded the current portion of this capital
lease obligation in the amount of $47,000. The lease has an interest rate of
5.77% and has a maturity date of December 2003. Also, in connection with the
acquisition of substantially all of the 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 Bulldog
acquisition). During the six months ended June 30, 2002, the Company settled
all payment obligations surrounding the acquired capital leases.

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

Our operating results are difficult to predict and fluctuate substantially from
quarter to quarter.Our future operating results may vary from our past
operating results, are difficult to predict and may vary from quarter to
quarter due to a number of factors. Many of these factors are beyond our
control. These factors include:



| |  | the length of our sales cycle, which can range from three to nine months from initial contact with a customer until the sale
is complete;                                                                                             
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the potential delay in recognizing revenue from license transactions due to revenue recognition rules which we must follow;                                                                                                           
| 
| |  | the tendency to realize a substantial amount of revenue in the last weeks, or even days, of each quarter due to the tendency
of some of our customers to wait until quarter or year end in the hope of obtaining more favorable terms;
| 
| |  | customer decisions to delay implementation of our products;                                                                                                                                                                           
| 
| |  | the size and complexity of our license transactions;                                                                                                                                                                                  
| 
| |  | any seasonality of technology purchases;                                                                                                                                                                                              
| 
| |  | demand for our products, which can fluctuate significantly;                                                                                                                                                                           
| 
| |  | the amount of competition we face;                                                                                                                                                                                                    
| 
| |  | our success in expanding our customer support organization, direct sales force and indirect distribution channels;                                                                                                                    

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| |  | the timing of new product introductions and product enhancements by both us and our competitors;
|- |  | ------------------------------------------------------------------------------------------------
| 
| |  | changes in our pricing policy;                                                                  
| 
| |  | the publication of opinions concerning us, our products or technology by industry analysts;     
| 
| |  | the timing of new hires;                                                                        
| 
| |  | changes in foreign currency exchange rates; and                                                 
| 
| |  | domestic and international economic and political conditions.                                   

One or more of these factors may cause our operating expenses to be
disproportionately high or our gross revenues to be disproportionately low
during any given period, which could cause our net revenue and operating
results to fluctuate significantly. Our operating results have fluctuated
significantly in the past. Our earnings per share was $0.04 in the second
quarter of 2000, but we had a loss per share of $0.37 in the second quarter of
2001 and a loss per share of $0.01 in the second quarter of 2002. You should
not rely on our quarterly operating results to predict our future results
because of the significant fluctuations to which our results are subject.

Our product licenses are typically sold for a large amount of money. As such,
a single license order can represent a significant portion of our revenue, and
the loss or delay of individual orders for product licenses could have a
significant impact on quarterly operating results and revenue.

Our sales cycle can range from three to nine months from our initial contact
with a customer until the time revenue is recognized. This long and variable
sales cycle makes the timing of license revenue difficult to predict.
Furthermore, we provide our customers with complete content management
solutions, which means that we often provide a customer with both software
licenses and services. Due to revenue recognition rules that we must follow,
the delivery of services in conjunction with the sale of a software license may
delay recognition of license revenue. Because our operating expenses are based
on anticipated revenue trends and because many of these expenses are 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 worse than
expected operating results, which could cause our common stock price to fall.

As a result of these 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. It is likely that our future
quarterly operating results from time to time will not meet the expectations of
public market analysts or investors, which could cause a drop in the price of
our common stock.

The United States, Europe and Asia/Pacific have experienced a general decline
in economic conditions over the past six quarters, leading to reduced demand
for goods and services, including those that we offer.Each of our customers
makes a discretionary decision to implement our products that is subject to its
resources and budget cycles. Many of our customers have experienced budgeting
constraints, causing them to defer or cancel projects. Revenue from sales of
our products decreased in fiscal year 2001 compared to fiscal year 2000. While
we have experienced a slight increase in demand for our products in the first
two quarters of 2002, demand for our products may decrease again. Decreased
demand for our products would result in decreased revenues, which could harm
our operating results, causing the price of our common stock to fall.

We cannot predict how long or severe this economic downturn will be or whether
any actions taken or proposed by the government will be effective to bolster
the economy. As a result of this uncertainty, forecasting and financial and
strategic planning are more difficult than usual. If the downturn continues for
an extended period or becomes more severe, our business will suffer and we may
experience declines in sales as our customers attempt to limit their spending.
In addition, the adverse impact of the downturn on the capital markets could
impair our ability to raise capital as needed and could impede our ability to
expand our business.

You may have no effective remedy against Arthur Andersen LLP in connection with
a material misstatement or omission in our financial statements.

Our consolidated financial statements for each of the three years for the
period ending December 31, 2001 were audited by Arthur Andersen LLP. On March
14, 2002, Andersen was indicted on federal obstruction of justice charges
arising from the governments investigation of Enron Corporation and on June
15, 2002, Andersen was found guilty. Andersen has informed the SEC that it will
cease practicing before the SEC by August 31, 2002, unless the SEC determines
another date is appropriate. On March 14, 2002, we dismissed Andersen and
retained KPMG

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LLP as our independent auditors for our current fiscal year
ending December 31, 2002. SEC rules require us to present historical audited
financial statements in various SEC filings, such as registration statements,
along with Andersens consent to our inclusion of its audit report in those
filings. Since our former engagement partner and audit manager have left
Andersen, and in light of the announced cessation of Andersens SEC practice,
we will not be able to obtain the consent of Andersen to the inclusion of its
audit report in our relevant current and future filings. The SEC recently has
provided regulatory relief designed to allow companies that file reports with
the SEC to dispense with the requirement to file a consent of Andersen in
certain circumstances, but purchasers of securities sold under our registration
statements, that were not filed with the consent of Andersen to the inclusion
of its audit report, will not be able to sue Andersen pursuant to Section
11(a)(4) of the Securities Act and therefore their right of recovery under that
section may be limited as a result of our inability to obtain Andersens
consent.

We have borrowed a significant amount of money, which could make it difficult
to obtain additional financing; if we cannot obtain additional financing, our
cash reserves could be depleted.Our debt payments and other commitments could
impair our liquidity and cash reserves and make it difficult for us to obtain
additional financing for working capital or acquisitions, should we need to do
so. As of June 30, 2002, we had $125.0 million in outstanding indebtedness
under our 4.5% senior convertible notes. As a result of this and other smaller
debt commitments as of June 30, 2002, our total future commitments for the
remainder of fiscal year ended December 31, 2002 will be $12 million and for
the fiscal year ended December 31, 2003 will be $15 million, assuming that none
of our obligations are accelerated. Our obligations under the senior
convertible notes may be accelerated if we default under the terms of the
senior convertible notes. If our obligations are accelerated, the entire
principal amount of our outstanding indebtedness under our senior convertible
notes could become immediately payable.This would have a significant impact
on our liquidity position. As of June 30, 2002, we had cash and cash
equivalents of $64 million, short-term investments of $88 million, and
investments with maturities greater than one year of $79 million. We intend to
fulfill our debt service obligations both from cash generated by our operations
and from our existing cash and investments.

Our indebtedness could have the following negative consequences:



| |  | limit our ability to obtain additional financing;                                                                                                                                                                            
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | increase our vulnerability to general adverse economic and industry conditions;                                                                                                                                              
| 
| |  | require the dedication of a portion of our expected cash flow from operations to service our
indebtedness thereby reducing the amount of our expected cash flow available for other purposes,
including capital expenditures;
| 
| |  | limit our flexibility in planning for, or reacting to, changes in our business and the industry
in which we compete; and                                                                                                     
| 
| |  | place us at a possible disadvantage to competitors that do not owe as much money as we do or that
have better access to capital resources.                                                                                   

Our sales and implementation cycles are long and difficult to predict.The
time that it takes to sell and implement our products is usually long and
difficult to accurately predict. Our prospective customers usually involve
their entire enterprise in deciding whether to buy our products, which is time
consuming. This lengthy decision making process requires us to engage in a
lengthy sales cycle, which is usually between three and nine months. As part
of the sales cycle, we educate prospective customers about the use and benefits
of our products. A larger or more complex transaction often has a longer sales
cycle. You should not rely on the length of prior sales and implementation
cycles as an indication of the length of future cycles.

The implementation of our products involves a significant commitment of
resources by customers over an extended period of time, and is commonly a part
of major information system changes or upgrades by the customer. Because of
the significant customer commitment required over an extended time, sales and
customer implementation cycles
can be delayed indefinitely for reasons beyond our control should a customer
fail to commit required resources. If the sale of even a limited number of
software licenses is delayed, then our revenue could be lower than expected,
our operating results could be harmed and we may experience significant
fluctuations in results from quarter to quarter.

A substantial portion of our revenue is generated by sales of a single family
of products and related services.To date, substantially all of our revenue
has been generated by sales of licenses of the Documentum EDMS and Documentum
4i family of products and related services. We expect that this same family of
products and services

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will continue to account for the majority of our future
revenue, making us highly dependent on continued sales of this single product
family. We have a new version in this product line, Documentum 5.0, that is
scheduled for release in the third quarter of 2002. If the price of this
product family declines, or if demand for this product family declines, then
our revenues may decrease. Demand for this product family could decline for a
number of reasons, including the introduction of new products by our
competitors, general business and economic conditions and changing industry
standards. If our revenues decrease, then our operating results could be lower
than expected and our common stock price may fall.

If we fail to identify new product opportunities or to develop new products,
then our business could be harmed.We compete in the content management
software and services market, which is characterized by (A) rapid technological
change, (B) frequent introduction of new products and enhancements, (C)
changing customer needs, and (D) evolving industry standards. Our future
success depends in part on our ability to integrate web content management
capabilities and business to business solutions into our products. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. We
may be unable to develop, market and release new products or new versions of
our products that respond to technological developments, evolving industry
standards or changing customer requirements in a timely manner. These new
products, even if introduced in a timely manner, may not adequately meet the
requirements of the marketplace and may not achieve any significant degree of
market acceptance.

Most of our revenues are generated by sales of a single family of products and
related services. If this single product family is rendered obsolete and
unmarketable by technological change or new industry standards, then our
revenues from sales of this product family will decrease. It is difficult to
predict the life cycles of our products because of the rapid technological
changes which can occur in our industry. If we do not correctly predict the
life cycle of our primary product family and develop new products to replace
obsolete products, then our gross revenues will decrease, our operating results
could be lower than expected and our common stock price may fall.

We sell content management solutions; the market for content management
solutions may not continue to grow, and may decline.The market for content
management software and services is intensely competitive, highly fragmented
and rapidly changing. Our future financial performance depends primarily on
the continued growth of the market for content management software and services
and the adoption of our products by customers 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, which could cause the price of our common stock to
fall.

We face 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. There are many factors that may increase
competition in the market for Web-based and client/server software solutions,
including (A) entry of new competitors, (B) alliances among existing
competitors and (C) consolidation in the software industry. This market is
intensely competitive, rapidly changing and significantly affected by new
product introductions and other market activities of industry participants. As
a result of this competition, we face competitive pricing pressures in many of
our deals, particularly with respect to our web content management products.

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 if
they acquire competitive technology or otherwise expand their current product
offerings. 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. 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 offer a single-vendor
solution more easily than we can. In addition, our 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. If we cannot respond to our competitors
adequately and in a timely manner, then we may be required to reduce prices for
our products and could suffer reduced gross margins and loss of market share,
any of which could harm our business, financial condition and operating
results, causing the price of our common stock to fall.

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We rely on relationships with systems integrators, and may face direct
competition from them.We rely on a number of systems consulting and systems
integration firms to implement our products and provide customer support
services. We also rely on these firms to recommend our products to prospective
customers during the evaluation stage of the purchase process. Although we
seek to maintain close relationships with these service providers, many of them
have similar, and often more established, relationships with our competitors.
If we are unable to develop and maintain effective, long-term relationships
with these systems consulting and systems integration firms then they may not
recommend our products to prospective customers and we may not be able to rely
on them to implement our products and provide customer support services. In
addition, many of these firms possess industry-specific expertise and have
significantly greater resources than we do, and may market software products
that compete with us in the future. If we fail to develop and maintain good
relationships with these systems consulting and systems integration firms, or
if they become our competitors, then our competitive position would be
materially and adversely affected, which could result in price reductions,
reduced gross margins and loss of market share. Any of these effects could
harm our business, financial condition and operating results and cause the
price of our common stock to fall.

We are dependent on a relatively small number of customers and those customers
are concentrated in a small number of industries.Our success depends on
maintaining relationships with our existing customers. A relatively small
number of our customers have accounted for a significant percentage of our
revenue. For the three month period ended June 30, 2001, software license
revenue from the top 5% of our customers accounted for approximately 28% of
our total software license revenues, and for the three month period ended June
30, 2002, the top 5% of our customers accounted for approximately 54% of our
total software license revenues. Our customers are concentrated in the process
and discrete manufacturing, pharmaceutical, financial services and high
technology industries. We may not be successful in obtaining significant new
customers in different industry segments and we expect that sales of our
products to a limited number of customers in a limited number of industry
segments will continue to account for a large portion of our revenue in the
future. If we are not successful at obtaining significant new customers or if
a small number of customers cancel or delay their orders for our products, then
our business and our prospects could be harmed. As many of our significant
customers are concentrated in a small number of industry segments, if business
conditions in one of those industry segments decline, then orders for our
products from that segment may decrease, which could negatively impact our
business, financial condition and operating results and cause the price of our
common stock to fall.

We rely 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. We have entered into contractual
relationships with these organizations, but these contracts generally do not
require the organizations to continue to work with us. The termination of
such relationships in the past has not had a material impact on our revenues.
Revenue from transactions that involved indirect channel partners comprised a
significant portion of our total license revenue in 2001 and the first two
quarters of 2002. If we fail to maintain these relationships, or to establish
new relationships in the future, then our ability to sell and integrate our
products would be impaired, which would harm our business.

We must also maintain and enhance our relations with technology partners,
including Relational Data Base Management Systems vendors, to provide our
customers with integrated product solutions incorporating our products
and products of third parties. In some cases our technology is incorporated
into product solutions sold by other parties and in some case we incorporate
the technology of third parties into our products. If we are not successful at
maintaining and enhancing our technology partner relationships, then we may be
unable to offer these integrated product solutions, which could harm our
business.

We depend on the service of key personnel.Our future performance depends on
the continued service of our key technical, sales and senior management
personnel, none of whom is bound by an employment agreement with us. Our key
personnel include:

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| |  | David G. DeWalt, our President and Chief Executive Officer;                   
|- |  | ------------------------------------------------------------------------------
| 
| |  | Mike DeCesare, our Executive Vice President, Worldwide Field Operations;      
| 
| |  | Mark Garrett, our Executive Vice President and Chief Financial Officer;       
| 
| |  | David Milam, our Executive Vice President and Chief Marketing Officer;        
| 
| |  | Howard I. Shao, our Executive Vice President and Chief Technology Officer; and
| 
| |  | Robert Tarkoff , our Executive Vice President, Chief Strategy Officer.        

Any of our key personnel could terminate their employment with us at any time
and provide their services to one of our competitors. The loss of services
from one or more of our executive officers or key technical personnel could
harm our business, operating results and financial condition. Part of our
total compensation program includes stock options. The volatility or lack of
positive performance of our stock price could decrease the value of stock
options, which may over time adversely affect our ability to retain or attract
key employees.

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. If we fail to do so, then our business, operating
results and financial condition could be harmed.

We are 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. We
have offices in London, Paris, Munich, Tokyo, Melbourne, Hong Kong, Singapore,
Taipei, and Seoul. We operate our 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. Despite the planned increase in our international presence, we may
not be able to maintain or increase international market demand for our
products. If we do not, then our international sales will be limited, and
operating results could suffer. Our international operations are subject to a
variety of risks, including:



| |  | foreign currency fluctuations;                                                                                                                                
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | economic or political instability;                                                                                                                            
| 
| |  | shipping delays;                                                                                                                                              
| 
| |  | trade restrictions;                                                                                                                                           
| 
| |  | our limited experience in, and the costs of, localizing products for foreign countries;                                                                       
| 
| |  | political unrest or terrorism;                                                                                                                                
| 
| |  | reduced protection for intellectual property rights in some countries;                                                                                        
| 
| |  | longer accounts receivable payment cycles; and                                                                                                                
| 
| |  | difficulties in managing international operations, including, among other things, the burden of complying with a wide variety
of foreign laws and tax regimes.

Our success depends, in part, on our ability to anticipate and address these
risks. We cannot guarantee that these or other factors will not adversely
affect our business or operating results

Our industry is characterized by vigorous protection and pursuit of
intellectual property rights that could result in substantial costs to us.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 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. From time to
time, we have explored and resolved potential infringement claims against third
parties. To date, we have not become aware of any material infringement of our
intellectual property.

Despite our efforts to protect our intellectual property 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. We are unable to determine the extent to which piracy
of our products exists, but expect software piracy to be a persistent problem.
In addition, the laws of some foreign countries do not protect our intellectual
property

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rights as fully as do the laws of the United States. Our means of
protecting our intellectual property rights in the United States or abroad may
not be adequate. Even if our intellectual property protection is adequate, our
competition may independently develop similar technology which does not violate
our intellectual property rights, but which nonetheless competes with our
products.

From time to time, third parties have explored potential infringement claims
against us and we have resolved these potential claim. To date, we have not
become aware of our material infringement of any intellectual property rights
of others. Although we do not believe that we are infringing on any
intellectual property 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 claim that these employees have
improperly disclosed to us the confidential or proprietary information of these
former employers. Any claims, with or without merit, could (A) be
time-consuming to defend, (B) result in costly litigation, (C) divert
managements attention and resources, (D) cause product shipment delays, and
(E) 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 the infringed technology or create a
similar technology to work around the infringed technology may result in
substantial damages, payments or termination of sales of infringing products,
any of which could harm our business, operating results and financial
condition.

We license 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 be available to us on
acceptable terms in the future. The loss of any of these software licenses
could result in shipment delays or reductions, resulting in lower than expected
operating results.

We may face product liability claims from our customers.Our license
agreements with our customers usually 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 some jurisdictions. A successful product
liability claim brought against us could result in payment by us of substantial
damages, which would harm our business, operating results and financial
condition and cause the price of our common stock to fall.

We face 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. In the past,
we have had delays of less than six months in the shipment of products as a
result of errors or performance problems. However, we generally do not book
orders or recognize revenue until a product is available for shipment and we do
not believe that we have lost orders as a result of any shipping delays.

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 we begin 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 costs of software development can be high, and we may not realize revenues
from our development efforts for a substantial period of time.Introducing
new products that rapidly address changing market demands requires a continued
high level of investment in research and development. Our product development
and engineering expenses were $35 million, or 19% of total revenues for the
year ended December 31, 2001, and $19 million, or 18% of total revenue, for the
six months ended June 30, 2002. As we undertake the extensive capital outlays
to develop new products, we may be unable to realize revenue as soon as we
expect. The costs associated with software development are increasing,
including the costs of recruiting and retaining engineering talent and
acquiring or licensing new technologies. Our investment in new and existing
market opportunities prior to our ability to generate revenue from these new
opportunities may adversely affect our operating results.

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We are 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, which include the following:



| |  | we may find that the acquired company or assets do not further our
business strategy or that we paid more than what the company or assets are worth;      
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | we may have difficulty integrating the operations and personnel of the acquired businesses;                                                               
| 
| |  | we may have difficulty incorporating the acquired technologies or products with our existing product lines;                                               
| 
| |  | we may have product liability associated with the sale of the acquired companys products;                                                                
| 
| |  | our ongoing business may be disrupted by transition or integration issues;                                                                                
| 
| |  | our managements attention may be diverted from other business concerns;                                                                                  
| 
| |  | we may have difficulty maintaining uniform standards, controls, procedures and policies;                                                                  
| 
| |  | our relationship with current and new employees and clients could be impaired;                                                                            
| 
| |  | the acquisition may result in litigation from terminated employees or third parties who believe a claim
against us would be valuable to pursue; and       
| 
| |  | our due diligence process may fail to identify significant issues with product quality, product architecture
and legal contingencies, among other matters.

Our failure to successfully manage these risks associated with any past or
future acquisition may harm our business, results of operations and financial
condition. If we pay for an acquisition by issuing shares of stock or other
rights to purchase stock, including stock options, existing stockholders may be
diluted and earnings per share may decrease. Our investments in other
businesses involve risks similar to those involved in an acquisition.

Our 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 factors. During the 2001 fiscal year, our stock
had a high sales price of $55.75 and a low sales price of $5.88, as reported on
the Nasdaq National Market. During the six months ended June 30, 2002, our
stock had a high sales price of $27.18 and a low sales price of $8.67. In
addition, the stock market in general has experienced extreme price and volume
fluctuations that have affected the market price for many companies in
industries similar or related to ours and 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 our common stock. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire a majority of our outstanding voting stock.

We have a classified Board of Directors under our Amended and Restated
Certificate of Incorporation, which means that our Board is divided into three
staggered classes, each of which is elected to the Board for a three year
period. We have also implemented a Share Purchase Plan, or a 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 by increasing the cost of effecting these types of transactions,
which could have an adverse impact on stockholders who might want to vote in
favor of a merger or participate in a tender offer.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Companys exposure to market risk is due to changes in the general level of
U.S. interest rates and primarily relates to our cash and cash equivalents,
short-term, and long-term investment portfolios (the securities). The
securities are primarily maintained at three major financial institutions in
the United States. These securities, like all fixed instruments, are subject to
interest rate risk and will decline if market interest rates increase. The
Company manages interest rate risk by maintaining an investment portfolio with
debt instruments of high credit quality and relatively short maturities and
also maintaining sufficient cash and cash equivalent balances such that we are
typically able to hold the investments to maturity. The primary objective of
the Companys investment activities is the preservation of principal while
maximizing investment income and minimizing risk. The short-term and long-term
investments consist of U.S. government securities and investment grade
corporate debentures. The short-term investments have original maturities
between three months to a year and long-term investments with original
maturities over one year. The following summarizes the Companys securities and
the weighted average yields, as of June 30, 2002 (in thousands):

Expected Maturity Date

|                                  |  |      |        |      |  |      |        |      |  |       |        |   |  |  |        |   |  |  |         | 
|--------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ----- | ------ | - |  |  | ------ | - |  |  | ------- | 
|                                  |  | 2002 |        | 2003 |  | 2004 |        | 2005 |  | Total
|                                  |  |      |        |      |  |      |        |      |  |      
|U.S. Treasury & Agency Securities |  |      | 3,470  |      |  |      | 26,146 |      |  |       | 30,666 |   |  |  | 16,780 |   |  |  | 77,062  | 
|Wtd. Ave. Yld                     |  |      | 2.32   | %    |  |      | 2.83   | %    |  |       | 3.47   | % |  |  | 4.01   | % |  |  |         | 
|Corporate Bonds                   |  |      | 33,979 |      |  |      | 44,202 |      |  |       | 11,540 |   |  |  |       |   |  |  | 89,721  | 
|Wtd. Ave. Yld                     |  |      | 2.36   | %    |  |      | 2.71   | %    |  |       | 3.49   | % |  |  | 0.00   | % |  |  |         | 
|                                  |  |      |        |      |  |      |        |      |  |       |        |   |  |  |        |   |  |  |         | 
|Total                             |  |      |        |      |  |      |        |      |  |       |        |   |  |  |        |   |  |  | 166,782 | 
|                                  |  |      |        |      |  |      |        |      |  |       |        |   |  |  |        |   |  |  |         | 

As of June 30, 2002, the Company had an investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of $166.8
million. These securities, like all fixed income instruments are subject to
interest rate risk and will decline in value if market interest rates increase.
If market interest rates were to increase immediately and uniformly by 100
basis points from levels as of June 30, 2002, the fair value of the portfolio
would decline by $1.2 million.

The fair value of our convertible subordinated debenture fluctuates based upon
changes in the price of our common stock, changes in interest rates and changes
in our credit worthiness. The fair market value of the convertible subordinated
debenture as of June 30, 2002, was $91.2 million.

Foreign Currency Exchange Risk

The Companys revenue originating outside the United States was 41% and 29% of
total revenue for the three months ended June 30, 2002 and 2001, respectively,
and 38% and 32% of total revenue for the six months ended June 30, 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.

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

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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 immaterial for the three months ended June 30, 2002 and $0.1 million for
the three months ended June 30, 2001 and $0.1 million and $0.4 million for the
six months ended June 30, 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 $5.0 million were outstanding at June 30,
2002.




PART II. OTHER INFORMATION




ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

(a)  The Companys annual meeting of stockholders was held May 23, 2002 (the
Annual Meeting).

(b)  The following matters were voted upon at the Annual Meeting:



| | (i) |  | The first matter related to the re-election of two directors,
Robert Adams and Jeffrey Miller, as directors of the Company to
serve until the 2005 annual meeting of stockholders. The votes cast
for and against such nominees were as follows:
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|               |  |     |            |         |  |  |         | 
|-------------- |  | --- | ---------- | ------- |  |  | ------- | 
|Names          |  | For |            | Against
|               |  |     |            |        
|Robert Adams   |  |     | 33,157,081 |         |  |  | 792,829 | 
|Jeffrey Miller |  |     | 33,055,204 |         |  |  | 894,706 | 



| | (ii) |  | The second matter related to the ratification of the
selection of KPMG LLP as the independent auditors of the Company for
its fiscal year ending December 31, 2002. A total of 32,993,473
votes were cast for ratification, 950,703 votes were cast against
ratification and there were 5,734 abstentions.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) |  | The third matter related to the approval of one
shareholders proposal to eliminate the Companys classified Board
of Directors. A total of 17,010,660 votes were cast for approval,
11,104,644 votes were cast for approval against the proposal, and
there were 47,389 abstentions.
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents






ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

|             |  |                                                                                              
|------------ |  | ---------------------------------------------------------------------------------------------
|Exhibit 99.1 |  | Certification of Chief Executive Officer and Chief Financial Officer                         
|            
|Exhibit 99.2 |  | Purchase Agreement dated as of April 1, 2002 by and
among the Registrant and UBS Warburg LLC.

(b)  Reports on form 8-K:

| |  |                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | On April 2, 2002, the Company filed a report on Form 8-K
announcing: (1) Plans to report that revenue for the quarter
ended March 31, 2002 exceeded analyst estimates, (2) its
intention to offer $100 million of senior convertible notes
($115 million if an option for an additional $15 million is
exercised in full), and (3) announced the pricing of $125
million of senior convertible notes due 2007.
|
| |  | 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.                                                                                                                                                                                                                                                          




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 14th day of August, 2002.

| |  |                               |                                                                                    
| |  | ----------------------------- | -----------------------------------------------------------------------------------
| |  | DOCUMENTUM, INC.
(Registrant)
|
| |  | By:                           | /s/ Mark Garrett

Mark Garrett
Executive Vice President and
Chief Financial Officer

33