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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

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

For the quarterly period ended March 31, 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
48,887,864 on April 30, 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 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURE                    
|CERTIFICATIONS               
|EXHIBIT INDEX                
|EXHIBIT 99.1                 



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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 March 31, 2003 and December
31, 2002                    |         | Page 3 
|               |  | Condensed Consolidated Statement of Operations for the three months
ended March 31, 2003 and 2002. |         | Page 4 
|               |  | Condensed Consolidated Statement of Cash Flow for the three months ended
March 31, 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 14
|Item 3.        |  | Quantitative and Qualitative Disclosures About Market
Risk                                         |         | Page 36
|Item 4.        |  | Controls and Procedures                                                                            |         | Page 37
|PART II        |  | OTHER INFORMATION                                                                                  |         |        
|Item 6.        |  | Exhibits and Reports on Form 8-K                                                                   |         | Page 38
|Signature      |  |                                                                                                    |         | Page 38
|Certifications |  |                                                                                                    | Page 39

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PART I.   FINANCIAL INFORMATION
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




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

|                                   |                                        |                           |                                      |         |         |           |         |              |         |  |  | 
|---------------------------------- | -------------------------------------- | ------------------------- | ------------------------------------ | ------- | ------- | --------- | ------- | ------------ | ------- |  |  | 
|                                   |                                        |                           |                                      |         |         | March 31, |         | December 31,
|                                   |                                        |                           |                                      |         |         | 2003      |         | 2002        
|                                   |                                        |                           |                                      |         |         |           |         |             
|                                   |                                        |                           |                                      | ASSETS  |         |           |         |              |         |  |  | 
|Current assets:                    |                                        |                           |                                      |         |         |           |         |             
|                                   | Cash and cash equivalents              |                           | $                                    | 120,174 |         |           | $       | 112,069      |        
|                                   | Marketable securities                  |                           |                                      | 142,647 |         |           |         | 141,056      |        
|                                   | Accounts receivable, net of allowances |                           |                                      | 42,852  |         |           |         | 50,803       |        
|                                   | Other current assets                   |                           |                                      | 23,774  |         |           |         | 25,707       |        
|                                   |                                        |                           |                                      |         |         |           |         |              |        
|                                   |                                        | Total current assets      |                                      |         | 329,447 |           |         |              | 329,635 | 
|Property and equipment, net        |                                        |                           | 23,718                               |         |         |           | 25,949  |             
|Goodwill                           |                                        |                           | 93,290                               |         |         |           | 93,481  |             
|Identifiable purchased intangibles |                                        |                           | 21,417                               |         |         |           | 24,818  |             
|Other assets                       |                                        |                           | 18,564                               |         |         |           | 18,226  |             
|                                   |                                        |                           |                                      |         |         |           |         |              |        
|                                   |                                        | $                         | 486,436                              |         |         | $         | 492,109 |             
|                                   |                                        |                           |                                      |         |         |           |         |              |        
|                                   |                                        |                           | LIABILITIES AND STOCKHOLDERS EQUITY |         |         |           |         |              |         |  | 
|Current liabilities:               |                                        |                           |                                      |         |         |           |         |             
|                                   | Accounts payable                       |                           | $                                    | 3,857   |         |           | $       | 2,782        |        
|                                   | Accrued liabilities                    |                           |                                      | 42,975  |         |           |         | 71,520       |        
|                                   | Deferred revenue                       |                           |                                      | 48,244  |         |           |         | 37,463       |        
|                                   |                                        |                           |                                      |         |         |           |         |              |        
|                                   |                                        | Total current liabilities |                                      |         | 95,076  |           |         |              | 111,765 | 
|Long-term convertible debt         |                                        |                           | 125,000                              |         |         |           | 125,000 |             
|Other long-term liabilities        |                                        |                           | 7,598                                |         |         |           | 109     |             
|                                   |                                        |                           |                                      |         |         |           |         |              |        
|                                   |                                        | Total liabilities         |                                      |         | 227,674 |           |         |              | 236,874 | 
|Stockholders equity               |                                        |                           | 258,762                              |         |         |           | 255,235 |             
|                                   |                                        |                           |                                      |         |         |           |         |              |        
|                                   |                                        | $                         | 486,436                              |         |         | $         | 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
|                                      |                                       |                         |         | March 31,         
|                                      |                                       |                         |         |                   
|                                      |                                       |                         |         | 2003               |        | 2002
|                                      |                                       |                         |         |                    |        |     
|Revenue:                              |                                       |                         |         |                    |        |      |        |       
|                                      | License                               |                         | $       | 34,444             |        |      | $      | 25,132 |       
|                                      | Service                               |                         |         | 32,593             |        |      |        | 25,466 |       
|                                      |                                       |                         |         |                    |        |      |        |        |       
|                                      |                                       | Total revenue           |         |                    | 67,037 |      |        |        | 50,598 | 
|                                      |                                       |                         |         |                    |        |      |        |        |       
|Cost of revenue:                      |                                       |                         |         |                    |        |      |        |       
|                                      | License                               |                         |         | 4,797              |        |      |        | 1,862  |       
|                                      | Service                               |                         |         | 14,318             |        |      |        | 12,851 |       
|                                      |                                       |                         |         |                    |        |      |        |        |       
|                                      |                                       | Total cost of revenue   |         |                    | 19,115 |      |        |        | 14,713 | 
|                                      |                                       |                         |         |                    |        |      |        |        |       
|Gross profit                          |                                       |                         | 47,922  |                    |        |      | 35,885 |       
|                                      |                                       |                         |         |                    |        |      |        |        |       
|Operating expense:                    |                                       |                         |         |                    |        |      |        |       
|                                      | Sales and marketing                   |                         |         | 28,207             |        |      |        | 23,765 |       
|                                      | Research and development              |                         |         | 11,462             |        |      |        | 9,000  |       
|                                      | General and administrative            |                         |         | 7,442              |        |      |        | 5,901  |       
|                                      | Restructuring costs                   |                         |         | 11,999             |        |      |        |       |       
|                                      | Amortization of purchased intangibles |                         |         | 606                |        |      |        | 74     |       
|                                      |                                       |                         |         |                    |        |      |        |        |       
|                                      |                                       | Total operating expense |         |                    | 59,716 |      |        |        | 38,740 | 
|                                      |                                       |                         |         |                    |        |      |        |        |       
|Loss from operations                  |                                       |                         | (11,794 | )                  |        |      | (2,855 | )     
|Interest income                       |                                       |                         | 1,345   |                    |        |      | 604    |       
|Interest expense                      |                                       |                         | (1,600  | )                  |        |      | (48    | )     
|Other expense, net                    |                                       |                         | (119    | )                  |        |      | (112   | )     
|                                      |                                       |                         |         |                    |        |      |        |        |       
|Loss before income taxes              |                                       |                         | (12,168 | )                  |        |      | (2,411 | )     
|Benefit from income taxes             |                                       |                         | (7,209  | )                  |        |      | (723   | )     
|                                      |                                       |                         |         |                    |        |      |        |        |       
|Net loss                              |                                       | $                       | (4,959  | )                  |        | $    | (1,688 | )     
|                                      |                                       |                         |         |                    |        |      |        |        |       
|Basic loss per share                  |                                       | $                       | (0.10   | )                  |        | $    | (0.04  | )     
|Diluted loss per share                |                                       | $                       | (0.10   | )                  |        | $    | (0.04  | )     
|Shares used to compute loss per share |                                       |                         |         |                    |        |      |        |       
|Basic                                 |                                       |                         | 48,441  |                    |        |      | 39,259 |       
|Diluted                               |                                       |                         | 48,441  |                    |        |      | 39,259 |       

See accompanying notes to condensed consolidated financial statements.

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

|                                                 |                                                                                 |                                                         |                                       |                                           |       |                    |        |         |       |        |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------- | ----------------------------------------- | ----- | ------------------ | ------ | ------- | ----- | ------ | ------ | -
|                                                 |                                                                                 |                                                         |                                       |                                           |       | Three Months Ended
|                                                 |                                                                                 |                                                         |                                       |                                           |       | March 31,         
|                                                 |                                                                                 |                                                         |                                       |                                           |       |                   
|                                                 |                                                                                 |                                                         |                                       |                                           |       | 2003               |        | 2002   
|                                                 |                                                                                 |                                                         |                                       |                                           |       |                    |        |        
|Cash flows from operating activities:            |                                                                                 |                                                         |                                       |                                           |       |                    |        |        
|                                                 | Net loss                                                                        |                                                         | $                                     | (4,959                                    | )     |                    | $      | (1,688  | )    
|                                                 | Adjustments to reconcile net loss to net cash provided by
operating activities: |                                                         |                                       |                                           |       |                    |        |         |      
|                                                 |                                                                                 | Loss on sale and disposal of fixed assets               |                                       |                                           | 249   |                    |        |         | 72    |       
|                                                 |                                                                                 | Stock-based compensation expense                        |                                       |                                           | 941   |                    |        |         |      |       
|                                                 |                                                                                 | Depreciation
and amortization of leasehold improvements |                                       |                                           | 3,198 |                    |        |         | 3,615 |       
|                                                 |                                                                                 | Amortization of purchased intangibles                   |                                       |                                           | 3,401 |                    |        |         |      |       
|                                                 |                                                                                 | Amortization of debt issuance costs                     |                                       |                                           | 139   |                    |        |         |      |       
|                                                 |                                                                                 | Provision for doubtful accounts                         |                                       |                                           | 558   |                    |        |         | 954   |       
|                                                 |                                                                                 | In process research and development write-off           |                                       |                                           |      |                    |        |         | 25    |       
|                                                 |                                                                                 | Changes in operating assets and liabilities:            |                                       |                                           |       |                    |        |         |       |       
|                                                 |                                                                                 |                                                         | Accounts receivable                   |                                           |       | 7,394              |        |         |       | 6,511  |       
|                                                 |                                                                                 |                                                         | Other current assets and other assets |                                           |       | 1,647              |        |         |       | (837   | )     
|                                                 |                                                                                 |                                                         | Accounts payable                      |                                           |       | 1,075              |        |         |       | 749    |       
|                                                 |                                                                                 |                                                         | Accrued liabilities                   |                                           |       | (21,038            | )      |         |       | (6,879 | )     
|                                                 |                                                                                 |                                                         | Deferred revenue                      |                                           |       | 10,781             |        |         |       | 5,441  |       
|                                                 |                                                                                 |                                                         |                                       |                                           |       |                    |        |         |      
|                                                 |                                                                                 |                                                         |                                       | Net cash provided by operating activities |       |                    | 3,386  |         |       |        | 7,963  |  
|                                                 |                                                                                 |                                                         |                                       |                                           |       |                    |        |         |      
|Cash flows from investing activities:            |                                                                                 |                                                         |                                       |                                           |       |                    |        |        
|                                                 | Purchases of investments                                                        |                                                         |                                       | (175,671                                  | )     |                    |        | (39,269 | )    
|                                                 | Sales and maturities of investments                                             |                                                         |                                       | 173,977                                   |       |                    |        | 32,281  |      
|                                                 | Purchases of property and equipment                                             |                                                         |                                       | (1,216                                    | )     |                    |        | (1,476  | )    
|                                                 | Cash used in acquisition of businesses, net of cash acquired                    |                                                         |                                       |                                          |       |                    |        | (1,138  | )    
|                                                 |                                                                                 |                                                         |                                       |                                           |       |                    |        |         |      
|                                                 |                                                                                 |                                                         |                                       | Net cash used in investing activities     |       |                    | (2,910 | )       |       |        | (9,602 | )
|                                                 |                                                                                 |                                                         |                                       |                                           |       |                    |        |         |      
|Cash flows from financing activities:            |                                                                                 |                                                         |                                       |                                           |       |                    |        |        
|                                                 | Proceeds from issuance of common stock                                          |                                                         |                                       | 7,169                                     |       |                    |        | 6,404   |      
|                                                 | Payments on capital lease obligations                                           |                                                         |                                       | (17                                       | )     |                    |        | (43     | )    
|                                                 |                                                                                 |                                                         |                                       |                                           |       |                    |        |         |      
|                                                 |                                                                                 |                                                         |                                       | Net cash provided by financing activities |       |                    | 7,152  |         |       |        | 6,361  |  
|                                                 |                                                                                 |                                                         |                                       |                                           |       |                    |        |         |      
|Effect of exchange rate changes on cash          |                                                                                 |                                                         | 477                                   |                                           |       |                    | (164   | )      
|                                                 |                                                                                 |                                                         |                                       |                                           |       |                    |        |         |      
|Net increase in cash and cash equivalents        |                                                                                 |                                                         | 8,105                                 |                                           |       |                    | 4,558  |        
|Cash and cash equivalents at beginning of period |                                                                                 |                                                         | 112,069                               |                                           |       |                    | 48,420 |        
|                                                 |                                                                                 |                                                         |                                       |                                           |       |                    |        |         |      
|Cash and cash equivalents at end of period       |                                                                                 | $                                                       | 120,174                               |                                           |       | $                  | 52,978 |        
|                                                 |                                                                                 |                                                         |                                       |                                           |       |                    |        |         |      

See accompanying notes to condensed consolidated financial statements.

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

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States for interim financial information and with the instructions
in Form 10-Q and Article 10 of Regulation S-X. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments except as
described in Notes 4 and 5, have been recorded as necessary to present fairly
our consolidated financial position, results of operations and cash flow for
the periods presented. These 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
months ended March 31, 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
Condensed Consolidated Financial Statements include those of Documentum and our
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 three months or less to be cash equivalents. The following table
details our cash and cash equivalents at March 31, 2003 and December 31, 2002:

|                      |  |           |         |              |  |   |         | 
|--------------------- |  | --------- | ------- | ------------ |  | - | ------- | 
|                      |  | March 31, |         | December 31,
|(in thousands)        |  | 2003      |         | 2002        
|                      |  |           |         |             
|Cash                  |  | $         | 6,427   |              |  | $ | 3,530   | 
|Money market accounts |  |           | 113,747 |              |  |   | 108,539 | 
|                      |  |           |         |              |  |   |         | 
|                      |  | $         | 120,174 |              |  | $ | 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 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

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redeem our marketable securities at their carrying amounts. Therefore, all
marketable securities at March 31, 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 (loss). 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 recorded foreign currency remeasurement losses of approximately $0.1
million for each of the three-month periods ended March 31, 2003 and 2002.

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-month periods ended March 31, 2003
and 2002.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization
of leasehold improvements is computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized over
the estimated useful life or the life of the lease, whichever is shorter.
Depreciation expense was approximately $3.2 million and $3.6 million for the
three months ended March 31, 2003 and 2002, respectively.

Software Development Costs

SFAS No. 86 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 $0.4
million and $0.3 million for the three months ended March 31, 2003 and 2002,
respectively.

Goodwill and Identifiable Purchased Intangibles

Goodwill is stated at cost and purchased intangible assets are stated at
cost less accumulated amortization. All of our goodwill at March 31, 2003 is
associated with acquisitions completed after June 30, 2001. We adopted certain
provisions of SFAS No. 142, Goodwill and Other Intangible Assetson July 1,
2001, and the remaining provisions of SFAS No. 142 were adopted on January 1,
2002. In accordance with SFAS No. 142, we do not amortize any goodwill,
including workforce intangibles that were subsumed into goodwill, arising from
acquisitions that were completed after June 30, 2001.

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).

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Long-lived Assets, Excluding Goodwill

Our long-lived assets, excluding goodwill, consist of property, plant and
equipment and other acquired intangibles. We periodically review our long-lived
assets for impairment in accordance with SFAS No. 144 Accounting for the
Impairment or Disposal of Long-Lived Assets. 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.

We concluded that there were no events or changes in circumstances during
the three months ended March 31, 2003 that would indicate that the carrying
amounts of long-lived assets were impaired.

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 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.

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 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. Accordingly, no compensation cost has been
recognized for our stock option plans and our stock purchase plan.

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.We adopted the
disclosure-only provisions of SFAS No. 148 during 2002.

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The following table illustrates the effect on net loss and loss per share if we
had applied the fair value recognition provisions of SFAS No. 123.

|                                      |                                                                                                                                     |                     |         |                              |       |   |         |         |       |  
|------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ------------------- | ------- | ---------------------------- | ----- | - | ------- | ------- | ----- | -
|                                      |                                                                                                                                     |                     |         | Three Months Ended March 31,
|                                      |                                                                                                                                     |                     |         |                             
|(in thousands, except per share data) |                                                                                                                                     | 2003                |         | 2002                        
|                                      |                                                                                                                                     |                     |         |                             
|Net loss, as reported                 |                                                                                                                                     | $                   | (4,959  | )                            |       | $ | (1,688  | )      
|Add:                                  |                                                                                                                                     |                     |         |                              |       |   |         |        
|                                      | Stock-based employee compensation expense
included in reported net loss, net of tax                                                 |                     | $       | 941                          |       |   | $       |        |      
|Deduct:                               |                                                                                                                                     |                     |         |                              |       |   |         |        
|                                      | Total stock-based employee compensation expense
determined under fair value based method for
all awards, net of related tax effects |                     | $       | (10,734                      | )     |   | $       | (17,199 | )    
|Pro forma net loss                    |                                                                                                                                     | $                   | (14,752 | )                            |       | $ | (18,887 | )      
|                                      |                                                                                                                                     |                     |         |                              |       |   |         |        
|Loss per share:                       |                                                                                                                                     |                     |         |                              |       |   |         |        
|                                      |                                                                                                                                     | Basicas reported   |         | $                            | (0.10 | ) |         | $       | (0.04 | )
|                                      |                                                                                                                                     |                     |         |                              |       |   |         |        
|                                      |                                                                                                                                     | Basicpro forma     |         | $                            | (0.30 | ) |         | $       | (0.48 | )
|                                      |                                                                                                                                     |                     |         |                              |       |   |         |        
|                                      |                                                                                                                                     | Dilutedas reported |         | $                            | (0.10 | ) |         | $       | (0.04 | )
|                                      |                                                                                                                                     |                     |         |                              |       |   |         |        
|                                      |                                                                                                                                     | Dilutedpro forma   |         | $                            | (0.30 | ) |         | $       | (0.48 | )
|                                      |                                                                                                                                     |                     |         |                              |       |   |         |        

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 and 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 and 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 that identifies the end-user, and all other revenue recognition criteria are met.
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.

Our customers include several of our suppliers 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 months ended March 31, 2003.
During the three months ended March 31, 2002, we recognized $1.0 million of
software license revenues from concurrent transactions.

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Concentrations of Credit Risk

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

We generally do not require collateral for our accounts receivable and
maintain reserves for potential credit losses. At March 31, 2003
and 2002, no
one customer comprised 10% or more of accounts receivable.

Our investment policy limits investments to low-risk instruments. All
financial instruments are executed with financial institutions that
have strong
credit ratings, which minimizes risk of loss due to nonpayment.

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
market 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 $129.5 million at April 24, 2003, based on
the quoted market price of the convertible debt.

Advertising

We
expense the costs of advertising as such costs are incurred. We expensed an
insignificant amount of advertising costs for each of the three months ended
March 31, 2003 and 2002, and included those costs in sales and marketing
expense in the accompanying Condensed Consolidated Statement of Operations.

Net Loss Per Share and Pro Forma Net Loss Per Share

Basic net 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 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 loss per share and diluted pro forma net
loss per share also give effect, when dilutive, to the conversion of the
convertible debt, using the if-converted method.

Reclassifications

Certain prior period amounts have been reclassified on the Condensed
Consolidated Balance Sheet and Condensed Consolidated Statement of Operations
to conform to the current period presentation. These reclassifications had no
impact on net income or shareholders equity as previously
reported.

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Note 3. Goodwill and Identifiable Purchased Intangible Assets

Goodwill

The following table presents the changes in goodwill for our one reporting
unit during the three months ended March 31, 2003:

|                                |  |                |        |  
|------------------------------- |  | -------------- | ------ | -
|                                |  | (in thousands)
|Balance as of 12/31/02          |  | $              | 93,481 |  
|Goodwill acquired during period |  |                |       |  
|Adjustments                     |  |                | (191   | )
|                                |  |                |        |  
|Balance as of 3/31/03           |  | $              | 93,290 |  
|                                |  |                |        |  

Adjustments to goodwill in the amount of approximately $0.2 million
primarily related to purchase price adjustments that were made in connection
with the acquisitions that were consummated during the fourth quarter of fiscal
2002.

Identifiable Purchased Intangible Assets

Amortization of identifiable purchased intangible assets with finite lives was
approximately $3.4 million and $0.2 million for the three months ended March
31, 2003 and 2002, respectively. Of the approximately $3.4 million and $0.2
million of amortization expense recognized in the three months ended March 31,
2003 and 2002, respectively, approximately $2.8 million and $0.1 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 $0.6 million
and $0.1 million, respectively, related to the amortization of non-technology
related identifiable purchased intangible assets and was recognized as
operating expense in the three months ended March 31, 2003 and 2002,
respectively.

Note 4. Convertible Debt

On April 5, 2002, we sold $125 million (the face value) in senior
convertible notes that mature on April 1, 2007 (the Notes). The Notes bear
interest at a rate of 4.5% per annum. 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, 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

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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 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 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 details our restructuring activity executed in the
three months ended March 31, 2003.

|                                                  |  |           |       |         |  |                |        |   |  |   |        |  
|------------------------------------------------- |  | --------- | ----- | ------- |  | -------------- | ------ | - |  | - | ------ | -
|                                                  |  | Severance |       |         |  |                |        |   |  |  
|                                                  |  | and       |       | Other   |  |                |        |  
|                                                  |  | Benefits  |       | Charges |  | Total         
|                                                  |  |           |       |         |  |               
|                                                  |  |           |       |         |  | (in thousands) |        |   |  |  
|For the three months ended March 31, 2003:        |  |           |       |         |  |                |        |   |  |   |        |  
|Total charge to operating expense                 |  |           | 1,245 |         |  |                | 11,020 |   |  |   | 12,265 |  
|Cash paid                                         |  |           | (911  | )       |  |                | (1,093 | ) |  |   | (2,004 | )
|                                                  |  |           |       |         |  |                |        |   |  |   |        |  
|Restructuring liability balance at March 31, 2003 |  | $         | 334   |         |  | $              | 9,927  |   |  | $ | 10,261 |  
|                                                  |  |           |       |         |  |                |        |   |  |   |        |  

The remaining reserve balance of $10.3 million consists of $2.8 million of
current liabilities to be paid out during fiscal 2003 and in the first quarter
of fiscal 2004 and $7.5 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.

In addition to the restructuring activity described above, our remaining
restructuring accrual of approximately $0.6 million for restructuring
activities in 2002 and 2001 was reduced by approximately $0.3 million as a
result of settling certain severance and benefit obligations for amounts less
than originally estimated. The remaining restructuring accrual relating to our
restructuring activity in fiscal 2001 and 2002 of approximately $0.3 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.

Note 6. Comprehensive Loss

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

|                                                  |  |                              |        |      |  |   |        |  
|------------------------------------------------- |  | ---------------------------- | ------ | ---- |  | - | ------ | -
|                                                  |  | Three Months Ended March 31,
|                                                  |  |                             
|                                                  |  | 2003                         |        | 2002
|                                                  |  |                              |        |     
|Net loss                                          |  | $                            | (4,959 | )    |  | $ | (1,688 | )
|Other comprehensive income (loss):                |  |                              |        |      |  |   |        |  
|Unrealized gain on available for sale investments |  |                              | (102   | )    |  |   | (240   | )
|Foreign currency translation adjustment           |  |                              | 477    |      |  |   | (164   | )
|Tax effect                                        |  |                              | (221   | )    |  |   | 121    |  
|                                                  |  |                              |        |      |  |   |        |  
|Total comprehensive loss                          |  | $                            | (4,805 | )    |  | $ | (1,971 | )
|                                                  |  |                              |        |      |  |   |        |  

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Note 7. Basic and Diluted Net Loss Per Share

Weighted average options to purchase 10,326,062 and 3,888,407 shares of
common stock at prices ranging from $0.57 to $56.50 and $0.50 to $21.50 were
outstanding during the three months ended March 31, 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.

Note 8. 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 revenues 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 license, 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 revenues or any
other related financial information by individual software product.

We evaluate the performance of our geographic regions based on revenues
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 revenues, gross margin, and long-lived assets.

Revenues are generally attributable to geographic areas based on the
country in which the customer is domiciled. For the period ended March 31,
2003 and 2002, no one customer accounted for more than 10% of total revenues.

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 as of and for the three months ended
March 31, 2003 and 2002 (in thousands):

|                                   |  |               |        |         |  |               |        |            |  |   |         | 
|---------------------------------- |  | ------------- | ------ | ------- |  | ------------- | ------ | ---------- |  | - | ------- | 
|                                   |  |               |        |         |  | Total Cost of |        | Long-Lived
|Three months ended March 31, 2003: |  | Total Revenue |        | Revenue |  | Assets       
|                                   |  |               |        |         |  |              
|                                   |  | $             |        |         |  | $             |        |            |  | $ |         | 
|North America                      |  |               | 40,925 |         |  |               | 12,136 |            |  |   | 136,091 | 
|EMEA                               |  |               | 20,963 |         |  |               | 5,465  |            |  |   | 1,825   | 
|Asia/Pacific                       |  |               | 4,502  |         |  |               | 1,424  |            |  |   | 509     | 
|Other                              |  |               | 647    |         |  |               | 90     |            |  |   |        | 
|                                   |  |               |        |         |  |               |        |            |  |   |         | 
|Total                              |  |               | 67,037 |         |  |               | 19,115 |            |  |   | 138,425 | 
|                                   |  |               |        |         |  |               |        |            |  |   |         | 

|                                   |  |               |        |         |  |               |        |            |  |   |        | 
|---------------------------------- |  | ------------- | ------ | ------- |  | ------------- | ------ | ---------- |  | - | ------ | 
|                                   |  |               |        |         |  | Total Cost of |        | Long-Lived
|Three months ended March 31, 2002: |  | Total Revenue |        | Revenue |  | Assets       
|                                   |  |               |        |         |  |              
|                                   |  | $             |        |         |  | $             |        |            |  | $ |        | 
|North America                      |  |               | 33,334 |         |  |               | 9,853  |            |  |   | 28,587 | 
|EMEA                               |  |               | 15,432 |         |  |               | 4,300  |            |  |   | 2,522  | 
|Asia/Pacific                       |  |               | 1,618  |         |  |               | 544    |            |  |   | 824    | 
|Other                              |  |               | 214    |         |  |               | 16     |            |  |   |       | 
|                                   |  |               |        |         |  |               |        |            |  |   |        | 
|Total                              |  |               | 50,598 |         |  |               | 14,713 |            |  |   | 31,933 | 
|                                   |  |               |        |         |  |               |        |            |  |   |        | 

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

Forward-Looking Statements

The following discussion contains forward-looking statements regarding 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.

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.

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, 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

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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  offered a tailored mix of core technology from Documentum
4i that could 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.

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 successfully 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, including
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 successfully 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 to
our 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

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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 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 and 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 and 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 that identifies the end-user, and all other revenue recognition criteria are met.
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.

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.

Warranty Reserves

We maintain reserves for costs associated with future product warranty
obligations. With the release of Documentum 5, and the anticipated future
introduction of Documentum 5 add-on modules, we may significantly increase the
reserve if the new products contain undetected errors, or bugs, or
performance problems, that are discovered only after the product is installed
and used by customers. A provision for estimated future costs relating to
warranty expense is recorded as cost of revenue when revenue is recorded.
Warranty costs are estimated based upon historical experience.

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

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operating expenses, an adjustment to the deferred tax asset would be charged to
income in the period such determination was made. A charge to paid-in capital
would result if the adjustment is related to stock compensation. If the
adjustment is related to any acquired companies, the charge would be to
goodwill.

Goodwill and Purchased Intangibles

Goodwill and purchased intangible assets are stated at cost less
accumulated depreciation. Goodwill represents the excess of costs over fair
value of assets of businesses acquired. We adopted the provisions of SFAS No.
142, Goodwill and Other Intangible Assets, as of January 1, 2002. 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 and more frequently if events and circumstances
indicate that the assets might be impaired in accordance with the provisions of
SFAS No. 142. An impairment loss is recognized to the extent that the carrying
amount exceeds the assets fair value. We perform our annual impairment test
in our third quarter.

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) and reviewed for impairment in accordance with SFAS No. 144, Accounting
for Impairment or Disposal of Long-Lived Assets.

Long-lived Assets, Excluding Goodwill

Our long-lived assets consist of property, plant and equipment and other
acquired intangibles, excluding goodwill. We periodically review our long-lived
assets for impairment in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. 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
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.

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Results of Operations

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

|                                    |                                       |                         |     |                    |     |      |    |    |     |  
|----------------------------------- | ------------------------------------- | ----------------------- | --- | ------------------ | --- | ---- | -- | -- | --- | -
|                                    |                                       |                         |     | Three Months Ended
|                                    |                                       |                         |     | March 31,         
|                                    |                                       |                         |     |                   
|                                    |                                       |                         |     | 2003               |     | 2002
|                                    |                                       |                         |     |                    |     |     
|Revenue:                            |                                       |                         |     |                    |     |      |    |   
|                                    | License                               |                         |     | 51                 | %   |      |    | 50 | %  
|                                    | Service                               |                         |     | 49                 | %   |      |    | 50 | %  
|                                    |                                       |                         |     |                    |     |      |    |    |    
|                                    |                                       | Total revenue           |     |                    | 100 | %    |    |    | 100 | %
|                                    |                                       |                         |     |                    |     |      |    |    |    
|Cost of revenue:                    |                                       |                         |     |                    |     |      |    |   
|                                    | License                               |                         |     | 7                  | %   |      |    | 4  | %  
|                                    | Service                               |                         |     | 22                 | %   |      |    | 25 | %  
|                                    |                                       |                         |     |                    |     |      |    |    |    
|                                    |                                       | Total cost of revenue   |     |                    | 29  | %    |    |    | 29  | %
|                                    |                                       |                         |     |                    |     |      |    |    |    
|Gross profit                        |                                       |                         | 71  | %                  |     |      | 71 | % 
|                                    |                                       |                         |     |                    |     |      |    |    |    
|Operating expense:                  |                                       |                         |     |                    |     |      |    |   
|                                    | Sales and marketing                   |                         |     | 42                 | %   |      |    | 47 | %  
|                                    | Research and development              |                         |     | 17                 | %   |      |    | 18 | %  
|                                    | General and administrative            |                         |     | 11                 | %   |      |    | 12 | %  
|                                    | Restructuring costs                   |                         |     | 18                 | %   |      |    |   |    
|                                    | Amortization of purchased intangibles |                         |     | 1                  | %   |      |    |   |    
|                                    |                                       |                         |     |                    |     |      |    |    |    
|                                    |                                       | Total operating expense |     |                    | 89  | %    |    |    | 77  | %
|                                    |                                       |                         |     |                    |     |      |    |    |    
|Loss from operations                |                                       |                         | (18 | %)                 |     |      | (6 | %)
|Interest income                     |                                       |                         | 2   | %                  |     |      | 1  | % 
|Interest expense                    |                                       |                         | (2  | %)                 |     |      |   |   
|Other expense, net                  |                                       |                         |    |                    |     |      |   |   
|                                    |                                       |                         |     |                    |     |      |    |    |    
|Loss before income taxes            |                                       |                         | (18 | %)                 |     |      | (5 | %)
|Benefit from income taxes           |                                       |                         | (11 | %)                 |     |      | (2 | %)
|                                    |                                       |                         |     |                    |     |      |    |    |    
|Net loss                            |                                       |                         | (7  | %)                 |     |      | (3 | %)
|                                    |                                       |                         |     |                    |     |      |    |    |    
|As a percentage of related revenue: |                                       |                         |     |                    |     |      |    |   
|Cost of license revenue             |                                       |                         | 14  | %                  |     |      | 8  | % 
|Cost of service revenue             |                                       |                         | 44  | %                  |     |      | 50 | % 

Revenue

During the three months ended March 31, 2003, we saw revenue increase 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 enterprise content
management (ECM) solutions 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

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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. During the most recent quarter,
we were also very successful in selling within the Asia Pacific region. Asia
Pacific accounted for 11% of license revenue in the three months ended March
31, 2003, which was up from the 6% of license revenue that the region
contributed in fiscal 2002. Despite a very challenging economic
environment, we had a very successful quarter domestically as the United States
accounted for 58% of license revenue, which was up from the 51% of license
revenue contributed domestically in all of fiscal 2002.

We continue to grow our customer list, as evidenced by the record number
of new customers that we added in the three-month period ended March 31, 2003.
The addition of 107 new customers brings our total customer count to more than
2,500. In addition, we closed five deals of over $1.0 million in total license
and service revenue in the current quarter and had a record number of
transactions  394. The results for these key indicators were all increases
over the comparable period ended March 31, 2002, in which we added 66 new
customers and recorded 215 transactions.

License Revenue

|                            |  |                    |      |         |  |        |      |   |  |  |    |  
|--------------------------- |  | ------------------ | ---- | ------- |  | ------ | ---- | - |  |  | -- | -
|                            |  | Three Months Ended |      |         |  |       
|                            |  | March 31,          |      |         |  |       
|                            |  |                    |      | Percent
|                            |  | 2003               |      | 2002    |  | Change
|                            |  |                    |      |         |  |       
|License revenue             |  | $                  | 34.4 |         |  | $      | 25.1 |   |  |  | 37 | %
|Percentage of total revenue |  |                    | 51.3 | %       |  |        | 49.6 | % |  |  |    |  

License revenue increased by $9.3 million, or 37%, for the three months
ended March 31, 2003 as compared to the same period a year ago. The increase in
license revenue in absolute dollars and as a percentage of total revenue was
due to an increase in the number of licenses sold to new customers and an
increase in the number of existing customers who purchased additional products.
The 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. We did not have any
sales to a single customer that accounted for greater than 10% of license
revenue for either of the three-month periods ended March 31, 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 42% and 44% of license revenue
for the three months ended March 31, 2003 and 2002, respectively. The decrease
in international revenue as a percentage of license revenue in the current
period as compared to a year ago was primarily due to a decrease in license
revenue in the EMEA region. Our EMEA region contributed 28% of license revenue
in the three months ended March 31, 2003, as compared to 36% in the same period
a year ago. This decrease in license revenue in EMEA as a percentage of total
license sales is a result of the increase in sales of our collaboration
offering in North America relating to the eRoom acquisition. The collaboration
offering was primarily sold in North America during the current
quarter and, as
a result, the incremental increase in license revenue in North America
contributed to the decline in international revenue as a percentage of

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total revenue. Partially offsetting the decrease in license revenue in EMEA as a
percentage of total license revenue was the increase in license revenue in Asia
Pacific mentioned previously.

Our customers include several of our suppliers 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 months ended March 31, 2003.
During the three months ended March 31, 2002, we recognized $1.0 million of
software license revenues from concurrent transactions.

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 |      |         |  |       
|                            |  | March 31,          |      |         |  |       
|                            |  |                    |      | Percent
|                            |  | 2003               |      | 2002    |  | Change
|                            |  |                    |      |         |  |       
|Service revenue             |  | $                  | 32.6 |         |  | $      | 25.5 |   |  |  | 28 | %
|Percentage of total revenue |  |                    | 48.7 | %       |  |        | 50.4 | % |  |  |    |  

Service revenue increased by $7.1 million, or 28%, for the three months ended
March 31, 2003, as compared to the same period a year ago. Service revenue
includes revenue from consulting, education, and maintenance and support.
Specifically, our maintenance revenue increased by $5.9 million, consulting
revenue increased by $1.0 million and education services increased by $0.2
million during the period ended March 31, 2003, as compared to the comparable
prior period. The increase in maintenance revenue was attributable to a larger
installed base of customers receiving ongoing maintenance and support services.
This larger customer base is a result of continued growth through new product
sales as well as acquisitions.

Variances in our license fees during a given quarter may impact our future
consulting and education service revenue since these revenues typically follow
license fee revenues. As a result, the increase in consulting and education
services revenue for the period ended March 31, 2003 is primarily due to larger
license revenues seen in the current period as well as in the fourth quarter of
fiscal 2002 as compared to the first quarter of 2002 and the fourth quarter of
fiscal 2001. The decrease of service revenue as a percentage of total revenue
was due to the increase in license revenue for the period ended March 31, 2003
as described above.

The continued growth of our consulting revenue depends in large part on
the growth of our software license revenues and customer deployment
methodologies, while the growth of our maintenance revenue depends on the
growth of our software license revenues coupled with the renewals of
maintenance agreements by our existing customer base. With the release of
Documentum 5 in the latter part of fiscal 2002, the new functionality acquired
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. Furthermore, we continue to expand our array of service
offerings through innovative on-line education courses.

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Cost of Revenue

Cost of License Revenue

|                              |  |                    |      |         |  |        |     |   |  |  |     |  
|----------------------------- |  | ------------------ | ---- | ------- |  | ------ | --- | - |  |  | --- | -
|                              |  | Three Months Ended |      |         |  |       
|                              |  | March 31,          |      |         |  |       
|                              |  |                    |      | Percent
|                              |  | 2003               |      | 2002    |  | Change
|                              |  |                    |      |         |  |       
|Cost of license revenue       |  | $                  | 4.8  |         |  | $      | 1.9 |   |  |  | 153 | %
|Percentage of license revenue |  |                    | 14.0 | %       |  |        | 7.6 | % |  |  |     |  

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, include both fixed fees and
variable fees.

Cost of license revenue increased by $2.9 million, or 153%, for the three
months ended March 31, 2003, as compared to the same period a year ago. The
increase in cost of license revenue for the three months ended March 31, 2003
in absolute dollars and as a percentage of license revenue was related to the
recognition of $2.8 million of amortization expense for our technology-related
identifiable purchased intangibles, which were acquired in the fourth quarter
of fiscal 2002. The remaining increase in absolute dollars was driven by an
increase in license revenue over the comparable period a year ago. Costs as a
percentage of the associated license revenue were down slightly, net of the
effect of the additional amortization costs. This decreased percentage was due
to lower royalty costs resulting from fewer sales of third-party products as a
percentage of total product sales. 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

|                              |  |                    |      |         |  |        |      |   |  |  |    |  
|----------------------------- |  | ------------------ | ---- | ------- |  | ------ | ---- | - |  |  | -- | -
|                              |  | Three Months Ended |      |         |  |       
|                              |  | March 31,          |      |         |  |       
|                              |  |                    |      | Percent
|                              |  | 2003               |      | 2002    |  | Change
|                              |  |                    |      |         |  |       
|Cost of service revenue       |  | $                  | 14.3 |         |  | $      | 12.9 |   |  |  | 11 | %
|Percentage of service revenue |  |                    | 43.9 | %       |  |        | 50.6 | % |  |  |    |  

Cost of service revenue consists primarily of 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 by $1.4 million, or 11%, in the three months
ended March 31, 2003, as compared to the same period a year ago. The increase
in absolute dollars was a result of the increase in service revenue described
above. The decrease as a percentage of the associated service revenue was
driven by a reduction in outsourced consulting fees as we have staffed a
majority of our consulting engagements with internal resources, which tend to
be more cost-effective than third party providers. Additionally, we recognized
a benefit of $0.7 million in cost of service revenue in the three months ended
March 31, 2003 as a result of a renegotiation of a maintenance royalty contract
with an existing vendor.

As we continue to focus on margin improvement, we are constantly looking
at vendor contracts and possible renegotiation opportunities. Those
renegotiation efforts may result in cost benefits to future quarters.

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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 |      |         |  |       
|                            |  | March 31,          |      |         |  |       
|                            |  |                    |      | Percent
|                            |  | 2003               |      | 2002    |  | Change
|                            |  |                    |      |         |  |       
|Sales and marketing expense |  | $                  | 28.2 |         |  | $      | 23.8 |   |  |  | 18 | %
|Percentage of total revenue |  |                    | 42.1 | %       |  |        | 47.0 | % |  |  |    |  

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 corporate insurance, corporate taxes, facilities,
telephone and others.

Sales and marketing expenses increased by $4.4 million, or 18%, for the
three months ended March 31, 2003, as compared to the same period last year.
The increase in absolute dollars was driven by an approximate $2.4 million
increase in salaries and benefits resulting from a full three months of
incremental headcount related to the acquisitions of eRoom and TrueArc in
December of 2002. As a result of these acquisitions, sales and marketing
headcount increased by 102 employees. Additionally, we incurred $1.7 million of
increased commissions related to an increase in license revenue.

The decrease as a percentage of total revenue in the three months ended
March 31, 2003 over the comparable period 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 license revenue over the comparable
period.

Sales and marketing expense will increase in absolute dollar amounts as we
expand our sales and marketing efforts, however, sales and marketing costs are
expected to continue to decrease as a percentage of total revenue.

Research and Development

|                                  |  |                    |      |         |  |        |      |   |  |  |    |  
|--------------------------------- |  | ------------------ | ---- | ------- |  | ------ | ---- | - |  |  | -- | -
|                                  |  | Three Months Ended |      |         |  |       
|                                  |  | March 31,          |      |         |  |       
|                                  |  |                    |      | Percent
|                                  |  | 2003               |      | 2002    |  | Change
|                                  |  |                    |      |         |  |       
|Research and development expenses |  | $                  | 11.5 |         |  | $      | 9.0  |   |  |  | 28 | %
|Percentage of total revenue       |  |                    | 17.2 | %       |  |        | 17.8 | % |  |  |    |  

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 corporate insurance, corporate taxes, facilities, telephone and
others.

Research and development expenses increased by $2.5 million, or 28%, in
the three months ended March 31, 2003, as compared to the same period in 2002.
The increase was primarily due to an approximate $1.7 million increase in
salaries and benefits resulting from a full three months of incremental
headcount related to the acquisitions of eRoom and TrueArc in December of 2002.
As a result of these acquisitions, research and development headcount increased
by 67 employees.

The decrease in research and developments costs as a percentage of total
revenue for the three months ended March 31, 2003, as compared to the same
period in 2002, is due to an increase in worldwide revenues.

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Based on our research and development process, costs incurred between the
establishment of technological feasibility and general release of a product
have been insignificant and therefore all costs relating to research and
development are expensed as incurred. We believe that continued investment in
research and development is a critical factor in maintaining our competitive
position and we expect research and development costs to increase in absolute
dollar amount, however, we also believe that research and development costs
will decrease as a percentage of total revenue.

General and Administrative

|                                    |  |                    |      |         |  |        |      |   |  |  |    |  
|----------------------------------- |  | ------------------ | ---- | ------- |  | ------ | ---- | - |  |  | -- | -
|                                    |  | Three Months Ended |      |         |  |       
|                                    |  | March 31,          |      |         |  |       
|                                    |  |                    |      | Percent
|                                    |  | 2003               |      | 2002    |  | Change
|                                    |  |                    |      |         |  |       
|General and administrative expenses |  | $                  | 7.4  |         |  | $      | 5.9  |   |  |  | 25 | %
|Percentage of total revenue         |  |                    | 11.0 | %       |  |        | 11.7 | % |  |  |    |  

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 corporate insurance, corporate taxes, facilities, telephone and
others.

General and administrative expenses increased by $1.5 million, or 25%, for
the three months ended March 31, 2003, as compared to the same period in 2002.
The increase was primarily due to an approximate $0.7 million increase in
salaries and benefits resulting from a full three months of incremental
headcount related to the acquisitions of eRoom and TrueArc in December of 2002.
As a result of these acquisitions, general and administrative headcount
increased by 22 employees.

The decrease in general and administrative costs as a percentage of total
revenue for the three months ended March 31, 2003, as compared to the same
period in 2002, is due to an increase in worldwide revenues.

We expect general and administrative expenses to increase in terms of
absolute dollar amount in the future, however, these costs are expected to
continue to decrease as a percentage of total 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 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 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.

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The following table details our restructuring activity executed in the
three months ended March 31, 2003.

|                                                  |  |           |       |         |  |                |        |   |  |   |        |  
|------------------------------------------------- |  | --------- | ----- | ------- |  | -------------- | ------ | - |  | - | ------ | -
|                                                  |  | Severance |       |         |  |                |        |   |  |  
|                                                  |  | and       |       | Other   |  |                |        |  
|                                                  |  | Benefits  |       | Charges |  | Total         
|                                                  |  |           |       |         |  |               
|                                                  |  |           |       |         |  | (in thousands) |        |   |  |  
|For the three months ended March 31, 2003:        |  |           |       |         |  |                |        |   |  |   |        |  
|Total charge to operating expense                 |  |           | 1,245 |         |  |                | 11,020 |   |  |   | 12,265 |  
|Cash paid                                         |  |           | (911  | )       |  |                | (1,093 | ) |  |   | (2,004 | )
|                                                  |  |           |       |         |  |                |        |   |  |   |        |  
|Restructuring liability balance at March 31, 2003 |  | $         | 334   |         |  | $              | 9,927  |   |  | $ | 10,261 |  
|                                                  |  |           |       |         |  |                |        |   |  |   |        |  

The remaining reserve balance of $10.3 million consists of $2.8 million of
current liabilities to be paid out during fiscal 2003 and in the first quarter
of fiscal 2004 and $7.5 million of long-term liabilities related to the fair
value of remaining lease payments on excess facilities, net of sublease income,
to be paid out through fiscal 2007.

In addition to the restructuring activity described above, our remaining
restructuring accrual of approximately $0.6 million for restructuring
activities in 2002 and 2001 was reduced by approximately $0.3 million as a
result of settling certain severance and benefit obligations for amounts less
than originally estimated. The remaining restructuring accrual relating to our
restructuring activity in fiscal 2001 and 2002 of approximately $0.3 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 Acquired Intangibles

We recorded amortization of $0.6 million and $0.1 million in three months
ended March 31, 2003 and 2002, respectively, which is included in operating
expenses and relates to the value of non-technology-related assets, such as
contracts and non-compete agreements. These assets were acquired in connection
with the eRoom, TrueArc and other previously completed acquisitions.

A total of $3.4 million and $0.2 million of amortization expense was
recorded in the three months ended March 31, 2003 and 2002, respectively. The
remaining $2.8 million and $0.1 million of amortization expense recorded in the
three months ended March 31, 2003 and 2002, respectively, was related to the
amortization of technology-related identifiable purchased intangibles, such as
developed technology, and was recognized in cost of license revenue.

Interest income

Interest income consists primarily of interest earned on our cash, cash
equivalents, short-term investments and long-term investments. Interest income
increased by $0.7 million, or 117%, to $1.3 million for the three months ended
March 31, 2003, as compared to $0.6 million for the same period in 2002. The
increase was due to an improved cash position over the comparable period. We
had total cash and marketable securities of approximately $262.8 million at
March 31, 2003, as compared to total cash, marketable securities and long-term
investments of approximately $104.2 million at March 31, 2002. The improved
cash position was due primarily to proceeds from a $125 million convertible
debt offering in April of 2002.

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 in the three months ended March 31, 2003 as a result of the obligations
related to the outstanding convertible debt, which was issued in April of 2002.

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Other expense, net

Other expense, net, consists primarily of items such as foreign exchange
gains and losses and losses on sale of fixed assets. Other expense, net, was
$0.1 million for the three months ended March 31, 2002, virtually unchanged
from the comparable period in 2002. The expense of $0.1 million in both periods
presented was a result of foreign exchange losses in connection with our
various hedge activities.

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 engaged in
hedging activities as the exposure to currency fluctuations has been
significant. In the future, as we expand our international operations, we may
have an increased amount of non-U.S. dollar denominated contracts.

Income taxes

Income tax benefit for the interim periods is based on estimated annual
income tax rates. Our effective tax rates for the three months ended March 31,
2003 and 2002 were 59% and 30%, respectively. The increase in the tax rate is 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
current period. The estimated annual effective tax rate can 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 receiving net
proceeds of approximately $31 million.

On April 5, 2002, we sold $125 million (the face value) in senior
convertible notes that mature on April 1, 2007 (the Notes). The Notes bear
interest at a rate of 4.5% per annum. 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 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 of interest expense, which
included amortization of debt issuance costs, for the three months ended March
31, 2003. As of March 31, 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 million, and the indebtedness is not
discharged, or the default is not cured, waived or rescinded within 30 days
after notice is provided in accordance with the terms of the indenture. If any
of these events of default occurs, either the trustee or the holders of at
least 25% of the outstanding notes may declare the principal amount of the
Notes to be due and payable. In addition, an event of bankruptcy, insolvency or
reorganization (involving us or any of our significant subsidiaries) will
constitute an event of default under the indenture and, in that case, the
principal amount of the Notes will automatically become due and payable. To the
extent 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 March 31, 2003.

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At March 31, 2003, our principal sources of liquidity consisted of
approximately $262.8 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 $3.4 million and
$8.0 million in the three months ended March 31, 2003 and 2002, respectively.
The approximate $3.4 million of cash provided by operations in the three months
ended March 31, 2003 was primarily due to net non-cash related expenses of
approximately $8.5 million, offset by our net loss of approximately $5.0
million and a net decrease in operating assets and liabilities of approximately
$0.1 million. The following notable financial statement changes that impact our
cash and liquidity were noted on the balance sheet as of March 31, 2003:



| |  |  | Accrued liabilities decreased by approximately $28.5 million in the
three months ended March 31, 2003 due to the payment of obligations
assumed as a result of our 2002 acquisition activity in the amount of
approximately $12.4 million, a decrease in taxes payable of
approximately $9.2 million, a decrease in accrued commissions of
approximately $3.5 million and various other net decreases of
approximately $3.4 million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Deferred revenue increased during the three months ended March 31,
2003 by approximately $10.8 million as a result of growth in maintenance
revenue from a larger installed base of customers receiving ongoing
maintenance and support services. This larger customer 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 March 31, 2003, however, this change did not have an immediate
impact on our cash or liquidity:



| |  |  | Other long-term liabilities increased by approximately $7.5 million
as result of the accrual of long-term lease obligations related to
restructuring activity conducted in the three months ended March 31,
2003.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The approximate $8.0 million of cash provided by operations in the three
months ended March 31, 2002 was driven by an increase in operating assets and
liabilities of approximately $5.0 million and net non-cash related expenses of
approximately $4.7 million, offset by our net loss of approximately $1.7
million.

Cash used in investing activities was approximately $2.9 million and $9.6
million in the three months ended March 31, 2003 and 2002, respectively. The
approximate $2.9 million of cash used in investing activities during the three
months ended March 31, 2003 was primarily related to the net purchase of
marketable securities of approximately $1.7 million and purchases of property
and equipment of approximately $1.2 million. The approximate $9.6 million of
cash used in investing activities in the three months ended March 31, 2002 was
primarily related to the net purchase of marketable securities of approximately
$7.0 million, purchases of property and equipment of approximately $1.5 million
and approximately $1.1 million used in acquisition activity.

Cash provided by financing activities was approximately $7.2 million and
$6.4 million in the three months ended March 31, 2003 and 2002, respectively.
Cash provided by financing activities in both periods presented 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.

At March 31, 2003, we had net working capital of approximately $234.4
million, as compared to approximately $217.9 million at December 31, 2002. The
working capital increase was driven by a decrease in accrued liabilities of
approximately $28.5 million and increases to cash and cash equivalents of
approximately $8.1 million and marketable securities of approximately $1.6
million, offset by increases in deferred revenue of approximately $10.8 million
and accounts payable of approximately $1.1 million and decreases in accounts
receivable of approximately $7.9 million and other current assets of
approximately $1.9 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

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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. 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 has been discounted to its net
present value and is accrued as a result of the restructuring charge that we
recognized in the three month period ended March 31, 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.

We have made and may continue to make significant capital purchases
related to leasehold improvements and office furniture for new facilities. We
currently have no other significant capital spending or purchase commitments
other than normal purchase commitments and commitments under facilities leases.

The following summarizes our contractual obligations at March 31, 2003,
and the effect such obligations are expected to have on our liquidity and cash
flow in future periods.

|                                                 |  |                        |         |                  |  |           |        |           |  |               |        |  |  |   |         |  |  |   |       | 
|------------------------------------------------ |  | ---------------------- | ------- | ---------------- |  | --------- | ------ | --------- |  | ------------- | ------ |  |  | - | ------- |  |  | - | ----- | 
|(in thousands)                                   |  | 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       |  |                        | 50,363  |                  |  |           | 15,466 |           |  |               | 22,613 |  |  |   | 5,755   |  |  |   | 6,529 | 
|Convertible debt interest obligation             |  |                        | 22,500  |                  |  |           | 5,625  |           |  |               | 11,250 |  |  |   | 5,625   |  |  |   |      | 
|Liabilities related to excess facilities         |  |                        | 10,153  |                  |  |           | 2,591  |           |  |               | 4,773  |  |  |   | 2,789   |  |  |   |      | 
|Unconditional purchase obligations               |  |                        | 519     |                  |  |           | 519    |           |  |               |       |  |  |   |        |  |  |   |      | 
|Severance liability related to eRoom acquisition |  |                        | 90      |                  |  |           | 90     |           |  |               |       |  |  |   |        |  |  |   |      | 
|Capital lease obligations                        |  |                        | 37      |                  |  |           | 37     |           |  |               |       |  |  |   |        |  |  |   |      | 
|                                                 |  |                        |         |                  |  |           |        |           |  |               |        |  |  |   |         |  |  |   |       | 
|Total Contractual Cash Obligations               |  | $                      | 208,662 |                  |  | $         | 24,328 |           |  | $             | 38,636 |  |  | $ | 139,169 |  |  | $ | 6,529 | 
|                                                 |  |                        |         |                  |  |           |        |           |  |               |        |  |  |   |         |  |  |   |       | 

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.

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RISK FACTORS

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 a loss per share of $0.10, $0.04 and $0.40 in
the three-month periods ended March 31, 2003, 2002 and 2001, respectively. 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 United States, Europe and Asia/Pacific have experienced a general
decline in economic conditions over the past eight quarters, leading to reduced
demand for goods and services, including those that we offer.Each of our
customers makes a discretionary decision to implement our products that is
subject to its resources and budget cycles. Many of our customers have
experienced budgeting constraints, causing them to defer or cancel projects.
While we experienced a slight increase in demand for our products throughout
fiscal year 2002 and in the three months ended March 31, 2003, demand for our
products may decrease again. Decreased demand for our products would result in
decreased revenues, which could harm our operating results, causing the price
of our common stock to fall.

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

You may have no effective remedy against Arthur Andersen LLP in connection
with a material misstatement or omission in our financial statements.Our
Consolidated Financial Statements for each of the three years 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 March 31, 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 March 31, 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 March 31, 2003, we had
cash and cash equivalents of $120.2 million and marketable securities of $142.6
million. We intend to fulfill our debt service obligations both from cash
generated by our operations and from our existing cash and investments.

Our indebtedness could have the following negative consequences:



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

Our sales and implementation cycles are long and difficult to predict.
The time that it takes to sell and implement our products is usually long and
difficult to accurately predict. Our prospective customers usually involve
their entire enterprise in deciding whether to buy our products, which is time
consuming. This lengthy decision making process requires us to engage in a
lengthy sales cycle, which is usually between three and nine months. As

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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 revenues may decrease. Demand for this product family could decline
for a number of reasons, including the introduction of new products by our
competitors, general business and economic conditions and changing industry
standards. If our revenues decrease, our operating results could be lower than
expected and our common stock price may fall.

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

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

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
activities of industry participants. As a result of this competition, we face
competitive pricing pressures in many of our deals, particularly with respect
to our web content management products.

We encounter direct competition from a number of public and private
companies that offer a variety of products and services addressing this market.
These companies include FileNet, OpenText, Interwoven, Stellent, IBM and

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Vignette. Additionally, several other enterprise software vendors, such as
Oracle and Microsoft, 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 Oracle, Microsoft, IBM 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 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 require the organizations to continue to work with
us. Revenue from transactions that involve indirect channel partners comprises
a significant portion of our total license revenue. 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

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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 London, Paris, Madrid, Milan, Munich, Tokyo,
Melbourne, Hong Kong, Seoul, Singapore and Stockholm, among others. We operate
our international technical support operations in the London, Munich and
Melbourne offices. We have expanded, and intend to continue expanding, our
international operations and enter additional international markets. This will
require significant management attention and financial resources that could
adversely affect our operating margins and earnings. Despite the planned
increase in our international presence, we may not be able to maintain or
increase international market demand for our products. If we do not, then our
international sales will be limited, and operating results could suffer. Our
international operations are subject to a variety of risks, including:



| |  |  | foreign currency fluctuations;                                                                               
| | - |  | -------------------------------------------------------------------------------------------------------------
|
| |  |  | economic or political instability;                                                                           
|
| |  |  | 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;                      

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

From time to time, third parties have explored potential infringement
claims against us and we have resolved these potential 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 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.

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We face risks associated with product defects and incompatibilities.
Software products frequently contain errors or failures, especially when first
introduced or when new versions are released. Also, new products or
enhancements may contain undetected errors, or bugs, or performance problems
that, despite testing, are
discovered only after a product has been installed and used by customers.
Errors or performance problems could cause delays in product introduction and
shipments or require design modifications, either of which could lead to a loss
in or delay in recognition of revenue. In the past, we have had delays of less
than six months in the shipment of products as a result of errors or
performance problems. However, we generally do not book orders or recognize
revenue until a product is available for shipment and we do not believe that we
have lost orders as a result of any shipping delays.

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

The costs of software development can be high, and we may not realize
revenues from our development efforts for a substantial period of time.
Introducing new products that rapidly address changing market demands requires
a continued high level of investment in research and development. Our product
development and engineering expenses were $11.5 million, or 17% of total
revenue, for the three months ended March 31, 2003 and $38.0 million, or 17% of
total revenue, for the fiscal year ended December 31, 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.

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, we
recently 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;                                                         
|
| |  |  | 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 

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| |  |  | our due diligence process may fail to identify significant issues
with product quality, product architecture and legal contingencies,
among other matters.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

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

Our stock price is extremely volatile.The trading price of our common
stock is subject to significant fluctuations in response to variations in
quarterly operating results, the gain or loss of significant orders, changes in
earning estimates by analysts, announcements of technological innovations or
new products by us or our competitors, general conditions in the software and
computer industries and other factors. During the three months ended March 31,
2003, our stock had a high sales price of $18.84 and a low sales price of
$12.00, as reported on the Nasdaq National Market. During the fiscal year ended
December 31, 2002, our stock had a high sales price of $27.18 and a low sales
price of $8.67. In addition, the stock market in general has experienced
extreme price and volume fluctuations that have affected the market price for
many companies in industries similar or related to ours and which have been
unrelated to the operating performance of these companies. These market
fluctuations may decrease the market price of our common stock.

Some provisions in our certificate of incorporation and our bylaws could
delay or prevent a change in control.Our Board of Directors is authorized to
issue up to 5,000,000 shares of preferred stock and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further approval by our stockholders. The preferred
stock could be issued with voting, liquidation, dividend and other rights
superior to those of our common stock. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The issuance
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could make it more
difficult for a third party to acquire a majority of our outstanding voting
stock.

We have a classified Board of Directors under our Amended and Restated
Certificate of Incorporation, which means that our Board is divided into three
staggered classes, each of which is elected to the Board for a three year
period. We have also implemented a Share Purchase Plan, or a Rights Plan,
under which all stockholders of record as of February 24, 1999 received rights
to purchase shares of a new series of preferred stock. The rights are

exercisable only if a person or group acquires 20% or more of our common stock
or announces a tender offer for 20% or more of the common stock. These
provisions and certain other provisions of our Amended and Restated Certificate
of Incorporation and certain provisions of our Amended and Restated Bylaws and
of Delaware law, could delay or make more difficult a merger, tender offer or
proxy contest by increasing the cost of effecting these types of transactions,
which could have an adverse impact on stockholders who might want to vote in
favor of a merger or participate in a tender offer.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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 United States. 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 relatively short maturities and also maintaining sufficient cash
and cash equivalent balances such that we are typically able to hold the
investments to maturity. The primary objective of 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
March 31, 2003:

|                                  |  |                        |        |      |  |      |        |      |  |       |        |   |  |   |       |   |  |   |         | 
|--------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ----- | ------ | - |  | - | ----- | - |  | - | ------- | 
|(in thousands)                    |  | Expected Maturity Date
|March 31. 2003                    |  | 2003                   |        | 2004 |  | 2005 |        | 2006 |  | Total
|                                  |  |                        |        |      |  |      |        |      |  |      
|U.S. Treasury & Agency Securities |  | $                      | 17,036 |      |  | $    | 30,203 |      |  | $     | 17,731 |   |  | $ | 9,651 |   |  | $ | 74,621  | 
|Wtd. Avg. Yield                   |  |                        | 2.38   | %    |  |      | 3.10   | %    |  |       | 3.79   | % |  |   | 2.43  | % |  |   |         | 
|Corporate Bonds                   |  |                        | 35,105 |      |  |      | 19,468 |      |  |       | 3,331  |   |  |   |      |   |  |   | 57,904  | 
|Wtd. Avg. Yield                   |  |                        | 2.56   | %    |  |      | 2.69   | %    |  |       | 2.33   | % |  |   |      |   |  |   |         | 
|Municipals (Local and Government) |  |                        |       |      |  |      | 3,145  |      |  |       | 1,010  |   |  |   |      |   |  |   | 4,155   | 
|Wtd. Avg. Yield                   |  |                        |       |      |  |      | 3.09   | %    |  |       | 2.10   | % |  |   |      |   |  |   |         | 
|Certificates of Deposit           |  |                        | 3,042  |      |  |      |       |      |  |       |       |   |  |   |      |   |  |   | 3,042   | 
|Wtd. Avg. Yield                   |  |                        | 3.25   | %    |  |      |       |      |  |       |       |   |  |   |      |   |  |   |         | 
|Auction Rate Securities           |  |                        | 2,925  |      |  |      |       |      |  |       |       |   |  |   |      |   |  |   | 2,925   | 
|Wtd. Avg. Yield                   |  |                        | 1.33   | %    |  |      |       |      |  |       |       |   |  |   |      |   |  |   |         | 
|Total                             |  |                        |        |      |  |      |        |      |  |       |        |   |  |   |       |   |  | $ | 142,647 | 

As of March 31, 2003, we had an investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of $142.6
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 March 31, 2003, the fair value of the portfolio
would decline by $1.8 million.

The fair value of our convertible subordinated debenture fluctuates based
upon changes in the price of our common stock, changes in interest rates and
changes in our credit worthiness. The fair market value of the convertible
subordinated debenture as of April 24, 2003 was $129.5 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 subordinated
debenture because the interest rate is fixed and the convertible subordinated
debenture will be settled at its fair value.

Foreign Exchange Risk

Our revenue originating outside the United States was 41% and 35% for the
three months ended March 31, 2003 and 2002, respectively. 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

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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 recorded foreign currency losses of approximately $0.1
million for each of the three-month periods ended March 31, 2003 and 2002.

Our exposure to foreign exchange fluctuations arise from these
intercompany accounts, receivables and payables and from transactions initiated
in the United States 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 United States that are denominated
in foreign currency. The principal foreign currencies hedged are the British
pound and the Euro using foreign currency forward contracts ranging in periods
from one to nine months. 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.

The table below provides information as of March 31, 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
|                                        |  | Notional       |       | average      
|                                        |  | principal      |       | contract rate
|                                        |  | (in thousands) |       |               |  |         
|Forward Contracts:                      |  |                |       |               |  |          |        | 
|Euro                                    |  | $              | 1,624 |               |  |          | 1.09   | 
|Japanese yen                            |  |                | 507   |               |  |          | 118.42 | 
|British pound sterling                  |  |                | 525   |               |  |          | 1.58   | 
|                                        |  |                |       |               |  |          |        | 
|                                        |  | $              | 2,656 |               |  |          |        | 
|                                        |  |                |       |               |  |          |        | 
|Estimated fair value at March 31, 2003: |  |                | (25   | )             |  |          |        | 
|                                        |  |                |       |               |  |          |        | 




ITEM 4. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures.Based on our
evaluation as of a date within 90 days of the filing date of this quarterly
report on Form 10-Q, our principal executive officer and principal financial
officer have concluded that 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)) 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 potential future
conditions, regardless of how remote.

(b)  Changes in Internal Controls.There were no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation. There were no significant
deficiencies or material weaknesses, and therefore there were no corrective
actions taken.

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PART II.  OTHER INFORMATION




ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

| |  |     |  |                                                                                                                                                                                                                                                                                                                                                           
| |  | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (a) |  | Exhibits:                                                                                                                                                                                                                                                                                                                                                 
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                           
| |  |     |  | Exhibit 99.1       Certification of Chief Executive Officer and Chief
Financial Officer                                                                                                                                                                                                                                                                   
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                           
| |  | (b) |  | Reports on Form 8-K:                                                                                                                                                                                                                                                                                                                                      
| |  |     |  |                                                                                                                                                                                                                                                                                                                                                           
| |  |     |  | On February 24, 2003 we filed a Form 8-K/A, amending the Form 8-K
we filed on December 20, 2002 relating to our acquisition of
eRoom Technology, Inc., to include Item 7(a)(1) audited
financial statements of the business acquired, Item 7(a)(2)
unaudited financial statements of the business acquired, and Item
7(b) pro forma financial information.




SIGNATURE

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report on Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized, on this 15th day of May, 2003.

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

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CERTIFICATIONS

I, David DeWalt, certify that:

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

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date); and



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing
the equivalent functions):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal controls;
and



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and

6. The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

| |     |                                                                                
| | --- | -------------------------------------------------------------------------------
| | By: | /s/ David DeWalt                                                               
| |     |                                                                                
| |     | David DeWaltPresident and Chief Executive Officer
(Principal Executive Officer)

Date: May 15, 2003

39



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##### Table of Contents



I, Mark Garrett, certify that:

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

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the Evaluation Date); and



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrants other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing
the equivalent functions):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal controls;
and
|
| | b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

| |     |                                                                                                
| | --- | -----------------------------------------------------------------------------------------------
| | By: | /s/ Mark Garrett                                                                               
| |     |                                                                                                
| |     | Mark GarrettExecutive Vice President and
Chief Financial Officer
(Principal Accounting Officer)

Date: May 15, 2003

40



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##### Table of Contents






EXHIBIT INDEX

|             |  |                                                                     
|------------ |  | --------------------------------------------------------------------
|Exhibit      |  |                                                                     
|Number       |  | Description                                                         
|             |  |                                                                     
|Exhibit 99.1 |  | Certification of Chief Executive Officer and Chief
Financial Officer

41