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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 September 30, 2003

OR

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

For the transition period from  to

Commission file number: 0-27358

DOCUMENTUM, INC.

(exact name of registrant as specified in its charter)


|                                                                                          |  |                                                
|----------------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)                   |  | 95-4261421
(I.R.S. Employer Identification No.)
|                                                                                          |  |                                                
|6801 Koll Center Parkway, Pleasanton,
California
(Address of principal executive offices) |  | 94566-7047
(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  [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

Yes   [X]    No  [   ]

The number of outstanding shares of the registrants Common Stock, par
value $0.001 per share, was 51,130,521 on October 31, 2003.





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|                              |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|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                           
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION   
|                              | ITEM 5. OTHER INFORMATION                                                                    
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                    
|EXHIBIT 3.4                  
|EXHIBIT 31.1                 
|EXHIBIT 31.2                 
|EXHIBIT 32.1                 



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FORM 10-Q

Index

|          |  |                                                                                       |  |                                                                                                                |  |        |  | 
|--------- |  | ------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | ------ |  | 
|PART I    |  | FINANCIAL INFORMATION                                                                 |  |                                                                                                                |  |       
|Item 1.   |  | Unaudited Condensed Consolidated Financial Statements                                 |  |                                                                                                               
|          |  | Condensed Consolidated Balance Sheet as of September 30, 2003 and December 31, 2002   |  | Page 3                                                                                                        
|          |  |                                                                                       |  | Condensed Consolidated Statement of Operations for the three and nine months ended
September 30, 2003 and 2002 |  | Page 4
|          |  |                                                                                       |  | Condensed Consolidated Statement of Cash Flow for the nine months ended September
30, 2003 and 2002            |  | 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 15                                                                                                       
|Item 3.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | Page 39                                                                                                       
|Item 4.   |  | Controls and Procedures                                                               |  | Page 41                                                                                                       
|PART II   |  | OTHER INFORMATION                                                                     |  |                                                                                                                |  |       
|Item 5.   |  | Other Information                                                                     |  | Page 41                                                                                                       
|Item 6.   |  | Exhibits and Reports on Form 8-K                                                      |  | Page 42                                                                                                       
|Signature |  | Page 42                                                                              

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PART I. FINANCIAL INFORMATION




ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




DOCUMENTUM, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands; unaudited)

|                                        |                                            |                           |         |               |         |              |         |         |         | 
|--------------------------------------- | ------------------------------------------ | ------------------------- | ------- | ------------- | ------- | ------------ | ------- | ------- | ------- | 
|                                        |                                            |                           |         | September 30, |         | December 31,
|                                        |                                            |                           |         | 2003          |         | 2002        
|                                        |                                            |                           |         |               |         |             
|ASSETS                                  |                                            |                           |         |               |         |              |         |        
|Current assets:                         |                                            |                           |         |               |         |              |         |        
|                                        | Cash and cash equivalents                  |                           | $       | 111,625       |         |              | $       | 112,069 |        
|                                        | Marketable securities                      |                           |         | 171,689       |         |              |         | 141,056 |        
|                                        | Accounts receivable, net of allowances     |                           |         | 51,225        |         |              |         | 50,803  |        
|                                        | Other current assets                       |                           |         | 27,428        |         |              |         | 25,707  |        
|                                        |                                            |                           |         |               |         |              |         |         |        
|                                        |                                            | Total current assets      |         |               | 361,967 |              |         |         | 329,635 | 
|Property and equipment, net             |                                            |                           | 18,488  |               |         |              | 25,949  |        
|Goodwill                                |                                            |                           | 90,145  |               |         |              | 93,481  |        
|Identifiable purchased intangibles, net |                                            |                           | 15,136  |               |         |              | 24,818  |        
|Other assets                            |                                            |                           | 20,231  |               |         |              | 18,226  |        
|                                        |                                            |                           |         |               |         |              |         |         |        
|                                        |                                            | $                         | 505,967 |               |         | $            | 492,109 |        
|                                        |                                            |                           |         |               |         |              |         |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY    |                                            |                           |         |               |         |              |         |        
|Current liabilities:                    |                                            |                           |         |               |         |              |         |        
|                                        | Accounts payable                           |                           | $       | 8,792         |         |              | $       | 2,782   |        
|                                        | Accrued liabilities                        |                           |         | 44,467        |         |              |         | 71,520  |        
|                                        | Deferred revenue                           |                           |         | 44,886        |         |              |         | 37,463  |        
|                                        |                                            |                           |         |               |         |              |         |         |        
|                                        |                                            | Total current liabilities |         |               | 98,145  |              |         |         | 111,765 | 
|Long-term convertible debt              |                                            |                           | 125,000 |               |         |              | 125,000 |        
|Other long-term liabilities             |                                            |                           | 6,633   |               |         |              | 109     |        
|                                        |                                            |                           |         |               |         |              |         |         |        
|                                        |                                            | Total liabilities         |         |               | 229,778 |              |         |         | 236,874 | 
|Stockholders equity:                   |                                            |                           |         |               |         |              |         |        
|                                        | Common stock                               |                           |         | 50            |         |              |         | 48      |        
|                                        | Additional paid-in capital                 |                           |         | 337,523       |         |              |         | 317,539 |        
|                                        | Deferred stock-based compensation          |                           |         | (3,446        | )       |              |         | (7,067  | )      
|                                        | Accumulated deficit                        |                           |         | (61,817       | )       |              |         | (58,315 | )      
|                                        | Accumulated other comprehensive income     |                           |         | 3,879         |         |              |         | 3,030   |        
|                                        |                                            |                           |         |               |         |              |         |         |        
|                                        | Total stockholders equity                 |                           |         | 276,189       |         |              |         | 255,235 |        
|                                        |                                            |                           |         |               |         |              |         |         |        
|                                        | Total liabilities and stockholders equity |                           | $       | 505,967       |         |              | $       | 492,109 |        
|                                        |                                            |                           |         |               |         |              |         |         |        

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 |        | Nine Months Ended
|                                                |                                       |                         |        | September 30,      |        | September 30,    
|                                                |                                       |                         |        |                    |        |                  
|                                                |                                       |                         |        | 2003               |        | 2002              |        | 2003   |        | 2002
|                                                |                                       |                         |        |                    |        |                   |        |        |        |     
|Revenue:                                        |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |       
|                                                | License                               |                         | $      | 36,012             |        |                   | $      | 28,910 |        |      | $       | 103,125 |         |   | $       | 81,039 |        
|                                                | Service                               |                         |        | 37,454             |        |                   |        | 27,417 |        |      | $       | 105,555 |         |   |         | 79,858 |        
|                                                |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |        |        
|                                                |                                       | Total revenue           |        |                    | 73,466 |                   |        |        | 56,327 |      |         |         | 208,680 |   |         |        | 160,897 | 
|                                                |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |        |        
|Cost of revenue:                                |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |       
|                                                | License                               |                         |        | 5,538              |        |                   |        | 2,465  |        |      |         | 15,137  |         |   |         | 6,404  |        
|                                                | Service                               |                         |        | 16,134             |        |                   |        | 12,126 |        |      |         | 44,200  |         |   |         | 37,351 |        
|                                                |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |        |        
|                                                |                                       | Total cost of revenue   |        |                    | 21,672 |                   |        |        | 14,591 |      |         |         | 59,337  |   |         |        | 43,755  | 
|                                                |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |        |        
|Gross profit                                    |                                       |                         | 51,794 |                    |        |                   | 41,736 |        |        |      | 149,343 |         |         |   | 117,142 |       
|                                                |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |        |        
|Operating expense:                              |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |       
|                                                | Sales and marketing                   |                         |        | 28,571             |        |                   |        | 23,753 |        |      |         | 85,403  |         |   |         | 70,384 |        
|                                                | Research and development              |                         |        | 11,218             |        |                   |        | 8,905  |        |      |         | 34,479  |         |   |         | 27,688 |        
|                                                | General and administrative            |                         |        | 7,061              |        |                   |        | 6,020  |        |      |         | 21,935  |         |   |         | 18,154 |        
|                                                | Restructuring costs                   |                         |        | 45                 |        |                   |        |       |        |      |         | 12,024  |         |   |         | 1,043  |        
|                                                | Amortization of purchased
intangibles |                         |        | 565                |        |                   |        | 75     |        |      |         | 1,776   |         |   |         | 224    |        
|                                                |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |        |        
|                                                |                                       | Total operating expense |        |                    | 47,460 |                   |        |        | 38,753 |      |         |         | 155,617 |   |         |        | 117,493 | 
|                                                |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |        |        
|Income (loss) from operations                   |                                       |                         | 4,334  |                    |        |                   | 2,983  |        |        |      | (6,274  | )       |         |   | (351    | )     
|Interest income                                 |                                       |                         | 1,247  |                    |        |                   | 1,606  |        |        |      | 4,020   |         |         |   | 3,511   |       
|Interest expense                                |                                       |                         | (1,600 | )                  |        |                   | (1,610 | )      |        |      | (4,793  | )       |         |   | (3,180  | )     
|Other expense, net                              |                                       |                         | (153   | )                  |        |                   | (118   | )      |        |      | (393    | )       |         |   | (206    | )     
|                                                |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |        |        
|Income (loss) before income
taxes               |                                       |                         | 3,828  |                    |        |                   | 2,861  |        |        |      | (7,440  | )       |         |   | (226    | )     
|Provision for (benefit from)
income taxes       |                                       |                         | 2,947  |                    |        |                   | 858    |        |        |      | (3,937  | )       |         |   | (68     | )     
|                                                |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |        |        
|Net income (loss)                               |                                       | $                       | 881    |                    |        | $                 | 2,003  |        |        | $    | (3,503  | )       |         | $ | (158    | )     
|                                                |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |        |        
|Basic income (loss) per share                   |                                       | $                       | 0.02   |                    |        | $                 | 0.05   |        |        | $    | (0.07   | )       |         | $ |        |       
|Diluted income (loss) per share                 |                                       | $                       | 0.02   |                    |        | $                 | 0.05   |        |        | $    | (0.07   | )       |         | $ |        |       
|Shares used to compute income
(loss) per share: |                                       |                         |        |                    |        |                   |        |        |        |      |         |         |         |   |         |       
|Basic                                           |                                       |                         | 49,866 |                    |        |                   | 39,760 |        |        |      | 49,143  |         |         |   | 39,527  |       
|Diluted                                         |                                       |                         | 53,044 |                    |        |                   | 41,152 |        |        |      | 49,143  |         |         |   | 39,527  |       

See accompanying notes to condensed consolidated financial statements.

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

|                                                     |                                                                                 |                                               |                                       |                                           |       |                                 |         |          |        |        |          |  
|---------------------------------------------------- | ------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------- | ----------------------------------------- | ----- | ------------------------------- | ------- | -------- | ------ | ------ | -------- | -
|                                                     |                                                                                 |                                               |                                       |                                           |       | Nine Months Ended September 30,
|                                                     |                                                                                 |                                               |                                       |                                           |       |                                
|                                                     |                                                                                 |                                               |                                       |                                           |       | 2003                            |         | 2002    
|                                                     |                                                                                 |                                               |                                       |                                           |       |                                 |         |         
|Cash flows from operating activities:                |                                                                                 |                                               |                                       |                                           |       |                                 |         |         
|                                                     | Net loss                                                                        |                                               | $                                     | (3,503                                    | )     |                                 | $       | (158     | )     
|                                                     | Adjustments to reconcile net loss to net cash provided by
operating activities: |                                               |                                       |                                           |       |                                 |         |          |       
|                                                     |                                                                                 | Loss on sale and disposal of fixed assets     |                                       |                                           | 201   |                                 |         |          | 1,809  |       
|                                                     |                                                                                 | Stock-based compensation expense              |                                       |                                           | 2,633 |                                 |         |          |       |       
|                                                     |                                                                                 | Depreciation and amortization                 |                                       |                                           | 9,079 |                                 |         |          | 11,027 |       
|                                                     |                                                                                 | Amortization of purchased intangibles         |                                       |                                           | 9,681 |                                 |         |          | 715    |       
|                                                     |                                                                                 | Amortization of debt issuance costs           |                                       |                                           | 611   |                                 |         |          | 210    |       
|                                                     |                                                                                 | Provision for doubtful accounts               |                                       |                                           | 1,811 |                                 |         |          | 1,870  |       
|                                                     |                                                                                 | In-process research and development write-off |                                       |                                           |      |                                 |         |          | 25     |       
|                                                     |                                                                                 | Changes in operating assets and liabilities:  |                                       |                                           |       |                                 |         |          |        |       
|                                                     |                                                                                 |                                               | Accounts receivable                   |                                           |       | (2,226                          | )       |          |        | 212    |         
|                                                     |                                                                                 |                                               | Other current assets and other assets |                                           |       | (1,001                          | )       |          |        | (2,422 | )       
|                                                     |                                                                                 |                                               | Accounts payable                      |                                           |       | 6,011                           |         |          |        | 798    |         
|                                                     |                                                                                 |                                               | Accrued liabilities                   |                                           |       | (8,406                          | )       |          |        | (4,733 | )       
|                                                     |                                                                                 |                                               | Deferred revenue                      |                                           |       | 7,423                           |         |          |        | 2,762  |         
|                                                     |                                                                                 |                                               |                                       |                                           |       |                                 |         |          |       
|                                                     |                                                                                 |                                               |                                       | Net cash provided by operating activities |       |                                 | 22,314  |          |        |        | 12,115   |  
|                                                     |                                                                                 |                                               |                                       |                                           |       |                                 |         |          |       
|Cash flows from investing activities:                |                                                                                 |                                               |                                       |                                           |       |                                 |         |         
|                                                     | Purchases of investments                                                        |                                               |                                       | (279,052                                  | )     |                                 |         | (320,636 | )     
|                                                     | Sales and maturities of investments                                             |                                               |                                       | 247,918                                   |       |                                 |         | 208,710  |       
|                                                     | Purchases of property and equipment                                             |                                               |                                       | (3,973                                    | )     |                                 |         | (4,333   | )     
|                                                     | Proceeds from sale of property and equipment                                    |                                               |                                       | 1,861                                     |       |                                 |         |         |       
|                                                     | Cash used in acquisition of businesses, net of cash acquired                    |                                               |                                       | (12,082                                   | )     |                                 |         | (1,143   | )     
|                                                     |                                                                                 |                                               |                                       |                                           |       |                                 |         |          |       
|                                                     |                                                                                 |                                               |                                       | Net cash used in investing activities     |       |                                 | (45,328 | )        |        |        | (117,402 | )
|                                                     |                                                                                 |                                               |                                       |                                           |       |                                 |         |          |       
|Cash flows from financing activities:                |                                                                                 |                                               |                                       |                                           |       |                                 |         |         
|                                                     | Proceeds from issuance of common stock                                          |                                               |                                       | 20,974                                    |       |                                 |         | 10,584   |       
|                                                     | Payments on capital lease obligations                                           |                                               |                                       | (41                                       | )     |                                 |         | (55      | )     
|                                                     | Net proceeds from convertible debt offering                                     |                                               |                                       |                                          |       |                                 |         | 121,250  |       
|                                                     |                                                                                 |                                               |                                       |                                           |       |                                 |         |          |       
|                                                     |                                                                                 |                                               |                                       | Net cash provided by financing activities |       |                                 | 20,933  |          |        |        | 131,779  |  
|                                                     |                                                                                 |                                               |                                       |                                           |       |                                 |         |          |       
|Effect of exchange rate changes                      |                                                                                 |                                               | 1,637                                 |                                           |       |                                 | 1,332   |         
|                                                     |                                                                                 |                                               |                                       |                                           |       |                                 |         |          |       
|Net increase (decrease) in cash and cash equivalents |                                                                                 |                                               | (444                                  | )                                         |       |                                 | 27,824  |         
|Cash and cash equivalents at beginning of period     |                                                                                 |                                               | 112,069                               |                                           |       |                                 | 48,420  |         
|                                                     |                                                                                 |                                               |                                       |                                           |       |                                 |         |          |       
|Cash and cash equivalents at end of period           |                                                                                 | $                                             | 111,625                               |                                           |       | $                               | 76,244  |         
|                                                     |                                                                                 |                                               |                                       |                                           |       |                                 |         |          |       

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 Note 5, have been recorded as necessary to present
fairly our consolidated financial position, results of operations and cash
flows for the periods presented. These unaudited condensed consolidated
financial statements should be read in conjunction with our audited
consolidated financial statements included in our 2002 Annual Report on Form
10-K. The consolidated results of operations for the three and nine months
ended September 30, 2003 and 2002 are not necessarily indicative of the results
that may be expected for any future period.

Note 2. Summary of Significant Accounting Policies

Operations

Documentum, Inc. was incorporated in the state of Delaware in January
1990. We provide enterprise content management (ECM) solutions that enable
organizations to unite teams, content and associated business processes. Our
integrated set of content, compliance and collaboration solutions support the
way people work, from initial discussion and planning through design,
production, marketing, sales, service and corporate administration. This
business-critical content includes everything from documents and discussions to
email, Web pages, records and rich media. The Documentum platform makes it
possible for companies to distribute all of this content across internal and
external systems, applications and user communities.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the
accounts of Documentum and its wholly-owned subsidiaries after elimination of
intercompany accounts and transactions.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
condensed consolidated financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.

Cash and Cash Equivalents and Marketable Securities

We consider all highly liquid investments purchased with original
maturities of 90 days or less to be cash equivalents. The following table
details our cash and cash equivalents at September 30, 2003 and December 31,
2002 (in thousands):

|                                  |  |               |         |              |  |   |         | 
|--------------------------------- |  | ------------- | ------- | ------------ |  | - | ------- | 
|                                  |  | September 30, |         | December 31,
|                                  |  | 2003          |         | 2002        
|                                  |  |               |         |             
|Cash                              |  | $             | 6,389   |              |  | $ | 3,530   | 
|Money market and cash equivalents |  |               | 105,236 |              |  |   | 108,539 | 
|                                  |  |               |         |              |  |   |         | 
|                                  |  | $             | 111,625 |              |  | $ | 112,069 | 
|                                  |  |               |         |              |  |   |         | 

In accordance with Statement of Financial Accounting Standards (SFAS) No.
115, Accounting for Certain Investments in Debt and Equity Securities, our
marketable securities are classified as available-for-sale and are

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stated at fair value based on quoted market prices, with the unrealized
gains and losses, net of related tax effects, reported as a component of
stockholders equity. We intend to maintain a liquid portfolio and have the
ability to redeem our marketable securities at their carrying amounts.
Therefore, all marketable securities at September 30, 2003 have been classified
as current.

Foreign Currency and Derivative Instruments

Assets and liabilities of our foreign subsidiaries for which the local
currency is the functional currency are translated into U.S. dollars at
exchange rates in effect at the balance sheet date. Income and expense items
are translated at the actual current exchange rates prevailing at the time of
each transaction. Gains and losses from the translation are included in
accumulated other comprehensive income. Gains and losses resulting from
remeasuring monetary asset and liability accounts of foreign subsidiaries for
which the functional currency is the U.S. dollar are included in other expense,
net. We incurred immaterial foreign currency remeasurement gains in the three
months ended September 30, 2003 and 2002. We recorded foreign currency
remeasurement losses of approximately $0.3 million and $0.1 million in the nine
months ended September 30, 2003 and 2002, respectively.

We enter into foreign currency forward exchange contracts with financial
institutions to protect against currency exchange risks associated with
existing assets and liabilities denominated in a foreign currency. These
contracts require us to exchange currencies at rates agreed upon at the
contracts inception. The principal foreign currencies hedged were the British
Pound, Japanese Yen and Euro. A foreign currency forward exchange contract acts
as an economic hedge as the gains and losses on these contracts typically
offset or partially offset gains and losses on the assets, liabilities, and
transactions being hedged. We do not designate foreign exchange forward
contracts as accounting hedges and do not hold or issue financial instruments
for speculative or trading purposes. Foreign exchange forward contracts are
accounted for on a mark-to-market basis, with unrealized gains or losses
recognized in the current period. Unrealized gains and losses were
insignificant for both the three and nine months ended September 30, 2003 and
2002.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation
and amortization. We calculate depreciation using the straight-line method
over the assets estimated useful lives. Leasehold improvements are amortized
over their estimated useful life or the life of the lease, whichever is
shorter.

In connection with the renegotiation of a lease agreement, we sold and
abandoned certain property and equipment resulting in cash proceeds of $1.9
million and a net gain of approximately $0.1 million during the three months
ended September 30, 2003. Total net losses on the sale and disposal of fixed
assets for the nine months ended September 30, 2003 and 2002 were $0.2 million
and $1.8 million, respectively.

Software Development Costs

SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed, requires the capitalization of certain software
development costs once technological feasibility is established. To date, the
period between achieving technological feasibility, which we have defined as
the establishment of a working model, and the general availability of such
software has been short and, accordingly, software development costs are
expensed as incurred and are included in research and development costs.

In accordance with the provisions of Statement of Position (SOP) No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use,certain costs of computer software developed or obtained for
internal use have been capitalized. The estimated useful life of the software
costs capitalized is evaluated for each specific project and ranges from one to
five years. We have capitalized costs in the amount of approximately $0.2
million for the three months ended September 30, 2003 and 2002, and
approximately $0.9 million and $0.7 million for the nine months ended September
30, 2003 and 2002, respectively.

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Goodwill and Identifiable Purchased Intangibles

Goodwill is stated at cost and identifiable purchased intangible assets
are stated at cost less accumulated amortization. Goodwill is the excess of
cost over fair value of the net assets acquired. All of our goodwill at
September 30, 2003 is associated with acquisitions completed after June 30,
2001. Goodwill, including workforce intangibles that were subsumed into
goodwill, arising from acquisitions that were completed after June 30, 2001 has
not been amortized.

The provisions of SFAS No. 142, Goodwill and Other Intangible Assets,
require that goodwill and identifiable purchased intangible assets with
indefinite useful lives be tested annually for impairment or more frequently if
events and circumstances indicate that the assets might be impaired. We
completed our annual impairment test during the quarter ended September 30,
2003 and did not record an impairment charge as a result. See Note 3 of notes
to condensed consolidated financial statements for additional information
related to our annual impairment test.

Identifiable purchased intangible assets with definite lives are amortized
on a straight-line basis over the remaining estimated economic life of the
underlying products and technologies (original lives assigned are one to five
years).

Long-lived Assets, Excluding Goodwill

Our long-lived assets, excluding goodwill, consist of property and
equipment and other purchased intangibles. We periodically review our
long-lived assets for impairment in accordance with SFAS No. 144. For assets to
be held and used, we initiate this review whenever events or changes in
circumstances indicate that the carrying amount of a long-lived asset group may
not be recoverable. Recoverability of an asset group is measured by comparison
of its carrying amount to the expected future undiscounted net cash flows
(without interest charges) that the asset group is expected to generate. If it
is determined that an asset group is not recoverable, an impairment loss is
recorded in the amount by which the carrying amount of the asset group exceeds
its fair value.

Assets to be disposed of and for which we have committed to a plan of
disposal of such assets, whether through sale or abandonment, are reported at
the lower of their carrying amount or their fair value less cost to sell.

Warranty Reserve

We generally offer a 90-day warranty from shipment of the software. We
estimate the costs that we expect to incur under our warranty obligations and
record a liability in the amount of such costs at the time of the transaction.
Factors that affect our warranty liability include the number of installed
seats, historical and anticipated rates of warranty claims and cost per claim,
as well as the introduction of new products or versions of existing products.
We regularly assess the adequacy of our recorded warranty liabilities and
adjust the amounts as necessary.

The following table summarizes changes in our warranty reserve during the
nine months ended September 30, 2003 (in thousands):

|                                       |  |   |      |  
|-------------------------------------- |  | - | ---- | -
|Balance as of December 31, 2002        |  | $ | 690  |  
|Provisions made during the period      |  |   | 199  |  
|Actual cost incurred during the period |  |   | (438 | )
|                                       |  |   |      |  
|Balance as of September 30, 2003       |  | $ | 451  |  
|                                       |  |   |      |  

Deferred Revenue

Deferred revenue primarily relates to maintenance and support agreements
that have been paid for by customers prior to the performance of those
services. Generally, the services will be provided within twelve months from
the

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transaction date. Payments received in advance of revenue recognition for
license fees are recorded as deferred revenue.

Stock-based Compensation Plans

We apply Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees,and related interpretations, in accounting for our
stock-based compensation plans.

We have also included the disclosures prescribed by SFAS No. 123,
Accounting for Stock-Based Compensation,as amended by SFAS No. 148, Accounting
for Stock-Based Compensation  Transition and Disclosure  an amendment to FASB
Statement No. 123, Accounting for Stock-Based Compensation.

The following table illustrates the effect on net income (loss) and income
(loss) per share if we had applied the fair value recognition provisions of
SFAS No. 123 (in thousands, except per share data):

|                               |                                                                                                                                     |                     |        |                                  |       |                                 |        |        |       |      |         |         |       |   |         |         |       |  
|------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------ | -------------------------------- | ----- | ------------------------------- | ------ | ------ | ----- | ---- | ------- | ------- | ----- | - | ------- | ------- | ----- | -
|                               |                                                                                                                                     |                     |        | Three Months Ended September 30, |       | Nine Months Ended September 30,
|                               |                                                                                                                                     |                     |        |                                  |       |                                
|                               |                                                                                                                                     |                     |        | 2003                             |       | 2002                            |        | 2003   |       | 2002
|                               |                                                                                                                                     |                     |        |                                  |       |                                 |        |        |       |     
|Net income (loss), as reported |                                                                                                                                     | $                   | 881    |                                  |       | $                               | 2,003  |        |       | $    | (3,503  | )       |       | $ | (158    | )      
|Add:                           |                                                                                                                                     |                     |        |                                  |       |                                 |        |        |       |      |         |         |       |   |         |        
|                               | Stock-based employee compensation expense included in
reported net income (loss), net of related tax effects                        |                     |        | 813                              |       |                                 |        |       |       |      |         | 2,633   |       |   |         |        |      
|Deduct:                        |                                                                                                                                     |                     |        |                                  |       |                                 |        |        |       |      |         |         |       |   |         |        
|                               | Total stock-based employee compensation expense determined
under fair value based method for all awards, net of related tax
effects |                     |        | (8,725                           | )     |                                 |        | (9,551 | )     |      |         | (30,107 | )     |   |         | (43,470 | )    
|                               |                                                                                                                                     |                     |        |                                  |       |                                 |        |        |       |      |         |         |       |   |         |        
|Pro forma net loss             |                                                                                                                                     | $                   | (7,031 | )                                |       | $                               | (7,548 | )      |       | $    | (30,977 | )       |       | $ | (43,628 | )      
|                               |                                                                                                                                     |                     |        |                                  |       |                                 |        |        |       |      |         |         |       |   |         |        
|Income (loss) per share:       |                                                                                                                                     |                     |        |                                  |       |                                 |        |        |       |      |         |         |       |   |         |        
|                               |                                                                                                                                     | Basicas reported   |        | $                                | 0.02  |                                 |        | $      | 0.05  |      |         | $       | (0.07 | ) |         | $       | (0.00 | )
|                               |                                                                                                                                     |                     |        |                                  |       |                                 |        |        |       |      |         |         |       |   |         |        
|                               |                                                                                                                                     | Basicpro forma     |        | $                                | (0.14 | )                               |        | $      | (0.19 | )    |         | $       | (0.63 | ) |         | $       | (1.10 | )
|                               |                                                                                                                                     |                     |        |                                  |       |                                 |        |        |       |      |         |         |       |   |         |        
|                               |                                                                                                                                     | Dilutedas reported |        | $                                | 0.02  |                                 |        | $      | 0.05  |      |         | $       | (0.07 | ) |         | $       | (0.00 | )
|                               |                                                                                                                                     |                     |        |                                  |       |                                 |        |        |       |      |         |         |       |   |         |        
|                               |                                                                                                                                     | Dilutedpro forma   |        | $                                | (0.14 | )                               |        | $      | (0.18 | )    |         | $       | (0.63 | ) |         | $       | (1.09 | )
|                               |                                                                                                                                     |                     |        |                                  |       |                                 |        |        |       |      |         |         |       |   |         |        

Net Income (Loss) Per Share and Pro Forma Net Loss Per Share

Basic net income (loss) per share and basic pro forma net loss per share,
as if we had applied the fair value recognition provisions of SFAS No. 123, are
computed using the weighted average number of shares of common stock
outstanding. Diluted net income (loss) per share and diluted pro forma net loss
per share are computed using the weighted average number of shares of common
stock and, when dilutive, potential shares from options to purchase common
stock using the treasury stock method. Diluted net income (loss) per share and
diluted pro forma net loss per share also give effect, when dilutive, to the
conversion of our convertible debt, using the if-converted method.

The following is a reconciliation of the number of shares used in both the
basic and diluted income (loss) per share calculation and the pro forma diluted
net loss per share computations (in thousands):

|                                                                        |  |                                  |        |                                 |  |      |        |      |  |  |        |  |  |  |        | 
|----------------------------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                                                        |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|                                                                        |  |                                  |        |                                
|                                                                        |  | 2003                             |        | 2002                            |  | 2003 |        | 2002
|                                                                        |  |                                  |        |                                 |  |      |        |     
|Shares used in basic income (loss) per share                            |  |                                  | 49,866 |                                 |  |      | 39,760 |      |  |  | 49,143 |  |  |  | 39,527 | 
|                                                                        |  |                                  |        |                                 |  |      |        |      |  |  |        |  |  |  |        | 
|Effect of dilutive potential common shares
resulting from stock options |  |                                  | 3,178  |                                 |  |      | 1,392  |      |  |  |       |  |  |  |       | 
|                                                                        |  |                                  |        |                                 |  |      |        |      |  |  |        |  |  |  |        | 
|Shares used to compute diluted income (loss) per share                  |  |                                  | 53,044 |                                 |  |      | 41,152 |      |  |  | 49,143 |  |  |  | 39,527 | 
|                                                                        |  |                                  |        |                                 |  |      |        |      |  |  |        |  |  |  |        | 

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Weighted average options to purchase 7,191,283 and 9,424,881 shares of
common stock at prices ranging from $0.05 to $46.75 and $0.50 to $56.50 were
outstanding during the three months ended September 30, 2003 and 2002,
respectively, and 7,862,630 and 9,482,063 shares of common stock at prices
ranging from $0.05 to $56.50 and $0.50 to $56.50 were outstanding during the
nine months ended September 30, 2003 and 2002, respectively, but were excluded
from the computation of diluted net loss per share if either the options
exercise price was greater than the average market price of the common stock or
inclusion of such options would have been anti-dilutive. Weighted average
shares issuable upon conversion of convertible debt have been excluded for all
periods presented because the inclusion of such shares would have been
anti-dilutive.

Deferred Stock-based Compensation

The Company recorded deferred stock-based compensation totaling
approximately $7.3 million related to the acquisition of eRoom Technology, Inc.
This amount is amortized in accordance with Financial Accounting Standards
Board Interpretation No. 28, Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans,over the vesting period of the individual
options which range from 1 to 4 years.

Revenue Recognition

Our revenue is derived from the sale of perpetual licenses for our
enterprise content management solutions and related services, which include
maintenance and support, consulting and education services. We recognize
revenue in accordance with SOP 97-2, Software Revenue Recognition,as amended
by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, with
Respect to Certain Transactionsand related accounting literature. Revenue from
license arrangements is recognized upon contract execution, provided all
shipment obligations have been met, fees are fixed or determinable, and
collection is determined as being probable. If an undelivered element of the
arrangement exists under the license arrangement, a portion of revenue is
deferred based on vendor-specific objective evidence of the fair value (VSOE)
of the undelivered element until delivery occurs. If VSOE does not exist for
all undelivered elements, all revenue is deferred until sufficient evidence
exists or all elements have been delivered. We consider fees on transactions
with payment terms of up to 270 days from the contract execution date to be
fixed or determinable. In the event payment terms exceed 270 days, we recognize
revenue when it becomes due and payable as we do not consider the fees to be
fixed or determinable. We have a history of successfully collecting under the
original payment terms for transactions with similar types of customers and
similar economics, without providing concessions in arrangements with payment
terms up to 270 days. License revenue from resellers or distributors is
recognized, net of fees, when there is evidence of an arrangement with the
end-user or we have executed a contract directly with the reseller or
distributor which identifies the end-user, and all other revenue recognition
criteria are met. We recognize revenue from sales of third party products on a
gross basis if we participate in price negotiations, ship the products, and
maintain collection risk of the receivable. Revenue from annual maintenance
and support agreements are deferred and recognized on a straight-line basis
over the term of the contract. Revenue from consulting and training services
are recognized as the services are performed and are typically on a time and
materials basis. Such services primarily consist of implementation services
related to the installation of our products and do not include significant
customization, modification, or development of the underlying software code.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of
credit risk consist principally of cash and cash equivalents, marketable
securities and accounts receivable. We deposit substantially all of our cash
with four financial institutions.

As stated in our investment policy, we are averse to principal loss and
seek to preserve our invested funds by limiting credit risk, default risk, and
market risk. We place our investments with high credit quality issuers and
limit the amount of credit exposure to any one issuer.

We generally do not require collateral for our accounts receivable and
maintain reserves for potential credit losses. At September 30, 2003 and 2002,
no one customer comprised 10% or more of accounts receivable.

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Income Taxes

We use the asset and liability method to account for income taxes. We are
required to estimate our income taxes in each of the jurisdictions in which we
operate. This process involves estimating actual current tax liability together
with assessing temporary differences resulting from differing treatment of
items, such as deferred revenue, for tax and accounting purposes. These
differences result in deferred tax assets and liabilities, which are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the period in which the enactment date occurred. We then assess
the likelihood that deferred tax assets will be recovered from future taxable
income, and to the extent we believe that recovery is not likely, we must
establish a valuation allowance.

Fair Value of Financial Instruments

The fair value of our cash and cash equivalents, marketable securities,
receivables, accounts payable and accrued liabilities approximate their
carrying value due to the short-term nature of these instruments. The fair
values of our capital lease obligations approximate their carrying values based
upon current market rates of interest. The fair value of our convertible debt
was approximately $135.0 million, based on the quoted market price of the
convertible debt on September 30, 2003.

Advertising

We expense advertising costs as incurred. We have incurred an
insignificant amount of advertising costs in the three months ended September
30, 2003 and expensed approximately $0.2 million in the three months ended
September 30, 2002. Advertising expenses were approximately $0.2 million and
$0.3 million for the nine months ended September 30, 2003 and 2002,
respectively. Advertising expense is included in sales and marketing expense
in the accompanying Condensed Consolidated Statement of Operations.

Reclassifications

Certain prior period amounts have been reclassified on the Condensed
Consolidated Balance Sheet, Condensed Consolidated Statement of Operations and
Condensed Consolidated Statement of Cash Flow to conform to the current period
presentation.

Note 3. Goodwill and Identifiable Purchased Intangible Assets

Goodwill

The following table presents the changes in goodwill for our one reporting
unit during the nine months ended September 30, 2003 (in thousands):

|                                 |  |   |        |  
|-------------------------------- |  | - | ------ | -
|Balance as of December 31, 2002  |  | $ | 93,481 |  
|Effect of exchange rate change   |  |   | 497    |  
|Adjustments                      |  |   | (3,833 | )
|                                 |  |   |        |  
|Balance as of September 30, 2003 |  | $ | 90,145 |  
|                                 |  |   |        |  

Adjustments to goodwill in the amount of approximately $3.8 million were
primarily related to purchase price adjustments that were made in connection
with the acquisitions that were consummated during the fourth quarter of fiscal
2002.

The provisions of SFAS No. 142, Goodwill and Other Intangible Assets,
require that goodwill and purchased intangible assets with indefinite useful
lives be tested annually for impairment using a two-step process and more
frequently if events and circumstances indicate that the assets might be
impaired. The first step compares the fair value of a reporting unit with its
carrying amount. If the fair value of a reporting unit exceeds its carrying
amount, goodwill of the reporting unit is considered not impaired and no
further testing is required. The second step is performed if the carrying
amount of reporting unit goodwill exceeds its implied fair value, then an
impairment loss

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shall be recognized in an amount equal to that excess. We
consider ourselves to be a single reporting unit and therefore any impairment
is measured based upon the fair value of the business as a whole. During the
quarter ended September 30, 2003, as part of our annual impairment test, we
completed the first step of the impairment test measured as of August 1, 2003.
This first test did not indicate impairment and, therefore, the second step of
the impairment test was unnecessary.

Identifiable Purchased Intangible Assets

Amortization of identifiable purchased intangible assets with finite lives
was approximately $3.1 million and $0.2 million for the three months ended
September 30, 2003 and 2002, respectively, and approximately $9.7 million and
$0.6 million for the nine months ended September 30, 2003 and 2002,
respectively. Of the approximately $9.7 million and $0.6 million of
amortization expense recognized in the nine months ended September 30, 2003 and
2002, respectively, approximately $7.9 million and $0.4 million, respectively,
related to the amortization of technology related identifiable purchased
intangible assets and was included as cost of license revenue in the respective
periods. The remaining amortization of approximately $1.8 million and $0.2
million, respectively, related to the amortization of non-technology related
identifiable purchased intangible assets and was recognized as operating
expense in the nine months ended September 30, 2003 and 2002, respectively.

Note 4. Convertible Debt

On April 5, 2002, we sold $125.0 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. We received proceeds of $121.3 million,
net of underwriter debt issuance costs of $3.7 million. We also incurred debt
issuance costs totaling $0.4 million comprised of legal, accounting, and
various other fees relating to the offering. Debt issuance costs are being
amortized using the effective interest rate method through April 5, 2007.
Holders of the Notes are entitled to convert the Notes, at any time after April
5, 2002, and before the close of business on April 1, 2007, subject to prior
redemption or repurchase of the Notes, into shares of common stock at a
conversion price of $30.02 per share. We may redeem the Notes 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.

Note 5. Restructuring Charges

In January 2003, we adopted SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities,which provides guidance on the recognition
and measurement of liabilities associated with exit or disposal activities and
requires that such liabilities be recognized when incurred and establishes that
fair value is the means for initial measurement of the liabilities. During the
first quarter of 2003, we recognized approximately $11.0 million in estimated
costs, net of sublease income, in the United States and Europe as a result of
abandoning certain facilities. Approximately $10.1 million of the estimated
costs are related to one large facility in Europe that management has
determined would not be utilized going forward. We worked with external real
estate experts in each of the markets where the properties are located to
determine the best estimate of sublease income. We did not estimate any
sublease income in connection with our exit of the facility in Europe that
resulted in a $10.1 million restructuring charge. This determination was based
on the various restrictions that are included in the existing lease agreement
that limit our ability to sublease the facility. This determination was also
impacted by current and forecasted commercial real estate rates in the area.

In addition to these facilities exit costs, we also incurred approximately
$1.3 million of severance and benefits-related restructuring costs in the first
quarter of 2003 for the involuntary termination of 39 legacy Documentum
employees, of which 36 were based in the United States and the remainder were
located internationally. These charges were incurred as a result of management
determining that certain synergies resulted from combining workforces that were
assumed during our recent acquisition activity in fiscal 2002. Severance and
benefit related costs associated with terminated employees of the acquired
enterprise during the fourth quarter of fiscal 2002 were included in the cost
of the respective acquisition.

The following table summarizes the components of the above restructuring
charge, the cash payments, non-cash activities, and the remaining accrual as of
and for the nine months ended September 30, 2003 (in thousands):

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|                                                       |  |           |        |         |  |       |        |   |  |   |        |  
|------------------------------------------------------ |  | --------- | ------ | ------- |  | ----- | ------ | - |  | - | ------ | -
|                                                       |  | Severance |        |         |  |       |        |   |  |  
|                                                       |  | and       |        | Other   |  |       |        |  
|                                                       |  | Benefits  |        | Charges |  | Total
|                                                       |  |           |        |         |  |      
|First quarter 2003 restructuring charges               |  | $         | 1,245  |         |  | $     | 11,020 |   |  | $ | 12,265 |  
|Cash paid                                              |  |           | (1,162 | )       |  |       | (1,896 | ) |  |   | (3,058 | )
|Non-cash activity                                      |  |           |       |         |  |       | 15     |   |  |   | 15     |  
|                                                       |  |           |        |         |  |       |        |   |  |   |        |  
|Restructuring accrual balance as of September 30, 2003 |  | $         | 83     |         |  | $     | 9,139  |   |  | $ | 9,222  |  
|                                                       |  |           |        |         |  |       |        |   |  |   |        |  

The remaining reserve balance of $9.2 million relating to the
restructuring charge recognized during the nine months ended September 30, 2003
consists of $2.6 million of current liabilities to be paid out during fiscal
2003 and in the first quarter of fiscal 2004 and $6.6 million of long-term
liabilities related to the fair value of remaining lease obligations on excess
facilities, net of sublease income, to be paid out through fiscal 2007.

The remaining restructuring accrual relating to our restructuring activity
in fiscal 2001 and 2002 of approximately $0.1 million relates to remaining
facility costs net of sublease income. We expect to pay remaining facility
obligations over the remaining lease terms, which expire in fiscal 2005.

Note 6. Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other
non-owner changes in stockholders equity, including foreign currency
translation gains or losses and unrealized gains or losses on
available-for-sale marketable securities. Our total comprehensive income (loss)
was as follows (in thousands):

|                                               |                                                          |   |                                  |     |                                 |   |       |     |      |   |        |      |   |   |       |       | 
|---------------------------------------------- | -------------------------------------------------------- | - | -------------------------------- | --- | ------------------------------- | - | ----- | --- | ---- | - | ------ | ---- | - | - | ----- | ----- | 
|                                               |                                                          |   | Three Months Ended September 30, |     | Nine Months Ended September 30,
|                                               |                                                          |   |                                  |     |                                
|                                               |                                                          |   | 2003                             |     | 2002                            |   | 2003  |     | 2002
|                                               |                                                          |   |                                  |     |                                 |   |       |     |     
|Net income (loss)                              |                                                          | $ | 881                              |     |                                 | $ | 2,003 |     |      | $ | (3,503 | )    |   | $ | (158  | )    
|Other comprehensive income (loss), net of tax: |                                                          |   |                                  |     |                                 |   |       |     |      |   |        |      |   |   |       |      
|                                               | Unrealized (loss) gain on available for sale
investments |   |                                  | (97 | )                               |   |       | 745 |      |   |        | (125 | ) |   |       | 1,111 | 
|                                               | Foreign currency translation adjustment                  |   |                                  | 11  |                                 |   |       | 133 |      |   |        | 734  |   |   |       | 932   | 
|                                               |                                                          |   |                                  |     |                                 |   |       |     |      |   |        |      |   |   |       |      
|Total comprehensive income (loss), net of tax  |                                                          | $ | 795                              |     |                                 | $ | 2,881 |     |      | $ | (2,894 | )    |   | $ | 1,885 |      
|                                               |                                                          |   |                                  |     |                                 |   |       |     |      |   |        |      |   |   |       |      

Note 7. Segment Reporting

We are principally engaged in the design, development, marketing and
support of ECM solutions. Substantially all of our revenue results from the
sale of our software products and related services. Our chief operating
decision-making group reviews financial information presented on a consolidated
basis, accompanied by disaggregated information about revenue by geographic
region for purposes of making operating decisions and assessing financial
performance. Accordingly, we consider ourselves to be in a single reporting
segment, specifically the licensing, implementation and support of our
software. We do not prepare reports for, or measure the performance of, our
individual software applications and, accordingly, we have not presented
revenue or any other related financial information by individual software
product.

We evaluate the performance of our geographic regions based on revenue and
gross margin only. We do not assess the performance of our geographic regions
on other measures of income or expense, such as depreciation and amortization,
operating income or net income. Therefore, geographic information is presented
for revenue, gross margin, and long-lived assets.

Revenue is generally attributable to geographic areas based on the country
in which the customer is domiciled. For the three and nine months ended
September 30, 2003 and 2002, no single customer accounted for more than 10% of
total revenue.

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Long-lived assets are attributable to geographic areas based on where the
assets are located. The following table presents a breakdown of total revenue
and long-lived assets by geographic region (in thousands):

|                                                         |  |               |         |         |  |               |        |            |  |   |         | 
|-------------------------------------------------------- |  | ------------- | ------- | ------- |  | ------------- | ------ | ---------- |  | - | ------- | 
|                                                         |  |               |         |         |  | Total Cost of |        | Long-Lived
|                                                         |  | Total Revenue |         | Revenue |  | Assets       
|                                                         |  |               |         |         |  |              
|As of and for the three months ended September 30, 2003: |  |               |         |         |  |               |        |            |  |   |         | 
|North America                                            |  | $             | 48,904  |         |  | $             | 14,505 |            |  | $ | 123,933 | 
|EMEA                                                     |  |               | 21,141  |         |  |               | 5,679  |            |  |   | 1,750   | 
|Asia/Pacific                                             |  |               | 3,036   |         |  |               | 1,430  |            |  |   | 856     | 
|Other                                                    |  |               | 385     |         |  |               | 59     |            |  |   |        | 
|                                                         |  |               |         |         |  |               |        |            |  |   |         | 
|Total                                                    |  | $             | 73,466  |         |  | $             | 21,672 |            |  | $ | 126,539 | 
|                                                         |  |               |         |         |  |               |        |            |  |   |         | 
|                                                        
|                                                         |  |               |         |         |  | Total Cost of |        | Long-Lived
|                                                         |  | Total Revenue |         | Revenue |  | Assets       
|                                                         |  |               |         |         |  |              
|As of and for the three months ended September 30, 2002: |  |               |         |         |  |               |        |            |  |   |         | 
|North America                                            |  | $             | 33,047  |         |  | $             | 8,966  |            |  | $ | 33,195  | 
|EMEA                                                     |  |               | 18,594  |         |  |               | 4,705  |            |  |   | 2,404   | 
|Asia/Pacific                                             |  |               | 3,983   |         |  |               | 863    |            |  |   | 729     | 
|Other                                                    |  |               | 703     |         |  |               | 57     |            |  |   |        | 
|                                                         |  |               |         |         |  |               |        |            |  |   |         | 
|Total                                                    |  | $             | 56,327  |         |  | $             | 14,591 |            |  | $ | 36,328  | 
|                                                         |  |               |         |         |  |               |        |            |  |   |         | 
|                                                        
|                                                         |  |               |         |         |  | Total Cost of |        | Long-Lived
|                                                         |  | Total Revenue |         | Revenue |  | Assets       
|                                                         |  |               |         |         |  |              
|As of and for the nine months ended September 30, 2003:  |  |               |         |         |  |               |        |            |  |   |         | 
|North America                                            |  | $             | 130,207 |         |  | $             | 38,039 |            |  | $ | 123,933 | 
|EMEA                                                     |  |               | 66,996  |         |  |               | 17,174 |            |  |   | 1,750   | 
|Asia/Pacific                                             |  |               | 9,978   |         |  |               | 3,907  |            |  |   | 856     | 
|Other                                                    |  |               | 1,499   |         |  |               | 218    |            |  |   |        | 
|                                                         |  |               |         |         |  |               |        |            |  |   |         | 
|Total                                                    |  | $             | 208,680 |         |  | $             | 59,337 |            |  | $ | 126,539 | 
|                                                         |  |               |         |         |  |               |        |            |  |   |         | 
|                                                        
|                                                         |  |               |         |         |  | Total Cost of |        | Long-Lived
|                                                         |  | Total Revenue |         | Revenue |  | Assets       
|                                                         |  |               |         |         |  |              
|As of and for the nine months ended September 30, 2002:  |  |               |         |         |  |               |        |            |  |   |         | 
|North America                                            |  | $             | 98,214  |         |  | $             | 27,944 |            |  | $ | 33,195  | 
|EMEA                                                     |  |               | 54,150  |         |  |               | 13,689 |            |  |   | 2,404   | 
|Asia/Pacific                                             |  |               | 7,468   |         |  |               | 2,038  |            |  |   | 729     | 
|Other                                                    |  |               | 1,065   |         |  |               | 84     |            |  |   |        | 
|                                                         |  |               |         |         |  |               |        |            |  |   |         | 
|Total                                                    |  | $             | 160,897 |         |  | $             | 43,755 |            |  | $ | 36,328  | 
|                                                         |  |               |         |         |  |               |        |            |  |   |         | 

Note 8. Subsequent Event

On October 13, 2003, Documentum entered into an Agreement and Plan of
Merger, or merger agreement, by and among EMC Corporation, Elite Merger
Corporation, a wholly owned subsidiary of EMC, and Documentum. Pursuant to the
merger agreement, Elite Merger Corporation will merge with and into Documentum,
with the result that Documentum shall be the surviving corporation and shall
become a wholly owned subsidiary of EMC. As a result of the merger, each share
of Documentum common stock issued and outstanding immediately prior to the
effective time of the merger shall be converted into the right to receive
2.175 shares of EMC common stock. In addition, EMC will assume all options or
other rights to purchase capital stock of Documentum outstanding under
Documentums existing stock option plans, including Documentums stock purchase
plans (other than options granted under the 1995 Non-Employee
Directors Stock Option Plan) and Documentums convertible
debt. The stock options granted under the 1995 Non-Employee
Directors Stock Option Plan will accelerate and fully vest
immediately prior to the effective time of the merger and, if not
exercised prior to the merger, will be cancelled. The consummation of the merger is
subject to the approval of the stockholders of Documentum, expiration or
termination of certain waiting periods under United States and applicable
foreign antitrust laws,

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the declaration of effectiveness of
the Registration Statement on Form S-4 filed by EMC with the
Securities and Exchange Commission and other customary closing
conditions. In addition, if the merger is terminated under specified
circumstances, Documentum may be required to pay EMC a termination fee under
the merger agreement in the amount of $55.0 million, plus expenses. This
termination fee could discourage other potential acquirors from seeking to
enter into a business combination with Documentum. Under certain other
circumstances, if the merger is not completed, Documentum may be required to
pay the EMCs fees and expenses, up to $2.5 million.




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 our
business, prospects and results of operations that are subject to certain risks
and uncertainties posed by many factors and events that could cause the our
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. When used in this report, the words expects, anticipates,
intends, plans, believes, seeks, targets, estimates, looks for,
looks to, and similar expressions, as well as statements regarding our focus
for the future, are generally intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. We undertake 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 us in this report and in
our other reports filed with the Securities and Exchange Commission that
attempt to advise interested parties of the risks and factors that may affect
our business. Readers are also urged to carefully review and consider
disclosures made in the Joint Proxy Statement/Prospectus contained in the
Registration Statement filed on Form S-4 by EMC Corporation on October 28, 2003
(File No. 333-110017) regarding our proposed merger with EMC.

Overview

With a single platform, Documentum enables people to collaboratively
create, manage, deliver, and archive unstructured content that drives critical
business operations.

We provide enterprise content management (ECM) solutions that enable
organizations to unite teams, content and associated business processes. Our
integrated set of content, compliance and collaboration solutions support the
way people work, from initial discussion and planning through design,
production, marketing, sales, service and corporate administration. This
business-critical content includes everything from documents and discussions to
email, Web pages, records and rich media. The Documentum platform makes it
possible for companies to distribute all of this content across internal and
external systems, applications and user communities. As a result, our customers
are able to harness corporate knowledge, accelerate their time to market,
increase customer satisfaction, enhance supply chain efficiencies and reduce
operating costs, thereby improving their overall competitive advantage.

From our inception in 1990 through December 1992, our activities consisted
primarily of developing products, establishing infrastructure and conducting
market research. We shipped the first commercial version of our Documentum
Server product in late 1992, and since that time substantially all of our
revenue has been from licenses of our family of ECM system products and related
services, which include maintenance and support, education and consulting
services.

Since 1993, we have delivered products that enable management of
business-critical content and knowledge sharing within an enterprise. These
solutions have been largely applied toward accelerating business processes that
reduce new product time to market and time to revenue as well as ensure
compliance in highly regulated industries. We are leveraging our substantial
experience in managing dynamic content for business-critical documents and
extending it to facilitate e-business connections.

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In fiscal 1999, we evolved from focusing on enterprise document management
to focusing on content management to power e-business. As the Internet evolved,
we helped existing and new customers alike leverage the Web to conduct business
by extending our platform to enable Web content management. Since that time, we
have focused mainly on providing a complete content management solution  the
ability to manage all of the information that exists inside a company, whether
through enterprise document management or Web content management, and the use
of that information to drive e-business initiatives aimed at customers,
partners and employees. Increasingly, our ECM solutions are being used to
accelerate and extend companies online presence by delivering active and
trusted content to multiple channels. Today, these solutions enable more than
2,500 organizations worldwide to apply trusted content within and between
organizations, driving e-business applications that connect employees,
customers and business partners. To facilitate this evolution, we introduced
Documentum 4i, an open, standards-based ECM platform, in 1999. Because it is an
open, standards-based platform, developers outside Documentum are able to
easily integrate with the product using the standard set of tools, resulting in
a larger number of developers working to build applications on top of our
platform. This platform allows for the creation, management and delivery of
content to a wide variety of information devices, including the Web, cellular
phone, pager, fax machine, printer, CD or PDA device.

In 2000 and 2001, we introduced four packaged solutions (formerly called
Editions by us) based on our 4i platform. These solutions  Web Content
Management, Portal Content Management, B2B Content Management, and Compliance
Content Management  offer a tailored mix of core technology from Documentum 4i
that can manage volumes of content. Early in 2002, a fifth solution  Digital
Asset Management  was released, and later in the year we introduced Documentum
5, the next version of our ECM platform, which enables collaboration,
communication, compliance and knowledge-sharing on a global scale. Incorporated
within the newly released Documentum 5 platform are two of our newest products
 Documentum eRoom Enterprise and Documentum Records Manager. Documentum eRoom
Enterprise is the foundation of the now available Collaboration solution, which
brings together people, processes, and content with a digital, collaborative
workplace. Enterprise Records Management solution was also introduced,
featuring Documentum Records Manager as an integrated records management
solution that equips organizations to create, safeguard, and access necessary
records, relate them to relevant business content, and archive or destroy
records according to system-enforced administrative, regulatory, or legal
rules. We continue to invest in research and development in order to update our
family of products and expand our market focus to deliver products to provide
an ECM solution for customers, partners, and employees.

We will continue to license and support the Documentum 4i platform,
however, we expect that license and service revenue from Documentum 5 and newer
product offerings will account for substantially all of our revenue for the
foreseeable future.

On October 13, 2003, Documentum entered into an Agreement and Plan of
Merger, or merger agreement, by and among EMC Corporation, Elite Merger
Corporation, a wholly owned subsidiary of EMC, and Documentum. Pursuant to the
merger agreement, Elite Merger Corporation will merge with and into Documentum,
with the result that Documentum shall be the surviving corporation and shall
become a wholly owned subsidiary of EMC. As a result of the merger, each share
of Documentum common stock issued and outstanding immediately prior to the
effective time of the merger shall be converted into the right to receive 2.175
shares of EMC common stock. In addition, EMC will assume all options or other
rights to purchase capital stock of Documentum outstanding under Documentums
existing stock option plans, including Documentums stock purchase plans and
Documentums convertible debt. The consummation of the merger is subject to
the approval of the stockholders of Documentum, expiration or termination of
certain waiting periods under United States and applicable foreign antitrust
laws, the declaration of effectiveness of Form S-4 registration
statement filed by EMC with the Securities and Exchange Commission, and other customary closing conditions. The merger is
intended to be a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended. There can be no assurance that the closing
conditions to the merger will be met or that the transaction will be
consummated. If the transaction is not consummated, Documentums business
could be substantially harmed due to the pendancy of the transaction.

For more information concerning the merger and related transactions,
including risks and uncertainties related to the merger and these transactions,
please see the Registration Statement on Form S-4 filed by EMC with the SEC in
connection with the merger (File No. 333-110017). Documentum stockholders as
of the record date for voting on the merger will also receive a proxy
statement/prospectus, which is a part of the Form S-4. The proxy
statement/prospectus contains important information about the merger and
Documentum stockholders are urged to review it carefully.

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Strategic Acquisitions

On November 26, 2002, we acquired privately-held TrueArc Corporation in
exchange for consideration totaling approximately $3.8 million, which was
comprised of cash consideration of $3.6 million and approximately $0.2 million
in acquisition costs. TrueArc was a provider of records management and digital
preservation software allowing companies to manage physical and electronic
records. Since the time of the acquisition, we have integrated the records
management technology acquired in this transaction and the product (currently
called Documentum Records Manager) is now part of our comprehensive suite of
enterprise content management solutions.

On December 10, 2002, we acquired privately-held eRoom Technology, Inc. in
exchange for consideration totaling approximately $118.4 million, which was
comprised of 7,772,708 shares of common stock valued at $90.8 million (share
value was calculated using an average five-day stock price extending two days
before and two days after the terms of the acquisition were publicly
announced), cash of $12.6 million, issuance of options to purchase 1,605,108
shares of Documentum common stock valued at approximately $8.1 million, and
direct acquisition costs of approximately $6.9 million. eRoom was a provider of
business collaboration software products enabling organizations and their
employees, customers, suppliers, and other partners to manage their business
relationships over the Internet. Since the time of the acquisition, we have
integrated the collaboration technology acquired in this transaction and the
product (currently called Documentum eRoom Enterprise) is now part of our
comprehensive suite of enterprise content management solutions.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in Note 2 of
notes to consolidated financial statements included in our 2002 Annual Report
on Form 10-K. However, certain of our accounting policies are particularly
important to obtaining an understanding of our financial position and results
of operations. Application of many of these policies requires our management to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenue and expenses related disclosures. In general, these
estimates or judgments are based on 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 under different conditions. We consider
our most critical accounting policies to be those policies that are both most
important to the portrayal of our financial condition and results of
operations, and those that require our managements most difficult, subjective
or complex judgments, often as a result of the need to make estimates about
matters that are inherently uncertain at the time of estimation. We believe the
following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our Unaudited Condensed Consolidated
Financial Statements.

Revenue Recognition

Our revenue is derived from the sale of perpetual licenses for our
enterprise content management solutions and related services, which include
maintenance and support, consulting and education services. We recognize
revenue in accordance with SOP 97-2, Software Revenue Recognition,as amended
by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, with
Respect to Certain Transactionsand related accounting literature. Revenue from
license arrangements is recognized upon contract execution, provided all
shipment obligations have been met, fees are fixed or determinable, and
collection is determined as being probable. If an undelivered element of the
arrangement exists under the license arrangement, a portion of revenue is
deferred based on vendor-specific objective evidence (VSOE) of the fair value
of the undelivered element until delivery occurs. If VSOE does not exist for
all undelivered elements, all revenue is deferred until sufficient evidence
exists or all elements have been delivered. We consider fees on transactions
with payment terms of up to 270 days from the contract execution date to be
fixed or determinable. In the event payment terms exceed 270 days, we recognize
revenue when it becomes due and payable as we do not consider the fees to be
fixed or determinable. We have a history of successfully collecting under the
original payment terms for transactions with similar types of customers and
similar economics, without providing concessions in arrangements with payment
terms up to 270 days. License revenue from resellers or distributors is
recognized, net of fees, when there is evidence of an arrangement with the
end-user or we have executed a contract directly with the reseller or
distributor which identifies the end-user, and all other revenue recognition
criteria are met. We recognize revenue from sales of third party products on a
gross basis if we participate in price negotiations, ship the products, and
maintain collection risk of the receivable. Revenue from

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annual maintenance and support agreements is deferred and recognized on a
straight-line basis over the term of the contract. Revenue from consulting and
training services is recognized as the services are performed and are typically
on a time and materials basis. Such services primarily consist of
implementation services related to the installation of our products and do not
include significant customization, modification, or development of the
underlying software code.

Allowances

We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. We
analyze accounts receivable and historical bad debts, customer concentrations,
customer creditworthiness, current economic trends and changes in customer
payment terms and practices when evaluating the adequacy of the allowance for
doubtful accounts. If the financial condition of our customers was to improve
or deteriorate, revision to the allowance may be required. To date, actual
experience has been consistent with our estimates.

Accounting for Income Taxes

We record a valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for a valuation allowance, in the event we were to
determine that we would be able to realize our deferred tax assets in the
future in excess of the net recorded amount, an adjustment to the deferred tax
asset would increase net income in the period such determination was made if
the adjustment was related to normal operating expenses. If a future adjustment
to the valuation allowance were to relate to a deferred tax item resulting from
stock-based compensation, the adjustment to the deferred tax asset would
increase additional paid-in capital. Similarly, if a future adjustment to the
valuation allowance were attributable to one or more of the acquired companies,
the adjustment to the deferred tax asset would result in an increase to
goodwill. Likewise, should we determine that we would not be able to realize
all or part of our net deferred tax asset in the future related to normal
operating expenses, an adjustment to the deferred tax asset would be charged to
income in the period such determination was made.

Goodwill and Identifiable Purchased Intangibles

Goodwill and identifiable purchased intangible assets are stated at cost
less accumulated amortization. Goodwill represents the excess of costs over
fair value of assets of businesses acquired. Goodwill and intangible assets
acquired in a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead are tested annually for
impairment using a two-step process and more frequently if events and
circumstances indicate that the assets might be impaired in accordance with the
provisions of SFAS No. 142. The first step compares the fair value of a
reporting unit with its carrying amount. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired and no further testing is required. The second step is performed if
the carrying amount of reporting unit goodwill exceeds its implied fair value,
then an impairment loss shall be recognized in an amount equal to that excess.
We consider ourselves to be a single reporting unit and therefore any
impairment is measured based upon the fair value of the business as a whole.
During the quarter ended September 30, 2003, as part of our annual impairment
test, we completed the first step of the impairment test measured as of August
1, 2003. This first test did not indicate impairment and, therefore, the
second step of the impairment test was unnecessary.

Identifiable purchased intangible assets with definite lives are amortized
on a straight-line basis over the remaining estimated economic life of the
underlying products and technologies (original lives assigned were one to five
years) and reviewed for impairment in accordance with SFAS No. 144.

Long-lived Assets, Excluding Goodwill

Our long-lived assets consist of property and equipment and other acquired
intangibles, excluding goodwill. We periodically review our long-lived assets
for impairment in accordance with SFAS No. 144. For assets to be held and
used, we initiate our review whenever events or changes in circumstances
indicate that the carrying amount of a long-lived asset may not be recoverable.
Recoverability of an asset group is measured by comparison of its carrying

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amount to the expected future undiscounted net cash flows (without
interest charges) that the asset group is expected to generate. If it is
determined that an asset group is not recoverable, an impairment loss is
recorded in the amount by which the carrying amount of the asset group exceeds
its fair value.

Assets to be disposed of and for which we have committed to a plan to
dispose of the assets, whether through sale or abandonment, are reported at the
lower of their carrying amount or fair value less cost to sell.

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 |     | Nine Months Ended
|                                          |                                       |                         |    | September 30,      |     | September 30,    
|                                          |                                       |                         |    |                    |     |                  
|                                          |                                       |                         |    | 2003               |     | 2002              |    | 2003 |     | 2002
|                                          |                                       |                         |    |                    |     |                   |    |      |     |     
|Revenue:                                  |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |   
|                                          | License                               |                         |    | 49                 | %   |                   |    | 51   | %   |      |    | 49 | %   |   |    | 50 | %  
|                                          | Service                               |                         |    | 51                 | %   |                   |    | 49   | %   |      |    | 51 | %   |   |    | 50 | %  
|                                          |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |    |    
|                                          |                                       | Total revenue           |    |                    | 100 | %                 |    |      | 100 | %    |    |    | 100 | % |    |    | 100 | %
|                                          |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |    |    
|Cost of revenue:                          |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |   
|                                          | License                               |                         |    | 8                  | %   |                   |    | 4    | %   |      |    | 7  | %   |   |    | 4  | %  
|                                          | Service                               |                         |    | 21                 | %   |                   |    | 22   | %   |      |    | 21 | %   |   |    | 23 | %  
|                                          |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |    |    
|                                          |                                       | Total cost of revenue   |    |                    | 29  | %                 |    |      | 26  | %    |    |    | 28  | % |    |    | 27  | %
|                                          |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |    |    
|Gross profit                              |                                       |                         | 71 | %                  |     |                   | 74 | %    |     |      | 72 | %  |     |   | 73 | % 
|                                          |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |    |    
|Operating expense:                        |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |   
|                                          | Sales and marketing                   |                         |    | 39                 | %   |                   |    | 42   | %   |      |    | 41 | %   |   |    | 44 | %  
|                                          | Research and development              |                         |    | 15                 | %   |                   |    | 16   | %   |      |    | 17 | %   |   |    | 17 | %  
|                                          | General and administrative            |                         |    | 10                 | %   |                   |    | 11   | %   |      |    | 11 | %   |   |    | 12 | %  
|                                          | Restructuring costs                   |                         |    |                   |     |                   |    |     |     |      |    | 6  | %   |   |    |   |    
|                                          | Amortization of purchased intangibles |                         |    | 1                  | %   |                   |    |     |     |      |    | 1  | %   |   |    |   |    
|                                          |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |    |    
|                                          |                                       | Total operating expense |    |                    | 65  | %                 |    |      | 69  | %    |    |    | 75  | % |    |    | 73  | %
|                                          |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |    |    
|Income (loss) from operations             |                                       |                         | 6  | %                  |     |                   | 5  | %    |     |      | (3 | %) |     |   |   |   
|Interest income                           |                                       |                         | 2  | %                  |     |                   | 3  | %    |     |      | 2  | %  |     |   | 2  | % 
|Interest expense                          |                                       |                         | (2 | %)                 |     |                   | (3 | %)   |     |      | (2 | %) |     |   | (2 | %)
|Other expense, net                        |                                       |                         | (1 | %)                 |     |                   |   |      |     |      |   |    |     |   |   |   
|                                          |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |    |    
|Income (loss) before income taxes         |                                       |                         | 5  | %                  |     |                   | 5  | %    |     |      | (4 | %) |     |   |   |   
|Provision for (benefit from) income taxes |                                       |                         | 4  | %                  |     |                   | 1  | %    |     |      | (2 | %) |     |   |   |   
|                                          |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |    |    
|Net income (loss)                         |                                       |                         | 1  | %                  |     |                   | 4  | %    |     |      | (2 | %) |     |   |   |   
|                                          |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |    |    
|As a Percentage of Related Revenue:       |                                       |                         |    |                    |     |                   |    |      |     |      |    |    |     |   |    |   
|Cost of license revenue                   |                                       |                         | 15 | %                  |     |                   | 9  | %    |     |      | 15 | %  |     |   | 8  | % 
|Cost of service revenue                   |                                       |                         | 43 | %                  |     |                   | 44 | %    |     |      | 42 | %  |     |   | 47 | % 

Revenue

During the three months ended September 30, 2003 revenue increased over
the comparable period a year ago as a result of growth in demand for our
products driven by our ability to successfully provide the ECM solutions

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required by organizations software infrastructure needs. Our success in the
growing ECM space is attributed to several factors, including our ability to
address enterprise content management needs as a result of heightened
compliance and regulatory standards across several industries and the ability
to offer a comprehensive suite of content management products. Through research
and development and acquisition activity completed in fiscal 2002, we have
expanded the breadth of our ECM platform.

The five core solutions that make up our enterprise content management
offering  Enterprise Document Management, Web Content Management, Digital
Asset Management, Collaboration, and Records Management have been historically
marketed and sold in two key geographic regions: the United States and the
Europe, Middle East and Africa (EMEA) region.

We continue to grow our customer list, as evidenced by the addition of 64
new customers in the three months ended September 30, 2003. The addition of
these customers brings our total customer count to more than 2,700. In
addition, we closed seven deals of over $1.0 million each in total license and
service revenue in the current quarter.

License Revenue

|                            |  |                    |      |      |  |        |      |                   |  |         |    |        |  |   |       |   |  |   |      |         |  |  |    |  
|--------------------------- |  | ------------------ | ---- | ---- |  | ------ | ---- | ----------------- |  | ------- | -- | ------ |  | - | ----- | - |  | - | ---- | ------- |  |  | -- | -
|                            |  | Three Months Ended |      |      |  |        |      | Nine Months Ended |  |         |    |       
|                            |  | September 30,      |      |      |  |        |      | September 30,     |  |         |    |       
|                            |  |                    |      |      |  |        |      |                   |  |         |    |       
|                            |  |                    |      |      |  |        |      |                   |  | Percent |    |        |  |   |       |   |  |   |      | Percent
|($ in millions)             |  | 2003               |      | 2002 |  | Change |      | 2003              |  | 2002    |    | Change
|                            |  |                    |      |      |  |        |      |                   |  |         |    |       
|License revenue             |  | $                  | 36.0 |      |  | $      | 28.9 |                   |  |         | 25 | %      |  | $ | 103.1 |   |  | $ | 81.0 |         |  |  | 27 | %
|Percentage of total revenue |  |                    | 49   | %    |  |        | 51   | %                 |  |         |    |        |  |   | 49    | % |  |   | 50   | %       |  |  |    |  

License revenue increased in absolute dollars in both the three and nine
months ended September 30, 2003, as compared to the same periods in 2002. The
increase in absolute dollars in both periods presented was due to an increase
in the number of licenses sold to new customers and an increase in the number
of existing customers who purchased additional products. The increase in demand
was driven by an increase in enterprise requirements for a comprehensive
content management solution needed for business process compliance, corporate
record keeping and enterprise collaboration. Additionally, the increase in the
current period is driven by incremental revenue generated by the records
management and collaboration technology that has been recently integrated into
our product suite as a result of our acquisition activity in the fourth quarter
of fiscal 2002. License revenue as a percentage of total revenue decreased in
the three and nine months ended September 30, 2003, as compared to the same
periods in 2002. The decrease in license revenue as a percentage of total
revenue was due to the increase in service revenue in the three and nine months
ended September 30, 2003 as described in the Service Revenue section. Sales
to one customer in multiple transactions accounted for $5.8 million, or 16%, of
license revenue for the three months ended September 30, 2003. Sales to one
customer accounted for $7.2 million, or 25%, of total license revenue in the
same period last year. No customer accounted for greater than 10% of total
license revenue for the nine months ended September 30, 2003 and 2002.

We anticipate that the demand for our products will continue to increase
if overall economic conditions strengthen and overall demand for enterprise
content management increases; more specifically, we expect license demand to
increase as we see a growing trend of customers requiring a common
enterprise-wide approach to content management and a platform suitable for
fulfilling compliance requirements, which includes new legislative regulations
for document archiving and record keeping. Furthermore, as a result of our
acquisition activity completed in fiscal 2002, we are now shipping a
comprehensive suite of products that addresses these requirements. We have seen
and expect to continue to see increased license revenue opportunities as more
user seats are deployed throughout existing customer enterprises and as we make
additional sales to new customers.

International license revenue represented 31% and 46% of total license
revenue for the three months ended September 30, 2003 and 2002, respectively,
and 40% and 46% for the nine months ended September 30, 2003 and 2002,
respectively. The decrease in international revenue as a percentage of license
revenue in both comparable periods presented was primarily due to a decrease in
license revenue in the EMEA region. The EMEA region contributed 22% and 29% of
license revenue in the three and nine months ended September 30, 2003,
respectively, as compared to 31% and 37%, respectively, in the comparable
periods a year ago. The decrease in license revenue in EMEA as a percentage
of total license sales for the three months ended September 30, 2003 is
primarily attributed
to the lack of large sales transactions as well as decreased demand
overseas due to seasonality. The decrease in

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license revenue in EMEA as a
percentage of total license sales for the nine months ended September 30, 2003
is primarily due to the strong performance of our collaboration offering in
North America relating to the eRoom acquisition as well as the lack of large
sales transactions and decreased demand overseas due to seasonality as
described above in the quarter ended September 30, 2003.

Our customers include several of our vendors and, on occasion, we have
purchased goods or services for our operations from these vendors at or about
the same time we have licensed our software to these same organizations (a
concurrent transaction). Concurrent transactions are separately negotiated,
settled in cash, and recorded at terms we consider to be arms length. We
recognized no such transactions during the three and nine months ended
September 30, 2003. We recognized approximately $0.2 million and $2.3 million
of software license revenue from concurrent transactions in the three and nine
months ended September 30, 2002, respectively.

During the quarter ended September 30, 2003, we completed several
transactions with financial institutions including a transaction in which
Morgan Stanley & Co., a customer since 1997, entered into an agreement to
license additional software products for its internal use. The aggregate
amount of the contract was approximately $1.2 million, $1.0 million of which
was recognized as revenue for the quarter. Separately, subsequent to the end
of the quarter, we entered into an engagement letter with Morgan
Stanley & Co. pursuant to which Morgan Stanley provided financial advisory
services and a financial opinion in connection with the proposed acquisition of
us by EMC Corporation.

We classify license revenue as domestic or international based upon the
billing location of the customer. In many instances, especially with large
purchases from multinational companies, the customer has the right to deploy
the licenses anywhere in the world. Thus, the percentages discussed herein
represent where licenses were sold, and may or may not represent where the
products are used. As a result, we believe that period to period comparisons of
international revenue are not necessarily meaningful and should not be relied
upon as an indication of future performance.

Service Revenue

|                            |  |                    |      |      |  |        |      |                   |  |         |    |        |  |   |       |   |  |   |      |         |  |  |    |  
|--------------------------- |  | ------------------ | ---- | ---- |  | ------ | ---- | ----------------- |  | ------- | -- | ------ |  | - | ----- | - |  | - | ---- | ------- |  |  | -- | -
|                            |  | Three Months Ended |      |      |  |        |      | Nine Months Ended |  |         |    |       
|                            |  | September 30,      |      |      |  |        |      | September 30,     |  |         |    |       
|                            |  |                    |      |      |  |        |      |                   |  |         |    |       
|                            |  |                    |      |      |  |        |      |                   |  | Percent |    |        |  |   |       |   |  |   |      | Percent
|($ in millions)             |  | 2003               |      | 2002 |  | Change |      | 2003              |  | 2002    |    | Change
|                            |  |                    |      |      |  |        |      |                   |  |         |    |       
|Service revenue             |  | $                  | 37.5 |      |  | $      | 27.4 |                   |  |         | 37 | %      |  | $ | 105.5 |   |  | $ | 79.9 |         |  |  | 32 | %
|Percentage of total revenue |  |                    | 51   | %    |  |        | 49   | %                 |  |         |    |        |  |   | 51    | % |  |   | 50   | %       |  |  |    |  

Service revenue includes revenue from consulting, education services, and
maintenance and support.

Service revenue increased in absolute dollars and as a percentage of total
revenue for the three and nine months ended September 30, 2003, as compared to
the same periods a year ago. The 37% increase in the three months ended
September 30, 2003 was comprised of a 25% increase in maintenance revenue, 11%
increase in consulting revenue and a 1% increase in training revenue. The 32%
increase in the nine months ended September 30, 2003 consisted of a 24%
increase in maintenance revenue, 7% increase in consulting revenue and a 1%
increase in training revenue. The increase in overall service revenue in both
periods presented was attributable to additional maintenance fees associated
with sales of new software licenses, renewals by our existing customers as well
as the assumption of customers and additional maintenance renewals as a result
of our acquisition activities.

Fluctuations in our license revenue typically impact our consulting and
education service revenue in future periods since these types of revenue are
typically derived from license revenue. Accordingly, the increase in consulting
and education service revenue in the three and nine months ended September 30,
2003 is primarily due to greater license revenue seen in the first nine months
of fiscal 2003 as well as in the fourth quarter of fiscal 2002 as compared to
the first nine months of fiscal 2002 and the fourth quarter of fiscal 2001.

The continued growth of our consulting revenue depends in large part on
the growth of our software license revenue and customer deployment
methodologies, while the growth of our maintenance revenue depends on the
growth of our software license revenue coupled with the renewals of
maintenance agreements by our existing installed base. With the release of
Documentum 5 in the latter part of fiscal 2002, the new functionality acquired

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through our acquisition activity, and other new generation platform
functionality, we expect that demand from our installed base and new customers
for consulting, education and maintenance services will increase over the next
several quarters.

Cost of Revenue

Cost of License Revenue

|                              |  |                    |     |         |  |        |     |                   |  |      |     |        |  |   |      |   |  |   |     |   |  |  |     |  
|----------------------------- |  | ------------------ | --- | ------- |  | ------ | --- | ----------------- |  | ---- | --- | ------ |  | - | ---- | - |  | - | --- | - |  |  | --- | -
|                              |  | Three Months Ended |     |         |  |        |     | Nine Months Ended |  |      |     |       
|                              |  | September 30,      |     |         |  |        |     | September 30,     |  |      |     |       
|                              |  |                    |     | Percent |  |        |     | Percent          
|($ in millions)               |  | 2003               |     | 2002    |  | Change |     | 2003              |  | 2002 |     | Change
|                              |  |                    |     |         |  |        |     |                   |  |      |     |       
|Cost of license revenue       |  | $                  | 5.5 |         |  | $      | 2.5 |                   |  |      | 120 | %      |  | $ | 15.1 |   |  | $ | 6.4 |   |  |  | 136 | %
|Percentage of license revenue |  |                    | 15  | %       |  |        | 9   | %                 |  |      |     |        |  |   | 15   | % |  |   | 8   | % |  |  |     |  

Cost of license revenue consists of amortization of technology-related
identifiable purchased intangibles, royalties paid to third-party vendors,
packaging, documentation, production, and freight costs. Royalties, which are
paid to third parties for selected products, are both fixed and variable.

Cost of license revenue increased in absolute dollars and as a percentage
of the associated license revenue in both the three and nine months ended
September 30, 2003, as compared to the same periods in 2002. Of the 120%
increase in the three months ended September 30, 2003, 99% was related to the
recognition of amortization expense for our technology-related identifiable
purchased intangibles, which were acquired in the fourth quarter of fiscal
2002. Of the 136% increase in the nine months ended September 30, 2003, 120%
was related to the same amortization expense. The remaining increase in both
periods presented was driven by the variable cost of increased license revenue
and in the third-party product mix being sold, as compared to the same periods
a year ago.

We expect 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

|
|
|
|
|
|
|
|
|
|

Cost of service revenue consists primarily of royalties paid to
third-party vendors for maintenance arrangements, personnel-related and third
party contractor costs incurred in providing consulting services, education
services and maintenance services to customers, which includes telephone
support costs.

Cost of service revenue increased in absolute dollars in both the three
and nine months ended September 30, 2003, as compared to the same periods in
2002. The 33% and 18% increase in the three and nine months ended September
30, 2003, respectively, was primarily attributable to a 17% and 12% increase in
variable cost as a result of the increase in service revenue for the three and
nine months ended September 30, 2003, respectively. Of the remaining increase
for the three and nine months ended September 30, 2003, as compared to the same
periods a year ago, 11% and 9%, respectively, was due to an increase in
compensation and related benefits associated with headcount increase, including
personnel from our acquisitions of TrueArc and eRoom in November and December
of 2002, respectively. In addition, the 18% increase in the nine months ended
September 30, 2003 was offset by a 4% decrease in maintenance royalties due to
$1.9 million of benefit that we recognized during the nine months ended
September 30, 2003. The benefit was a result of renegotiated third-party
contracts with existing vendors which resulted in the release of $1.9 million
of obligations that were accrued in previous periods and included in accrued
liabilities. The remaining 5% and 3% variance for both periods presented were
due to various individually insignificant fluctuations.

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We expect the cost of service revenue to fluctuate in absolute dollar
amount and as percentage of overall service revenue as the related service
revenue fluctuates.

Operating Expenses

Sales and Marketing

|                             |  |                    |      |         |  |        |      |                   |  |      |    |        |  |   |      |   |  |   |      |   |  |  |    |  
|---------------------------- |  | ------------------ | ---- | ------- |  | ------ | ---- | ----------------- |  | ---- | -- | ------ |  | - | ---- | - |  | - | ---- | - |  |  | -- | -
|                             |  | Three Months Ended |      |         |  |        |      | Nine Months Ended |  |      |    |       
|                             |  | September 30,      |      |         |  |        |      | September 30,     |  |      |    |       
|                             |  |                    |      | Percent |  |        |      | Percent          
|($ in millions)              |  | 2003               |      | 2002    |  | Change |      | 2003              |  | 2002 |    | Change
|                             |  |                    |      |         |  |        |      |                   |  |      |    |       
|Sales and marketing expenses |  | $                  | 28.6 |         |  | $      | 23.8 |                   |  |      | 20 | %      |  | $ | 85.4 |   |  | $ | 70.4 |   |  |  | 21 | %
|Percentage of total revenue  |  |                    | 39   | %       |  |        | 42   | %                 |  |      |    |        |  |   | 41   | % |  |   | 44   | % |  |  |    |  

Sales and marketing expenses consist of salaries, benefits, sales
commissions and other expenses related to the direct sales force, various
marketing expenses, costs of other market development programs as well as an
allocation of overall corporate expenses, calculated on the basis of headcount,
related to items such as amortization of deferred stock-based compensation,
corporate insurance, corporate taxes, facilities, telephone and others.

Sales and marketing expenses increased in absolute dollars in the three
and nine months ended September 30, 2003, as compared to the same periods in
2002. Of the 20% increase in the three months ended September 30, 2003, 15% was
due to an increase in compensation and related benefits associated with
additional headcount, including personnel from our acquisitions of TrueArc and
eRoom in November and December of 2002, respectively. Of the remaining
increase, 4% was due to an increase in commissions related to an increase in
license revenue, and the remaining 1% was a result of insignificant individual
fluctuations.

Of the 21% total increase for the nine months ended September 30, 2003,
14% was due to an increase in compensation and related benefits associated with
additional headcount, including personnel from our acquisitions of TrueArc and
eRoom in November and December of 2002, respectively. Of the remaining
increase, 5% was due to an increase in commissions related to an increase in
license revenue, and the remaining 2% was a result of insignificant individual
fluctuations.

Sales and marketing as a percentage of total revenue in the three and nine
months ended September 30, 2003 decreased as compared to the comparable periods
in 2002. The decrease in the percentages was principally the result of an
increase in total revenue and managements cost control initiatives designed to
decrease spending in a number of discretionary areas.

Research and Development

|                                  |  |                    |      |         |  |        |     |                   |  |      |    |        |  |   |      |   |  |   |      |   |  |  |    |  
|--------------------------------- |  | ------------------ | ---- | ------- |  | ------ | --- | ----------------- |  | ---- | -- | ------ |  | - | ---- | - |  | - | ---- | - |  |  | -- | -
|                                  |  | Three Months Ended |      |         |  |        |     | Nine Months Ended |  |      |    |       
|                                  |  | September 30,      |      |         |  |        |     | September 30,     |  |      |    |       
|                                  |  |                    |      | Percent |  |        |     | Percent          
|($ in millions)                   |  | 2003               |      | 2002    |  | Change |     | 2003              |  | 2002 |    | Change
|                                  |  |                    |      |         |  |        |     |                   |  |      |    |       
|Research and development expenses |  | $                  | 11.2 |         |  | $      | 8.9 |                   |  |      | 26 | %      |  | $ | 34.5 |   |  | $ | 27.7 |   |  |  | 25 | %
|Percentage of total revenue       |  |                    | 15   | %       |  |        | 16  | %                 |  |      |    |        |  |   | 17   | % |  |   | 17   | % |  |  |    |  

Research and development expenses consist of salaries and benefits for
software developers, contracted development efforts, as well as an allocation
of overall corporate expenses, calculated on the basis of headcount, related to
items such as amortization of deferred stock-based compensation, corporate
insurance, corporate taxes, facilities, telephone and others.

Research and development expenses increased in absolute dollars in the
three and nine months ended September 30, 2003, as compared to the same periods
in 2002. Of the 26% and 25% increases in the three and nine months ended
September 30, 2003, respectively, 20% and 22% was due, respectively, to an
increase in compensation and related benefits associated with additional
headcount, including personnel from our acquisitions of TrueArc and

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eRoom in November and December of 2002, respectively. The remaining 6%
and 3% variance for both periods presented were due to various individually
insignificant fluctuations.

The decrease in research and development costs as a percentage of total
revenue in the three and nine months ended September 30, 2003, as compared to
the same periods in 2002, was due to an increase in worldwide revenue.

General and Administrative

|                                    |  |                    |     |         |  |        |     |                   |  |      |    |        |  |   |      |   |  |   |      |   |  |  |    |  
|----------------------------------- |  | ------------------ | --- | ------- |  | ------ | --- | ----------------- |  | ---- | -- | ------ |  | - | ---- | - |  | - | ---- | - |  |  | -- | -
|                                    |  | Three Months Ended |     |         |  |        |     | Nine Months Ended |  |      |    |       
|                                    |  | September 30,      |     |         |  |        |     | September 30,     |  |      |    |       
|                                    |  |                    |     | Percent |  |        |     | Percent          
|($ in millions)                     |  | 2003               |     | 2002    |  | Change |     | 2003              |  | 2002 |    | Change
|                                    |  |                    |     |         |  |        |     |                   |  |      |    |       
|General and administrative expenses |  | $                  | 7.1 |         |  | $      | 6.0 |                   |  |      | 18 | %      |  | $ | 21.9 |   |  | $ | 18.2 |   |  |  | 20 | %
|Percentage of total revenue         |  |                    | 10  | %       |  |        | 11  | %                 |  |      |    |        |  |   | 11   | % |  |   | 12   | % |  |  |    |  

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 and an allocation of
overall corporate expenses, calculated on the basis of headcount, related to
items such as amortization of deferred stock-based compensation, corporate
insurance, corporate taxes, facilities, telephone and others.

General and administrative expenses increased in absolute dollars in the
three and nine months ended September 30, 2003, as compared to the same periods
in 2002. The 18% increase in the three months ended September 30, 2003, was
primarily due to an increase in staffing, including personnel from our
acquisitions of TrueArc and eRoom in November and December of 2002,
respectively, necessary to manage and support our growth. Consequently,
compensation and related benefits increased. Of the 20% increase in the nine
months ended September 30, 2003, 16% was due to the increase in compensation
and benefits as described above. The remaining 4% increase was due to various
individually insignificant fluctuations.

The decrease in general and administrative costs as a percentage of total
revenue in the three and nine months ended September 30, 2003, as compared to
the same periods in 2002, was due to managements cost control initiatives
designed to decrease spending in a number of discretionary areas as well as an
increase in overall revenue.

Restructuring Costs

In January 2003, we adopted SFAS No. 146 which provides guidance on the
recognition and measurement of liabilities associated with exit or disposal
activities and requires that such liabilities be recognized when incurred and
establishes that fair value is the means for initial measurement of the
liabilities. During the first quarter of 2003, we recognized approximately
$11.0 million in estimated costs, net of sublease income, in the United States
and Europe as a result of abandoning certain facilities. Approximately $10.1
million of the estimated costs are related to one large facility in Europe that
management has determined would not be utilized going forward. We worked with
external real estate experts in each of the markets where the properties are
located to determine the best estimate of sublease income. We did not estimate
any sublease income in connection with our exit of the facility in Europe that
resulted in a $10.1 million restructuring charge. This determination was based
on the various restrictions that are included in the existing lease agreement
that limit our ability to sublease the facility. This determination was also
impacted by current and forecasted commercial real estate rates in the area. We
anticipate future cost savings related to this facility of approximately $0.5
million per quarter through the expiration of the lease in December of 2007.

In addition to these facilities exit costs, we also incurred approximately
$1.3 million of severance and benefits-related restructuring costs for the
involuntary termination of 39 legacy Documentum employees, of which 36 were
based in the United States and the remainder were located internationally.
These charges were incurred as a result of management determining that certain
synergies resulted from combining workforces that were assumed during our
recent acquisition activity in fiscal 2002. Severance and benefits related
costs associated with terminated employees of the acquired enterprise during
the fourth quarter of fiscal 2002 were included in the cost of the respective
acquisition.

The following table summarizes the components of the above restructuring
charge, the cash payments, non-cash activities, and the remaining accrual as of
and for the nine months ended September 30, 2003 (in thousands):

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|                                                       |  |           |        |         |  |       |        |   |  |   |        |  
|------------------------------------------------------ |  | --------- | ------ | ------- |  | ----- | ------ | - |  | - | ------ | -
|                                                       |  | Severance |        |         |  |       |        |   |  |  
|                                                       |  | and       |        | Other   |  |       |        |  
|                                                       |  | Benefits  |        | Charges |  | Total
|                                                       |  |           |        |         |  |      
|First quarter 2003 restructuring charges               |  | $         | 1,245  |         |  | $     | 11,020 |   |  | $ | 12,265 |  
|Cash paid                                              |  |           | (1,162 | )       |  |       | (1,896 | ) |  |   | (3,058 | )
|Non-cash activity                                      |  |           |       |         |  |       | 15     |   |  |   | 15     |  
|                                                       |  |           |        |         |  |       |        |   |  |   |        |  
|Restructuring accrual balance as of September 30, 2003 |  | $         | 83     |         |  | $     | 9,139  |   |  | $ | 9,222  |  
|                                                       |  |           |        |         |  |       |        |   |  |   |        |  

The remaining reserve balance of $9.2 million relating to the
restructuring charge we recognized during the nine months ended September 30,
2003 consists of $2.6 million of current liabilities to be paid out during
fiscal 2003 and in the first quarter of fiscal 2004 and $6.6 million of
long-term liabilities related to the fair value of remaining lease obligations
on excess facilities, net of sublease income, to be paid out through fiscal
2007.

The remaining restructuring accrual relating to our restructuring activity
in fiscal 2001 and 2002 of approximately $0.1 million relates to remaining
severance and benefits and facility costs, net of sublease income. We expect
that the remaining severance and benefits will be paid in fiscal 2003 and the
remaining facility obligations are expected to be paid in fiscal 2005.

Amortization of Purchased Intangibles

Amortization of purchased intangible assets recorded in cost of license
revenue was approximately $2.5 million and $7.9 million in the three and nine
months ended September 30, 2003, respectively, as compared to approximately
$0.1 million and $0.3 million in the three and nine months ended September 30,
2002, respectively. This amortization was related to the value of developed
technology-related identifiable purchased intangibles.

Amortization of purchased intangible assets recorded in operating expenses
was approximately $0.6 million and $1.8 million in the three and nine months
ended September 30, 2003, respectively, as compared to approximately $0.1
million and $0.2 million in the three and nine months ended September 30, 2002,
respectively. This amortization was related to the value of
non-technology-related assets, such as contracts and non-compete agreements,
and were acquired in connection with the eRoom, TrueArc and other previously
completed acquisitions.

Interest Income

Interest income consists primarily of interest earned on our cash, cash
equivalents and marketable securities. Interest income decreased by $0.4
million, or 22%, to $1.2 million in the three months ended September 30, 2003,
as compared to $1.6 million in the comparable period in 2002. The $0.4 million
decrease in the three months ended September 30, 2003, in interest income
earned on our cash and cash equivalents and short-term investments was due
primarily to the continuing decline in the yield on new investments as earlier
investments mature. Interest income increased by $0.5 million, or 15%, to $4.0
million for the nine months ended September 30, 2003, as compared to $3.5
million for the comparable period in 2002. The increase was due to higher
average cash balances throughout the current period.

Interest Expense

Interest expense consists primarily of amortization of issuance costs and
fixed interest obligations related to our outstanding convertible debt as well
as interest paid on capital lease obligations. Interest expense was $1.6
million and $4.8 million in the three and nine months ended September 30, 2003,
respectively, as compared to $1.6 million and $3.2 million, respectively, in
the comparable periods in 2002. The interest expense in all periods presented
was primarily a result of the obligations related to our outstanding
convertible debt, which was issued in April of 2002.

Other Expense, net

Other expense, net consists primarily of items such as foreign exchange
gains and losses and gains and losses on the sale and disposal of fixed assets.
Other expense, net was $0.2 million and $0.1 million in the three months ended

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September 30, 2003 and 2002, respectively. The $0.2 million of other
expense, net in the current period is composed of losses on the disposal of
fixed assets in the amount of $0.8 million offset by gains on the sale of
leasehold improvements in connection with a facility lease amendment in the
amount of $0.9 million. This lease amendment is described in further detail
below in Liquidity and Capital Resources. Foreign exchange gains and losses
were immaterial for the current period. Other expense, net was $0.4 million
for the nine months ended September 30, 2003, as compared to $0.2 million for
the comparable period in 2002. The increase was due to the activity incurred
in the current period as described above.

To date, our international sales are made mostly from our foreign sales
subsidiaries in the local countries and are typically denominated in the local
currency of each country. However, for transactions that are initiated in the
United States that are denominated in a foreign currency, we have entered into
foreign currency forward exchange contracts with financial institutions to
protect against currency exchange risk as the exposure to currency fluctuations
has been significant.

Income Taxes

Income tax provision and benefit for the interim periods is based on an
estimate of the effective annual income tax rates expected to apply for the
fiscal year. Our effective tax rate was 77% and 53% for the three and nine
months ended September 30, 2003, respectively, as compared to an effective tax
rate of 30% in both the comparable periods in 2002. The effective tax rate for
the three months ended September 30, 2003 is higher than the estimated annual
income tax rate due to a revision in the estimated annual effective income tax
rate which occurred during the third quarter.

The estimated annual income tax rate is greater than in the prior year as
a result of the non-deductible lease loss provision of approximately $11.0
million that was recognized as part of our restructuring activity in the nine
months ended September 30, 2003. The estimated annual effective tax rate can
also vary as a result of differences between our estimated and actual results
of operations. Our estimated annual tax rate can also vary if our estimate of
the mix of domestic and international income differs from our actual results.

Liquidity and Capital Resources

Since 1993, we have financed our operations primarily through the sale of
stock, cash generated from operations and the issuance of convertible debt.

In February 1996, we completed our initial public offering, selling
2,058,000 shares of our common stock and receiving net proceeds of
approximately $45 million. In October 1997, we completed a secondary public
offering, selling 1,115,700 shares of our common stock and received net
proceeds of approximately $31 million.

On April 5, 2002, we sold $125.0 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. We received proceeds of $121.3 million,
net of underwriter debt issuance costs of $3.7 million. We also incurred debt
issuance costs totaling $0.4 million comprised of legal, accounting, and
various other fees relating to the debt offering. 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 of the Notes, to
convert the Notes into shares of common stock at a conversion price of $30.02
per share. The Notes will be limited to $125.0 million aggregate principal
amount. The Notes may be redeemed by us 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. We recognized $1.6 million and $4.8 million of interest
expense, which included amortization of debt issuance costs, in the three and
nine months ended September 30, 2003, respectively. As of September 30, 2003,
our 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 $10.0 million, and

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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 we are required to repay
the Notes prior to the maturity date as a result of an event of default, such
repayment will negatively impact our liquidity. There have been no events of
default through September 30, 2003.

At September 30, 2003, our principal sources of liquidity consisted of
approximately $283.3 million of cash and cash equivalents and marketable
securities, compared to approximately $253.1 million at December 31, 2002. Our
liquidity could be negatively impacted by a decrease in demand for our
products, which are subject to rapid technological changes, reductions in
capital expenditures by our customers and intense competition, among other
factors. We do not have any off-balance sheet arrangements with unconsolidated
entities or related parties and, accordingly, our liquidity and capital
resources are not subject to off-balance sheet risks from unconsolidated
entities.

Cash provided by operating activities was approximately $22.3 million and
$12.1 million for the nine months ended September 30, 2003 and 2002,
respectively. The approximate $22.3 million of cash provided by operations in
the nine months ended September 30, 2003 was primarily attributable a net
increase in operating assets and liabilities of approximately $1.8 million and
adjustments for non-cash activities of approximately $24.0 million, offset by
our net loss of approximately $3.5 million. The following notable financial
statement changes that impact our cash and liquidity were noted on the balance
sheet as of September 30, 2003:



| |  |  | Accrued liabilities decreased by approximately $27.1 million in the
nine months ended September 30, 2003 due to the payment of obligations
assumed as a result of our 2002 acquisition activity in the amount of
approximately $12.4 million, decreases in taxes payable of approximately
$6.4 million, accrued royalties of approximately $2.3 million, accrued
commissions of approximately $2.2 million, accrued convertible debt
interest of approximately $1.4 million, and various other net decreases
of approximately $2.4 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Accounts payables decreased by approximately $6.0 million in the nine
months ended September 30, 2003 due mainly to the timing of payments to
vendors.                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | Deferred revenue increased by approximately $7.4 million in the nine
months ended September 30, 2003 as a result of growth in maintenance
revenue from a larger installed base of customers receiving ongoing
maintenance and support services. This larger installed base is a result
of continued growth through new product sales as well as customers added
in connection with recent acquisitions.                                                                                                                                    

The following notable financial statement change was noted on the balance
sheet as of September 30, 2003, however, this change did not have an immediate
impact on our cash or liquidity:



| |  |  | Other long-term liabilities increased by approximately $6.5 million
in the nine months ended September 30, 2003 primarily as result of an
accrual for long-term lease obligations related to restructuring
activity conducted in the first quarter of 2003.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The approximate $12.1 million of cash provided by operations in the nine
months ended September 30, 2002 was driven by a decrease in operating assets
and liabilities of approximately $3.4 million and an increase in net non-cash
related expenses of approximately $15.7 million, offset by our net loss of
approximately $0.2 million.

Cash used in investing activities was approximately $45.3 million and
$117.4 million for the nine months ended September 30, 2003 and 2002,
respectively. The approximate $45.3 million of cash used in investing
activities during the nine months ended September 30, 2003 was primarily
related to the net purchase of marketable securities of approximately $31.1
million, payments of obligations related to business acquisitions of
approximately $12.1 million, purchases of property and equipment of
approximately $4.0 million and proceeds from sales of property and equipment of
approximately $1.9 million. The approximate $117.4 million of cash used in
investing activities during the nine months ended September 30, 2002 was
primarily related to the net purchase of marketable securities of

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approximately $111.9 million, purchases of property and equipment of
approximately $4.3 million and approximately $1.2 million used in acquisition
activity.

Cash provided by financing activities was approximately $20.9 million and
$131.8 million in the nine months ended September 30, 2003 and 2002,
respectively. Cash provided by financing activities in the nine months ended
September 30, 2003 was a result of proceeds from the issuance of common stock
related to the exercise of stock options under our stock option plans and the
sale of stock under the Employee Stock Purchase Plan. Of the $131.8 million of
cash provided by financing activities in the nine months ended September 30,
2002, $121.3 million was a result of proceeds from our convertible debt
offering and the remaining $10.5 million was primarily related to proceeds from
the issuance of common stock related to the exercise of stock options under our
stock option plans and the sale of stock under the Employee Stock Purchase Plan

At September 30, 2003, we had net working capital of approximately $263.8
million, as compared to approximately $217.9 million at December 31, 2002. The
working capital increase of $45.9 million was driven by increases to marketable
securities of approximately $30.6 million and other current assets of
approximately $1.7 million, and a decrease in accrued liabilities of
approximately $27.0 million, offset by increases in deferred revenue of
approximately $7.4 million and accounts payable of approximately $6.0 million.

In June 1998, we signed an agreement 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, we 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, we signed an
amendment to the existing leases, which provides for the rental of an
additional 13,975 square feet of space, beginning July 2001 and expiring in
March 2005. In September 2003, we signed an amendment to renegotiate the
existing leases, whereby transferring 37,138 rentable square feet back to the
lessor and extending the lease at a more beneficial rate into the year 2013.
As a result of the lease amendment, we recognized an operating savings of
approximately $0.6 million. Additionally, we also sold certain leasehold
improvements in connection with this facility lease amendment realizing cash
proceeds of approximately $1.9 million. The Pleasanton, California space
serves as our headquarters and contains the principal administrative,
engineering, marketing, and sales facilities.

In October 1997, we signed an agreement to lease approximately 24,000
square feet in Middlesex, United Kingdom beginning in October 1997 and expiring
in April 2013. In September 2001, we signed an agreement to lease an additional
35,000 square feet in Middlesex, United Kingdom beginning in September 2001 and
expiring in December 2007. These facilities serve as our principal European
administrative, engineering, marketing and sales facilities. The remaining
lease obligation of approximately $11.1 million for the additional leased space
has been discounted to its net present value and is currently included in
accrued liabilities as of September 30, 2003.

In December 2002, we assumed, through the acquisition of eRoom Technology,
Inc., an agreement to lease approximately 34,000 square feet in Cambridge,
Massachusetts. The lease expires in June of 2005. This facility serves as
supplemental administrative, engineering, marketing, and sales space.

As a result of the pending merger with EMC, we have incurred certain
expenses totaling approximately $15.0 million in fees and expenses to our
financial and legal advisors and our accountants. A portion of these fees will
be due only if the merger with EMC is consummated. If the merger is not
consummated, we may be obligated under certain circumstances to pay EMC a
termination fee of $55.0 million and reimburse EMC for certain expenses
associated with the merger up to $2.5 million.

The following summarizes our contractual obligations at September 30,
2003, and the effect such obligations are expected to have on our liquidity and
cash flows in future periods (in thousands):

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|                                                 |  |                        |         |                  |  |           |        |           |  |               |        |  |  |   |         |  |  |   |        | 
|------------------------------------------------ |  | ---------------------- | ------- | ---------------- |  | --------- | ------ | --------- |  | ------------- | ------ |  |  | - | ------- |  |  | - | ------ | 
|                                                 |  | Payments due by Period
|                                                 |  |                       
|Contractual Cash Obligations                     |  | Total                  |         | Less than 1 year |  | 2-3 years |        | 4-5 years |  | After 5 years
|                                                 |  |                        |         |                  |  |           |        |           |  |              
|Convertible debt obligation                      |  | $                      | 125,000 |                  |  | $         |       |           |  | $             |       |  |  | $ | 125,000 |  |  | $ |       | 
|Non-cancelable operating lease obligations       |  |                        | 69,463  |                  |  |           | 13,695 |           |  |               | 16,940 |  |  |   | 12,570  |  |  |   | 26,258 | 
|Convertible debt interest obligation             |  |                        | 19,688  |                  |  |           | 5,625  |           |  |               | 11,250 |  |  |   | 2,813   |  |  |   |       | 
|Liabilities related to excess facilities         |  |                        | 9,310   |                  |  |           | 2,560  |           |  |               | 3,224  |  |  |   | 3,526   |  |  |   |       | 
|Severance liability related to eRoom acquisition |  |                        | 41      |                  |  |           | 41     |           |  |               |       |  |  |   |        |  |  |   |       | 
|Capital lease obligations                        |  |                        | 12      |                  |  |           | 12     |           |  |               |       |  |  |   |        |  |  |   |       | 
|                                                 |  |                        |         |                  |  |           |        |           |  |               |        |  |  |   |         |  |  |   |        | 
|Total Contractual Cash Obligations               |  | $                      | 223,514 |                  |  | $         | 21,933 |           |  | $             | 31,414 |  |  | $ | 143,909 |  |  | $ | 26,258 | 
|                                                 |  |                        |         |                  |  |           |        |           |  |               |        |  |  |   |         |  |  |   |        | 

Our liquidity is affected by many factors, some of which are based on the
normal ongoing operations of our business and some of which arise from
fluctuations related to global economies and markets. Some of those factors
include, but are not limited to, our lengthy sales and implementation cycles, a
reliance on one family of products and related services, intense competition
that could impair our ability to compete successfully, and an industry that is
characterized by vigorous protection and pursuit of intellectual property
rights. We believe that our existing cash, cash equivalents and marketable
securities, our available bank financing and the cash flows generated from
operations, if any, will be sufficient to meet our 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 our cash could be used to acquire or invest in complementary
businesses or products or obtain the right to use complementary technologies.
We periodically evaluate, in the ordinary course of business, potential
investments such as businesses, products or technologies. See Risk Factors 
Risks Associated with Acquisitions.

RISK FACTORS

Risks Related to the Proposed Merger with EMC

Our proposed merger with EMC involves a high degree of risk, including the
following risks.

The anticipated benefits of combining EMC and Documentum may not be
realized.EMC and Documentum entered into the merger agreement with the
expectation that the merger will result in various benefits including, among
other things, benefits relating to enhanced revenues, technology, human
resources, cost savings, operating efficiencies and other synergies. There can
be no assurance that EMC and Documentum will realize any of these benefits or
that the merger will not result in the deterioration or loss of significant
business of the combined company. Costs incurred and liabilities assumed in
connection with the merger, including pending and threatened disputes and
litigation, could have a material adverse effect on the combined companys
business, financial condition and operating results.

EMC may have difficulty and incur substantial costs in integrating
Documentum.Integrating EMC and Documentum will be a complex, time-consuming
and expensive process, particularly in the context of the integration by EMC of
LEGATO Systems, Inc., which EMC acquired on October 20, 2003. Before the
merger, EMC and Documentum operate independently, each with its own business,
products, customers, employees, culture and systems.

The combined company may face substantial difficulties, costs and delays
in integrating EMC and Documentum. These factors may include:



| |  |  | potential difficulty in leveraging the value of the separate
technologies of the combined company;                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | perceived adverse changes in product offerings available to
customers or customer service standards, whether or not these changes
do, in fact, occur;

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| |  |  | costs and delays in implementing common systems and procedures and
costs and delays caused by communication difficulties;
| | - |  | -------------------------------------------------------------------------------------------------------------------------
|
| |  |  | charges to earnings resulting from the application of purchase accounting to the transaction;                            
|
| |  |  | the geographic distance between EMCs and Documentums sites;                                                            
|
| |  |  | diversion of management resources from the business of the combined company;                                             
|
| |  |  | potential incompatibility of business cultures;                                                                          
|
| |  |  | potential losses of key employees due to perceived uncertainty in
career opportunities, compensation levels and benefits;
|
| |  |  | the retention of existing customers of each company;                                                                     
|
| |  |  | reduction or loss of customer orders due to the potential for market confusion, hesitation and delay;                    
|
| |  |  | retaining and integrating management and other key employees of the combined company; and                                
|
| |  |  | coordinating infrastructure operations in a rapid and efficient manner.                                                  

After the merger, EMC and Documentum may seek to combine certain
operations and functions using common information and communication systems;
operating procedures; financial controls; and human resource practices,
including training, professional development and benefit programs. EMC and
Documentum may be unsuccessful in implementing the integration of these systems
and processes.

Any one or all of these factors may cause increased operating costs, worse
than anticipated financial performance or the loss of customers and employees.
Many of these factors are also outside the control of either company. The
failure to timely and efficiently integrate EMC and Documentum could have a
material adverse effect on the combined companys business, financial condition
and operating results.

The value of the shares of EMC common stock that Documentum stockholders
receive in the merger will vary as a result of the fixed exchange ratio and
fluctuations in the price of EMCs common stock.At the effective time of the
merger, each outstanding share of Documentum common stock will be converted
into the right to receive 2.175 shares of EMC common stock. The ratio at which
the shares will be converted is fixed and any changes in the price of EMC
common stock will affect the value of the consideration that Documentum
stockholders receive in the merger such that if the price of EMC common stock
declines prior to completion of the merger, the value of the merger
consideration to be received by Documentum stockholders will decrease. Stock
price variations could be the result of changes in the business, operations or
prospects of EMC, Documentum or the combined company, market assessments of the
likelihood that the merger will be consummated within the anticipated time or
at all, general market and economic conditions and other factors both within
and beyond the control of EMC or Documentum.

The merger may result in a loss of customers, partners and suppliers.
Some customers, including end users, resellers and original equipment
manufacturers, may seek alternative sources of product and/or service after the
announcement of the merger due to, among other reasons, a desire not to do
business with the combined company or perceived concerns that the combined
company may not continue to support and develop certain product lines. We
anticipate that the combined company could experience some customer attrition
by reason of announcement of the merger or after the merger. Difficulties in
combining operations could also result in the loss of partners and suppliers
and potential disputes or litigation with customers, partners, suppliers,
resellers or others. There can be no assurance that any steps by management to
counter such potential increased customer, partner or supplier attrition will
be effective. If the merger does not occur for any reason, it may be difficult
for us to repair these relationships. Failure by our management to control
attrition could have a material adverse effect on the combined companys
business, financial condition and operating results.

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Substantial expenses will be incurred and payments made even if the merger
is not completed.The merger may not be completed. Whether or not the merger
is completed, we and EMC and will incur substantial expenses in pursuing the
merger. In addition, if the merger is terminated under specified
circumstances, we may be required to pay EMC a termination fee under the merger
agreement in the amount of $55.0 million, plus expenses. This termination fee
could discourage other potential acquirors from seeking to enter into a
business combination with us. Under certain other circumstances, if the merger
is not completed, we may be required to pay the EMCs fees and expenses, up to
$2.5 million.

Failure to complete the merger could cause our stock price to decline.If
the merger is not completed for any reason, our stock price may decline because
costs related to the merger, such as legal, accounting and financial advisor
fees, must be paid even if the merger is not completed. In addition, if the
merger is not completed, our stock price may decline to the extent that the
current market price reflects a market assumption that the merger will be
completed or the markets perceptions as to the reason why the merger was not
consummated.

If the conditions to the merger are not met, the merger will not occur.
Specified conditions set forth in the merger agreement must be satisfied or
waived to complete the merger. We cannot assure you that each of the
conditions will be satisfied or waived. If the conditions are not satisfied or
waived, the merger will not occur or will be delayed, and we may lose some or
all of the intended benefits of the merger.

Risks Related to Our Business

Our operating results are difficult to predict and fluctuate substantially
from quarter to quarter and year to year, which may increase the difficulty of
financial planning and forecasting and may result in decreases in our available
cash and declines in our stock price.Our future operating results may vary
from our past operating results, are difficult to predict and may vary from
year to year due to a number of factors. Many of these factors are beyond our
control. These factors include:



| |  |  | 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 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;                                                                                                                                           
|
| |  |  | 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. We had diluted earnings per share of $0.02 and $0.05
in the three months ended September 30, 2003 and 2002, respectively, and a

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loss per share of $0.20 in the three months ended September 30, 2001. 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.

As a result of these and other factors, operating results for any fiscal
quarter or year 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 and annual 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 U.S., Europe and Asia/Pacific have experienced a general decline in
economic conditions, leading to reduced demand for goods and services,
including those that we offer. We are currently in the midst of a general
economic downturn that commenced in 2001 in the U.S. and expanded to many other
regions of the world during 2002.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 due to the
economic downturn, causing them to defer or cancel projects. While we
experienced a slight increase in demand for our products in the nine months
ended September 30, 2003, demand for our products may decrease again. Continued
weakening of economic conditions may result in a decreased demand for our
products and decreased revenue, which could harm our operating results, causing
the price of our common stock to fall.

We cannot predict how long or severe the current economic downturn will
be. 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 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. On March 14, 2002, we dismissed Andersen and retained KPMG LLP
as our independent auditors for our fiscal year ended 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 do not include 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 September 30, 2003, 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 September 30, 2003, our
debt-related future commitments for the fiscal year ended December 31, 2003
will be $5.7 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 September 30, 2003, we
had cash and cash equivalents of $111.6 million and marketable securities of
$171.7 million. We intend to fulfill our debt service obligations both from
cash generated by our operations and from our existing cash and investments.

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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,
Documentum 4i and Documentum 5 ECM Platform family of products and related
services. We expect that this same family of products and services will
continue to account for the majority of our future revenue, making us highly
dependent on continued sales of this single product family. If the price of
this product family declines, or if demand for this product family declines,
then our revenue 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 revenue decreases, our operating results could be lower than
expected and our common stock price may fall.

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. For example, in
2002, we completed the acquisitions of eRoom Technology, Inc. and TrueArc
Corporation (see Managements Discussion and Analysis of Financial Conditions
and Results of Operations  Strategic Acquisitions). These acquisitions as well
as any future acquisitions or investments, expose us to the risks commonly
encountered in acquisitions of business, 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;                                                         

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| |  |  | we may have difficulty maintaining the acquired companys previous level of revenue;                                                                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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.

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 revenue is 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
revenue 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 revenue will decrease, our operating results
could be lower than expected and our common stock price may fall.

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 ECM 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

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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, IBM, Interwoven, OpenText, Stellent and
Vignette. Additionally, several other enterprise software vendors, such as
Microsoft and Oracle, 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 IBM, Microsoft,
Oracle 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.

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. At certain times in
the past, a relatively small number of our customers have accounted for a
significant percentage of our revenue. In addition, our customers are
concentrated in the process and discrete manufacturing, pharmaceutical,
financial services, government 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 of our products, and our 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

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require the organizations to continue to work with us. 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:



| |  |  | David G. DeWalt, our President and Chief Executive Officer;                        
| | - |  | -----------------------------------------------------------------------------------
|
| |  |  | Mark Garrett, our Executive Vice President and Chief Financial Officer;            
|
| |  |  | Jeffrey Beir, our Executive Vice President, Products;                              
|
| |  |  | Jean-Claude Broido, our Executive Vice President and General Manger, EMEA;         
|
| |  |  | Mike DeCesare, our Executive Vice President, Worldwide Field Operations;           
|
| |  |  | David B. Milam, our Executive Vice President and Chief Marketing Officer;          
|
| |  |  | Howard I. Shao, our Executive Vice President, Founder and Chief Technology Officer;
|
| |  |  | 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 Hong Kong, London, Madrid, Melbourne, Milan,
Munich, Paris, Seoul, Singapore, Stockholm and Tokyo, among others. We operate
our international technical support operations in the London, Melbourne, Munich
and Toronto 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;

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| |  |  | disruptions caused by possible foreign conflicts, including North
Korea, Iraq and others, involving the U.S.;                                                 
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 rights as fully as do the laws of the U.S. Our means of
protecting our intellectual property rights in the U.S. 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 claims. 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

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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
revenue 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 $34.4 million, or 16% of total
revenue, for nine months ended September 30, 2003 and $27.7 million, or 17% of
total revenue, for the nine months ended September 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.

Risks Related to Ownership of Our Common Stock

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 nine months ended September
30, 2003, our stock had a high sales price of $23.40 and a low sales price of
$12.00, as reported on the Nasdaq National Market. During the fiscal year 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

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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.

In addition, the Agreement and Plan of Merger signed with EMC on October
13, 2003 contains certain provisions prohibiting us from seeking a competing
acquisition transaction. For a more detailed discussion of such provisions,
see The Merger Agreement - No Solicitation of Third Parties by Documentum
section of the Registration Statement filed on Form S4 as filed with the SEC
by EMC on October 28, 2003 (file No. 333-110017) regarding our proposed merger
with EMC.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk is due to changes in the general level of U.S.
interest rates and relates to our cash and cash equivalents and marketable
security investment portfolios (the securities). The securities are
maintained at four major financial institutions in the U.S. These securities,
like all fixed instruments, are subject to interest rate risk and will decline
if market interest rates increase. We manage interest rate risk by maintaining
an investment portfolio with debt instruments of high credit quality and also
by maintaining sufficient cash and cash equivalent balances such that we are
typically able to hold the investments to maturity. The primary objective of
our investment activities is the preservation of principal while maximizing
investment income and minimizing risk. The marketable securities are considered
to be available-for-sale and have original maturities ranging from three months
to over one year. The following table summarizes our securities and weighted
average yields, as of September 30, 2003 (in thousands):

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|                                  |  |                        |        |      |  |      |        |      |  |       |        |   |  |   |        |   |  |   |         | 
|--------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------- | 
|                                  |  | Expected Maturity Date
|                                  |  | 2003                   |        | 2004 |  | 2005 |        | 2006 |  | Total
|                                  |  |                        |        |      |  |      |        |      |  |      
|U.S Treasury & Agency Securities  |  | $                      | 20,373 |      |  | $    | 32,680 |      |  | $     | 42,577 |   |  | $ | 22,886 |   |  | $ | 118,516 | 
|Wtd. Avg. Yield                   |  |                        | 2.23   | %    |  |      | 2.95   | %    |  |       | 2.56   | % |  |   | 2.36   | % |  |   |         | 
|Corporate Bonds                   |  |                        | 11,048 |      |  |      | 20,632 |      |  |       | 5,476  |   |  |   | 3,691  |   |  |   | 40,847  | 
|Wtd. Avg. Yield                   |  |                        | 2.17   | %    |  |      | 2.60   | %    |  |       | 2.17   | % |  |   | 2.24   | % |  |   |         | 
|Auction Rate Securities           |  |                        | 1,000  |      |  |      |       |      |  |       |       |   |  |   |       |   |  |   | 1,000   | 
|Wtd. Avg. Yield                   |  |                        | 1.35   | %    |  |      |       |      |  |       |       |   |  |   |       |   |  |   |         | 
|Certificates of Deposit           |  |                        | 2,985  |      |  |      |       |      |  |       |       |   |  |   |       |   |  |   | 2,985   | 
|Wtd. Avg. Yield                   |  |                        | 3.25   | %    |  |      |       |      |  |       |       |   |  |   |       |   |  |   |         | 
|Commercial Paper                  |  |                        | 4,253  |      |  |      |       |      |  |       |       |   |  |   |       |   |  |   | 4,253   | 
|Wtd. Avg. Yield                   |  |                        | 1.03   | %    |  |      |       |      |  |       |       |   |  |   |       |   |  |   |         | 
|Municipals (Local and Government) |  |                        |       |      |  |      | 3,075  |      |  |       | 1,013  |   |  |   |       |   |  |   | 4,088   | 
|Wtd. Avg. Yield                   |  |                        |       |      |  |      | 3.09   | %    |  |       | 2.10   | % |  |   |       |   |  |   |         | 
|                                  |  |                        |        |      |  |      |        |      |  |       |        |   |  |   |        |   |  |   |         | 
|                                  |  | $                      | 39,659 |      |  | $    | 56,387 |      |  | $     | 49,066 |   |  | $ | 26,577 |   |  | $ | 171,689 | 
|                                  |  |                        |        |      |  |      |        |      |  |       |        |   |  |   |        |   |  |   |         | 

As of September 30, 2003, we had an investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of $171.7
million. These securities, like all fixed income instruments, are subject to
interest rate risk and will decline in value if market interest rates increase.
If market interest rates were to increase immediately and uniformly by 100
basis points from levels as of September 30, 2003, the fair value of the
portfolio would decline by $2.2 million.

The fair value of our convertible debt 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 debt as of
September 30, 2003 was $135.0 million based upon reported trading activity of
the debenture in the secondary market. We do not believe that we have interest
rate exposure on our convertible debt because the interest rate is fixed and
the convertible debt will be settled at its fair value.

Foreign Exchange Risk

Our revenue originating outside the U.S. was 34% and 39% in the three and
nine months ended September 30, 2003, respectively, compared to 41% and 39% for
the comparable periods in 2002. International sales are made mostly from our
foreign sales subsidiaries in the local countries and are typically denominated
in the local currency of each country. These subsidiaries incur and settle most
of their expenses in their local currency.

We consider the U.S. dollar to be the functional currency for certain of
our foreign subsidiaries and the local currency to be the functional 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 stockholders equity. Gains and losses
resulting from remeasuring monetary asset and liability accounts for foreign
subsidiaries where the U.S. dollar is the functional currency are included in
other expense, net. We incurred insignificant foreign currency remeasurement
gains in the three months ended September 30, 2003 and incurred immaterial
losses in the three months ended September 30, 2002. We recorded foreign
currency remeasurement losses of approximately $0.3 million and $0.1 million in
the nine months ended September 30, 2003 and 2002, respectively.

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Our exposure to foreign exchange fluctuations arise from these
intercompany accounts, receivables and payables and from transactions initiated
in the U.S. that are denominated in a foreign currency.

We use foreign currency forward contracts to hedge receivables and
payables denominated in foreign currency, intercompany receivables and
payables, and transactions initiated in the U.S. that are denominated in
foreign currency. The principal foreign currencies hedged are the British
Pound, Japanese Yen and the Euro using foreign currency forward contracts
ranging in periods from one to nine months. Foreign exchange forward contracts
are accounted for on a mark-to-market basis, with realized and unrealized gains
or losses recognized in the current period as we do not designate our foreign
exchange forward contracts as accounting hedges.

We do not use derivative financial instruments for speculative trading
purposes, nor do we hedge our foreign currency exposure in a manner that
entirely offsets the effects of changes in foreign exchange rates

The table below provides information as of September 30, 2003 about our
forward foreign currency contracts. The table presents the notional amounts, at
contract exchange rates, the weighted average contractual foreign currency
exchange rates, and the estimated fair value. The information is provided in
U.S. dollar equivalent amounts.

|                                               |  |                    |       |               |  |          |        | 
|---------------------------------------------- |  | ------------------ | ----- | ------------- |  | -------- | ------ | 
|                                               |  |                    |       |               |  | Weighted
|                                               |  |                    |       |               |  | Average 
|                                               |  | Notional Principal |       | Contract Rate
|                                               |  |                    |       |              
|                                               |  | (in thousands)     |       |               |  |         
|Functional Currency                            |  |                    |       |               |  |          |        | 
|Euro                                           |  | $                  | 4,740 |               |  |          | 1.16   | 
|British Pound                                  |  |                    | 750   |               |  |          | 1.67   | 
|Australian Dollars                             |  |                    | 1,165 |               |  |          | 0.69   | 
|Japanese Yen                                   |  |                    | 314   |               |  |          | 111.38 | 
|                                               |  |                    |       |               |  |          |        | 
|                                               |  | $                  | 6,969 |               |  |          |        | 
|                                               |  |                    |       |               |  |          |        | 
|Estimated fair value as of September 30, 2003: |  | $                  | (113  | )             |  |          |        | 
|                                               |  |                    |       |               |  |          |        | 




ITEM 4. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures.Our management
evaluated, with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act
of 1934 (the Exchange Act)) as of the end of the period covered by this
Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. It should be noted that the
design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all future conditions.

(b)  Changes in Internal Controls.There was no change in our internal
control over financial reporting that occurred during the period covered
by this quarterly report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.




PART II. OTHER INFORMATION




ITEM 5. OTHER INFORMATION

We have revised our Insider Trading Policy to allow directors, officers
and other employees covered under the policy to establish, under limited
circumstances contemplated by Rule 10b5-1 under the Exchange Act, written

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##### Table of Contents



programs that permit automatic trading
of our stock or trading
of our stock by an independent person who is not aware of material
inside information at the time of the trade. We believe that certain of our
officers have established such programs.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Exhibit 3.4 Amended and Restated Bylaws of the Registrant                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |     |  | Exhibit 31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | Exhibit 31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | Exhibit 32.1 Certifications of Officers pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (b) |  | Reports on Form 8-K:                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     |  | On July 2, 2003, we filed a Form 8-K relating to our preliminary
financial results for the quarter ended June 30, 2003.                                                                                                                                                                                                                                                                                                                                                                        
|
| |     |  | On July 17, 2003, we filed a Form 8-K relating to press releases issued
by us concerning our financial results for the quarter ended June 30,
2003 and the quarter ended March 31, 2003.                                                                                                                                                                                                                                                                                                       
|
| |     |  | On September 9, 2003, we filed a Form 8-K/A, amendment number two to the
Form 8-K we filed on December 20, 2002 relating to our acquisition of
eRoom Technology, Inc., to include (i) the audit opinion of
PricewaterhouseCoopers, LLP, the independent auditors of eRoom
Technology, related to the financial statements of eRoom Technology filed
as Exhibit 99.1 to form 8-K and (ii) the consent of
PricewaterhouseCoopers, LLP to the inclusion of their audit opinion with
this Form 8-K.




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 10th day of November, 2003.

| |  |                                                   
| |  | --------------------------------------------------
| |  | DOCUMENTUM, INC.
(Registrant)                     
|
| |  | By: /s/ Mark Garrett                              
| |  |                                                   
| |  | Mark Garrett                                      
| |  | Executive Vice President & Chief Financial Officer
| |  | (Principal Accounting Officer)                    

42