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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 Quarter Ended September 27, 2002

[   ] 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 000-31859

CRYSTAL DECISIONS, INC.
(Exact name of registrant as specified in its charter)

Telephone: (650) 838-7410
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common stock, par value of $0.001

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

	Yes [X]      No [   ]

On November 1, 2002, 75,952,097 shares of the registrant’s common stock, $0.001 par value per share, were issued and outstanding.

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CRYSTAL DECISIONS, INC.

INDEX

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Item 1. Financial Statements (Unaudited)

CRYSTAL DECISIONS, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

See accompanying notes.

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CRYSTAL DECISIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

See accompanying notes.

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CRYSTAL DECISIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

See accompanying notes.

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CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

1. Description of Business and Basis of Presentation

     Crystal Decisions, Inc. (“Crystal Decisions” or the “Company”) is an information management company, which is incorporated in Delaware and is headquartered in Palo Alto, California, that creates software products and provides services for reporting, analysis and information delivery. Crystal Decisions develops, markets and supports an integrated, scalable suite of enterprise software products that enable businesses to access disparate data sources and distribute secure, interactive reports and analysis across and beyond these organizations. The Company’s products, commonly referred to as business intelligence software, provide employees, partners and customers with access to the information they need to make better business decisions and ultimately reduce costs and increase productivity.

     Crystal Decisions is a majority owned subsidiary of Seagate Software (Cayman) Holdings, a Cayman Islands limited corporation, which is a wholly owned subsidiary of New SAC, a Cayman Islands limited corporation (“New SAC”), whose predecessor was Seagate Technology, Inc. (“Seagate Technology”).

     The unaudited consolidated financial statements of Crystal Decisions have been prepared by the Company, in accordance with United States (“U.S.”) generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited interim financial statements should be read in conjunction with the annual audited consolidated and combined financial statements and related notes of the Company in the Annual Report on Form 10-K for the year ended June 28, 2002 as filed with the SEC on September 26, 2002.

     The consolidated financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for the fair presentation of the consolidated financial position, results of operations and cash flows. The results of operations for the three months ended September 27, 2002 are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 27, 2003 or future operating periods. All information is stated in U.S. dollars unless otherwise stated.

     Crystal Decisions operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to the end of June. Accordingly, fiscal 2002 ended on June 28, 2002 and comprised 52 weeks. Fiscal 2003 will be a 52-week year and will end on June 27, 2003. The three-month periods ended September 27, 2002 and September 28, 2001 each comprised 13 weeks of activity. Certain comparative period figures have been reclassified to conform to the current basis of presentation. Such reclassifications had no effect on net income as previously reported.

2. Change in Control of Crystal Decisions, Inc.

     At the closing of the transactions under the terms of a stock purchase agreement, New SAC, through Seagate Software (Cayman) Holdings, acquired 75,001,000 shares, or 99.7%, of Crystal Decisions’ outstanding common stock at November 22, 2000. This transaction is referred to hereafter as the New SAC Transaction.

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CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

     The New SAC Transaction constituted a purchase transaction of Seagate Technology and resulted in a change in control of Crystal Decisions. Under rules and regulations promulgated by the SEC, because more than 95% of Crystal Decisions was acquired on November 22, 2000 and a change of ownership occurred, Crystal Decisions restated all its assets and liabilities in the financial statements as of November 22, 2000 on a “push down” accounting basis. Under purchase accounting rules, the net purchase price paid by New SAC was allocated to the assets and liabilities of Seagate Technology and its subsidiaries, including Crystal Decisions, based on their fair values at the date of the closing of the New SAC Transaction.

     The following summarizes the impact of push down accounting, resulting from the New SAC Transaction, on the Company’s financial statements specifically related to results for the three months ended September 27, 2002 and September 28, 2001:

•		Revenues. Deferred revenue was revalued at November 22, 2000 and was reduced by $1.3 million and revenues were reduced on a declining basis during the 12 months following the New SAC Transaction. Consequently, revenues were approximately $103,000 lower for the three months ended September 28, 2001 than they would have been had the push down adjustments not occurred. There was no impact during the three months ended September 27, 2002.
•		Depreciation. As a result of the push down accounting, the long-lived tangible assets were reduced by $4.3 million on November 22, 2000. Consequently, depreciation expense recorded was approximately $270,000 and $463,000 less for the three months ended September 27, 2002 and September 28, 2001, respectively, than would have been recorded had the push down adjustments not occurred.
•		Amortization. Additional amortization expense of approximately $1.4 million for the three months ended September 28, 2001 was recorded resulting from the incremental fair value of intangible assets pushed down to the Company’s consolidated financial statements on November 22, 2000. As a result of the application of SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”), the net carrying values of the intangible assets pushed down to Crystal Decisions’ consolidated financial statements were reduced to zero at June 28, 2002 by a charge against additional paid-in capital on the statement of stockholders’ equity. Therefore, commencing in the first quarter of fiscal 2003, there was no amortization charged to the Company’s statement of operations related to intangible assets.

3. New Accounting Policies

     In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets.” Crystal Decisions adopted SFAS 142 effective June 29, 2002. Under SFAS 142, goodwill and indefinite life intangible assets are no longer amortized but are reviewed annually for impairment (or more frequently if impairment indicators arise). Separate intangible assets that are deemed to have definite lives continue to be amortized over their estimated useful lives. There was no goodwill or remaining intangible assets on the consolidated balance sheet as at June 28, 2002. Therefore, there was no amortization relating to developed technologies, a definite life intangible asset, for the three months ended September 27, 2002. Under SFAS 142, assembled workforce is not considered to be an intangible asset and, as such, is no longer amortized on adoption. The adoption did not have a material impact on the Company’s financial position or results of operations.

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CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

     Had the Company been accounting for its intangible assets under SFAS 142 for all periods presented, the Company’s net income and net income per share would have been as follows (in thousands, except per share amounts):

     In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). Crystal Decisions adopted SFAS 144 effective June 29, 2002. SFAS 144 supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” (“SFAS 121”). SFAS 144 retains the requirements of SFAS 121 to (a) recognize an impairment loss if the carrying amount of a long- lived asset is not recoverable from its undiscounted cash flows, and (b) measure an impairment loss as the difference between the carrying amount and the fair value of the asset. SFAS 144 removes goodwill from its scope. Upon adoption, the Company did not have any long-lived assets that were impaired. The adoption did not have a material impact on the Company’s financial position or results of operations.

4. Revenue Recognition

     Licensing revenues are derived from sales of software licenses. Maintenance, support and services revenues consist of technical support, training, consulting and maintenance.

     Crystal Decisions recognizes revenues in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended by SOP 98-4 “Deferral of the Effective Date of a Provision of SOP 97-2” and by SOP 98-9 “Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions.” These amendments deferred and then clarified, respectively, the specification of what is considered vendor specific objective evidence (“VSOE”) of fair value for the various elements in a multiple-element arrangement.

     SOP 97-2 requires that the total arrangement fee from software arrangements that include rights to multiple software products, post contract customer support and/or other services be allocated to each element of the arrangement based on their relative fair values. Under SOP 97-2, the determination of fair value is based on VSOE. When products are included in multiple-element arrangements, Crystal Decisions applies the residual method of accounting as specified in SOP 98-9 such that the total fair value of the undelivered elements as indicated by VSOE, is deferred and subsequently recognized in accordance with SOP 97-2 and the difference between the total arrangement fee and the amount deferred for the undelivered elements is accounted for as revenue related to the delivered elements.

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CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

     Some OEM arrangements contain end-user maintenance elements for which VSOE has not been established, as sufficient evidence of consistent pricing and renewal rates are not present. In such arrangements, Crystal Decisions recognizes the arrangement fee ratably over the maintenance period in accordance with the provisions set forth in SOP 97-2.

     Crystal Decisions generally recognizes licensing revenues, whether sold direct or through distributors or resellers, upon product delivery, provided persuasive evidence of an arrangement exists, fees are fixed or determinable and the resulting receivable is deemed collectible by management. In instances where payments are subject to extended payment terms, revenues are not recognized until the payments become due.

     Crystal Decisions’ policy is not to recognize revenues on sales to distributors or resellers if any resale contingencies exist. Some of the factors that are considered to determine the existence of such contingencies include payment terms, collectability and history with the distributor or reseller. Revenues are recognized when such contingencies are resolved and the criteria for revenue recognition in SOP 97-2 are met.

     Crystal Decisions recognizes revenues for sales to distributors and resellers with rights of return when the criteria for recognizing revenues, as outlined in SFAS No. 48, “Revenue Recognition When Right of Return Exists” (“SFAS 48”), are met. However, the Company makes estimates of future returns and reduces the revenues and related receivables accordingly by the amount of such estimates. Where rights of return exist and the criteria of SFAS 48 are not met, revenues are not recognized until such time that all of the criteria are met. The Company considers factors including historical experience, nature of the product, fixed or determinable fees, arms length contract terms, the level of inventory in the distribution channels and the ability to reasonably estimate returns.

     Revenues from technical support and maintenance are recognized ratably over the term of the arrangement, generally one year. Revenues from training and consulting are generally recognized as the services are performed.

     Where Crystal Decisions provides consulting services for significant production, modification, or customization of software, or where these services are essential to the functionality of the software, Crystal Decisions recognizes revenues in accordance with the provisions of SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” In these arrangements, both the licensing revenues and consulting services revenues are recognized using the percentage of completion method based on the cost of labor inputs.

     Deferred revenue represents amounts from customers under license, maintenance and service arrangements for which the revenue earnings process has not been completed. These amounts relate primarily to provisions of technical support and maintenance arrangements with future deliverables and arrangements where specified customer acceptance has not yet occurred. Deferred revenue classified as long-term in nature represents revenues which will not be realized for 12 months or more after the date of the consolidated balance sheet.

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CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

5. Investments in Debt Securities

     Crystal Decisions classifies its investments in debt securities as available-for-sale. Such securities are recorded at fair value based on quoted market prices, with unrealized gains or losses recorded as other comprehensive income (loss) until realized.

     Cash equivalents are investments that have maturity dates of 90 days or less at the time of purchase. Short-term investments are investments that generally have maturities greater than 90 days but less than one year at the time of purchase. Long-term investments are investments that generally have maturities greater than one year at the time of purchase.

     Available-for-sale securities held at September 27, 2002 and June 28, 2002 are as follows (in thousands):

     Unrealized holding gains for available-for-sale securities at September 27, 2002 and June 28, 2002 were insignificant.

6. Restricted Cash

     On September 26, 2002, the Company placed $2.0 million on deposit with The Bank of Nova Scotia (the “Bank”) as a general hypothecation to the overdraft credit facility currently in place. The monies held and the interest earned thereon are classified as restricted cash on Crystal Decisions’ consolidated balance sheet. This hypothecation replaces the guarantee previously provided by Seagate Technology International, an indirect subsidiary of New SAC, of present and future indebtedness or liability incurred by the Company to the Bank. The overdraft credit facility provides up to Cdn. $4.0 million credit for certain overdrafts. At September 27, 2002, there was no balance outstanding under this overdraft credit facility.

7. Related Party Transactions

     During the three months ended December 29, 2000, Crystal Decisions signed a software license agreement (the “License Agreement”) with Seagate Technology. Under the terms of the License Agreement, Crystal Decisions granted Seagate Technology a non-exclusive, non-transferable, perpetual license to use certain products of its business intelligence software and receive maintenance and support services related to these products for one year. The total value of the License Agreement was $1.6 million. The License

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CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

Agreement was priced at an approximate 50% discount to Crystal Decisions’ established list price. During the three months ended September 28, 2001, Crystal Decisions recognized approximately $91,000 of revenues from the License Agreement. At December 28, 2001, all of the revenues under the License Agreement had been recognized with no amounts remaining as deferred revenue. The maintenance and support services related to the License Agreement were renewed during the three months ended December 28, 2001. Revenues from maintenance and support services are being recognized over one year. Crystal Decisions recognized approximately $106,000 in the three months ended September 27, 2002 related to these maintenance and support services. As of September 27, 2002 and June 28, 2002, there were no amounts outstanding from Seagate Technology included in accounts receivable.

     Seagate Technology LLC, an indirect subsidiary of New SAC, provides various services as requested by Crystal Decisions, for which it charges Crystal Decisions through corporate expense allocations. Crystal Decisions’ management believes that the allocation methods applied to the costs provided under the agreements in place are reasonable. Amounts charged to Crystal Decisions general and administrative expense were approximately $104,000 and $312,000 for the three months ended September 27, 2002 and September 28, 2001, respectively. These balances include a quarterly charge of $25,000 for consulting and advisory fees that are paid on Crystal Decisions’ behalf by Seagate Technology LLC to certain New SAC investors. Seagate Technology LLC has charged Crystal Decisions the fair market value of these services and thus no material additional costs would have been incurred had Crystal Decisions obtained these services from a third party.

8. Income Taxes

     At September 27, 2002, the Company reduced its valuation allowance to reflect the amount of the future tax benefits that are more likely than not to be realized. A valuation allowance has been provided against the deferred tax assets arising from long-term temporary differences and operating losses carried forward due to the uncertainty of their realization.

     The effective tax rate used to record the income tax expense for the three months ended September 27, 2002 differed from the U.S. federal statutory tax rate primarily due to operating in foreign jurisdictions that have differing tax treatments as compared to the United States, and the reduction in valuation allowance to reflect those future tax benefits that are more likely than not to be realized.

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CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

9. Net Income Per Share

     The reconciliation of the numerator and denominator for the calculation of basic and diluted net income per share is as follows (in thousands, except per share amounts).

     As of September 27, 2002 and September 28, 2001, respectively, the total number of outstanding options to purchase common stock was 13,398,720 and 10,865,766. During the three-month periods ended September 27, 2002 and September 28, 2001, respectively, Crystal Decisions issued 68,070 and 74,776 shares of common stock upon the exercise of options granted under the 1999 Stock Option Plan.

10. Comprehensive Income

     Comprehensive income includes net income and other comprehensive income (loss), the latter consisting solely of foreign currency translation adjustments from those subsidiaries not using the U.S. Dollar as their functional currency. These foreign currency translation adjustments are recorded directly as a separate component of stockholders’ equity and excluded from the calculation of net income. The components of comprehensive income were as follows (in thousands):

11. Segment Information

     Crystal Decisions has one reportable segment — information management software.

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CRYSTAL DECISIONS, INC.
Condensed Notes to Consolidated Financial Statements
(Unaudited)

12. Legal Proceedings

     In November 1997, Vedatech Corporation (“Vedatech”) commenced an action in the Chancery Division of the High Court of Justice in the United Kingdom against Crystal Decisions (UK) Limited, a wholly owned subsidiary of Crystal Decisions. The liability phase of the trial was completed in March 2002, with Crystal Decisions prevailing on all claims except for the quantum meruit claim. The court ordered the parties to mediate the quantum of that claim and, in August 2002, the parties came to a mediated settlement. The mediated settlement is not material to Crystal Decisions’ operations and contains no continuing obligations. On September 24, 2002, however, Crystal Decisions received documents indicating Vedatech is seeking to set aside the settlement. Vedatech has scheduled an appearance with the court on November 25, 2002 to request a rescission of the mediated settlement. Although Crystal Decisions believes that Vedatech’s basis for seeking to set aside the mediated settlement is meritless, the outcome cannot be determined at this time. If the mediated settlement were to be set aside, a negative outcome could adversely affect Crystal Decisions’ financial position, liquidity and results of operations.

13. Subsequent Event

     In October 2002, Crystal Decisions executed an accounts receivable based revolving facility (the “Revolving Line”) with Comerica Bank-California (“Comerica”). The Revolving Line provides for up to $15.0 million in borrowings for general working capital purposes. Interest is calculated at either Comerica’s U.S. prime rate or LIBOR plus 2.5% per annum depending on the nature of the advance. On prime rate advances interest is payable monthly. On LIBOR advances interest is payable on a quarterly basis. Borrowings under the Revolving Line are limited to 80% of eligible accounts receivable, or in any month in which Crystal Decisions maintains $15.0 million in its investment accounts with Comerica or its affiliates, an amount equal to $2.0 million plus 80% of eligible accounts receivable. The Revolving Line expires on September 30, 2004 at which time the outstanding principal and interest payable balances are due immediately. The Revolving Line is collateralized by the accounts receivable and inventory of the Company.

     The terms of the Revolving Line require Crystal Decisions to maintain certain financial covenants related to liquidity, minimum tangible net worth and quarterly free cash flow. The Revolving Line is subject to an unused fee which varies in amount based on the level of collected deposits and money market investments that are held with Comerica or its affiliates. No amounts were outstanding under the Revolving Line at the filing date of this report.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion and analysis should be read in conjunction with our unaudited interim consolidated financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended June 28, 2002 as filed with the Securities and Exchange Commission (“SEC”) on September 26, 2002. Certain statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and information contained in this Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as more fully described in the “Factors Affecting Future Operating Results” section of this Item and elsewhere in this Form 10-Q. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

Overview

     Crystal Decisions, Inc. is an information management company that creates software products and provides services for reporting, analysis and information delivery. We develop, market and support an integrated, scalable suite of enterprise software products that enable businesses to access disparate data sources and distribute secure, interactive reports and analysis across and beyond these organizations. We believe our solutions provide direct and rapidly achieved benefits including improved decision making, lower overall information technology costs and better business performance.

     We were incorporated in Delaware in August 1999. Our headquarters are located at 895 Emerson Street, Palo Alto, California 94301. Our telephone number is (650) 838-7410.

     We operate and report financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to the end of June. Accordingly, our Fiscal 2002 ended on June 28, 2002 and our Fiscal 2003 will end on June 27, 2003. The three-month periods ended September 27, 2002 and September 28, 2001 each comprised 13 weeks of activity. We have reclassified certain comparative period figures to conform to the basis of presentation adopted in fiscal 2003. Such reclassifications had no effect on net income as previously reported.

     Critical Accounting Policies and Estimates

     Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and form the basis for the following discussion and analysis on critical accounting policies and estimates. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements:

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     Revenue Recognition. We derive revenues from the sale of licenses for our software products and from services such as maintenance, consulting, training and technical support. We recognize revenue in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition” as amended by SOP 98-9 “Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions.” We generally recognize licensing revenues, whether sold direct or through distributors or resellers, upon product delivery, provided persuasive evidence of an arrangement exists, fees are fixed or determinable and we deem the resulting receivable to be collectible. In instances where payments are subject to extended terms, we do not recognize revenues until the payments become due.

     SOP 97-2 requires that the total arrangement fee from software arrangements that include rights to multiple software products, post contract customer support and/or other services, be allocated to each element of the arrangement based on their relative fair values. Under SOP 97-2, the determination of fair value is based on vendor specific objective evidence (“VSOE”). We apply the residual method of accounting as specified in SOP 98-9 such that the total fair value of the undelivered elements as indicated by VSOE, is deferred and subsequently recognized in accordance with SOP 97-2 and the difference between the total arrangement fee and the amount deferred for the undelivered elements is accounted for as revenue related to the delivered elements.

     Some OEM arrangements contain end-user maintenance elements for which VSOE has not been established, as sufficient evidence of consistent pricing and renewal rates are not present. In such arrangements, we recognize the arrangement fee ratably over the maintenance period in accordance with the provisions set forth in SOP 97-2.

     Our policy is to recognize no revenues on sales to distributors or resellers if any resale contingencies exist. Some of the factors that we consider in determining the existence of such contingencies include payment terms, collectability and history with the distributor or reseller. We recognize revenues when any contingencies have been resolved and the criteria for revenue recognition under SOP 97-2 are met.

     We recognize revenues for sales to distributors or resellers with rights of returns when the criteria for recognizing revenues, as outlined in Statement of Financial Accounting Standards (“SFAS”) No. 48 “Revenue Recognition When Right of Return Exists” (“SFAS 48”), are met. We make estimates of future returns and reduce our revenues and related receivables accordingly. Where rights of return exist and the criteria of SFAS 48 are not met, we do not recognize revenues until such time that all of the criteria are met. We consider factors including historical experience, nature of the product, fixed or determinable fees, arms length contract terms, the level of inventory in the distribution channels and our ability to reasonably estimate returns.

     We recognize revenues from technical support and maintenance, which consist of fees for ongoing support and product updates, ratably over the term of the contract, which is generally one year. We generally recognize revenues from training and consulting as the services are performed.

     Where we provide consulting services for significant production, modification, or customization of our software, or where these services are essential to the functionality of our software, we recognize revenues in accordance with the provisions of SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” In these arrangements, we recognize both the licensing revenues and consulting services revenues using the percentage of completion method based on the cost of labor inputs.

     Deferred revenue represents amounts from customers under license, maintenance and service arrangements for which the revenue earnings process has not been completed. These amounts relate primarily to provisions of technical support and maintenance arrangements with future deliverables and arrangements where specified customer acceptance has not yet occurred. Deferred

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revenue classified as long-term in nature represents revenues which will not be realized for 12 months or more after the date of the consolidated balance sheet.

     Allowance for Doubtful Accounts. We record an allowance for doubtful accounts in general and administrative expenses. The allowance, which is netted against our accounts receivable balance on our consolidated balance sheets, totaled $2.3 million and $2.1 million as of September 27, 2002 and June 28, 2002, respectively. The amounts represent estimated losses resulting from the inability of our customers to make required payments. The estimates are based on historical bad debt write-offs, specific identification of probable bad debts based on collection efforts, aging of accounts receivable and other known factors. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

     Income Taxes. In preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax liabilities together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are included within the consolidated balance sheet, as applicable. We then assess the likelihood that deferred tax assets will be recovered from future taxable income, and, to the extent that we believe that recovery is not likely, we establish a valuation allowance. During the three months ended September 27, 2002, we released a portion of the valuation allowance against our deferred tax assets and as such have recorded current and long-term deferred tax assets on our consolidated balance sheet. We provided a valuation allowance against all of our deferred tax assets at June 28, 2002. To the extent we establish a valuation allowance against our deferred tax assets or change this valuation allowance in a period, we reflect the impact in the tax provision for (benefit from) income taxes in the consolidated statements of operations.

     Change in Control of Crystal Decisions, Inc.

     As of November 22, 2000, as a result of the completion of the transactions under a stock purchase agreement, we became a majority owned subsidiary of Seagate Software (Cayman) Holdings, which is a wholly owned subsidiary of New SAC (“New SAC”), whose predecessor was Seagate Technology, Inc. (“Seagate Technology”). This transaction, referred to as the New SAC Transaction, resulted in a change in control of our company. Under rules and regulations promulgated by the SEC, because more than 95% of our company was acquired and a change of ownership occurred, we restated all our assets and liabilities as of November 22, 2000 on a “push down” accounting basis.

     The following summarizes the impact of push down accounting, resulting from the New SAC Transaction, on our results of operations for the three months ended September 27, 2002 and September 28, 2001:

•		Revenues. We revalued deferred revenue at November 22, 2000. Deferred revenue was reduced by $1.3 million and revenues were reduced on a declining basis during the 12 months following the New SAC Transaction. Consequently, revenues were approximately $103,000 lower for the three months ended September 28, 2001 than they would have been had the push down adjustments not occurred. There was no impact for the three months ended September 27, 2002.
•		Depreciation. As a result of the push-down accounting, our long-lived tangible assets were reduced by $4.3 million on November 22, 2000. Consequently, we recorded depreciation expense of approximately $270,000 and $463,000 less for the three months ended September 27, 2002 and September 28, 2001, respectively, than we would have recorded had the push down adjustments not been made.

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•

Amortization. We recorded additional amortization expense of approximately $1.4 million for the three months ended September 28, 2001 resulting from recording the incremental fair value of intangible assets pushed down to our consolidated financial statements on November 22, 2000. As a result of the application of SFAS 109, “Accounting for Income Taxes”, (“SFAS 109”), the net carrying values of the intangible assets pushed down to our consolidated financial statements were reduced to zero on June 28, 2002 by a charge against additional paid-in capital on the statement of stockholders’ equity. Therefore, commencing in the first quarter of fiscal 2003 we did not provide for amortization related to intangible assets.

     We adopted SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) effective June 29, 2002. Under SFAS 142, goodwill and indefinite life intangible assets are no longer amortized but are reviewed annually for impairment (or more frequently if impairment indicators arise). Separate intangible assets that are deemed to have a definite lives continue to be amortized over their estimated useful lives. There was no goodwill or remaining intangible assets on the consolidated balance sheet as at June 28, 2002. Therefore, there was no amortization relating to developed technologies, a definite life intangible asset, for the three months ended September 27, 2002. Under SFAS 142, assembled workforce is not considered to be an intangible asset and, as such, is no longer amortized on adoption. The adoption did not have a material impact on our financial position or results of operations.

     Had we been accounting for our intangible assets under SFAS 142 for all periods presented, our net income and net income per share would have been as follows (in thousands expect per share amounts):

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Results of Operations

     The following table sets forth certain consolidated statement of operations data as a percentage of total revenues for the periods indicated:

Revenues

     The following table sets forth information regarding the composition of our revenues and fiscal period-to-period changes:

     Total revenues increased $17.0 million, or 35%, to $65.1 million for the three months ended September 27, 2002 from $48.1 million for the three months ended September 28, 2001. In each period presented, a majority of our revenues were derived from licensing fees for our products. We also derive revenues from maintenance related to the licensing of our products, consulting services, training activities and technical support. We anticipate that license fees, which represented approximately 64% of our total revenues for the three months ended September 27, 2002 and September 28, 2001, will continue to represent the majority of our revenues for the foreseeable future.

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     The increase in total revenues was primarily attributable to an increase in the size and productivity of our sales force, particularly our direct sales force in North America, and our relationship with our strategic and original equipment manufacturer (“OEM”) partnerships. Additionally, we have continued to capture new customers with our Crystal 8 and 9 suite offerings. Crystal Enterprise 8.0 was generally available in March 2001 and Crystal Reports 9.0 and Crystal Enterprise 8.5, which is also operational on a UNIX platform, were generally available in August 2002. While we expect our revenues to continue to grow and we believe the current demand for our solutions is strong, the current economic environment and the slowing global economy have resulted in a decline in information technology spending. We believe that this decline may cause our customers or prospective customers to significantly decrease or delay spending on information technology. As a result, we may not be able to maintain the revenue growth rates we have previously achieved.

     During the three months ended September 27, 2002 and September 28, 2001, respectively, revenues from a third-party customer, Ingram Micro, Inc. (“Ingram”), totaled approximately 10% and 11% of total revenues. No other customer accounted for 10% or more of our total revenues during these periods.

     Licensing revenues. Licensing revenues increased $10.9 million, or 35%, to $41.8 million for the three months ended September 27, 2002 from $30.9 million for the three months ended September 28, 2001. The increase in licensing revenues was primarily attributable to the increased revenues from our direct sales channels, which were the result of the increased productivity and the addition of new customers to our customer base. In addition, the benefits of strategic and OEM partnerships into which we have entered continued to be realized in the form of licensing revenues.

     Maintenance, support and services revenues. Maintenance, support and services revenues increased $6.1 million, or 35%, to $23.3 million for the three months ended September 27, 2002 from $17.2 million for the three months ended September 28, 2001. The increase in maintenance, support and services revenues was mainly attributable to increased maintenance fees associated with increased license fees and to increased technical support revenues under our Crystal Care program.

     Concentration of Customers. The following table sets forth information regarding revenues by the geographic location of our customers:

     Geographically, our domestic market continued to grow with revenues increasing 39% to $45.3 million for the three months ended September 27, 2002 from $32.7 million for the three months ended September 28, 2001. We also experienced continued growth in revenues outside the U.S. with revenues increasing 29% to $19.8 million for the three months ended September 27, 2002 from $15.4 million for the three months ended

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September 28, 2001. Despite a weakened economy in the EMEA region, we increased revenue year-over-year by 49% in this region. Our direct sales channel continued to result in the largest absolute dollar increase in all regions.

Cost of Revenues

     The following table sets forth information regarding the composition of our cost of revenues and fiscal period-to-period changes:

     Cost of revenues increased $2.7 million, or 21%, to $15.6 million, or 24% of total revenues, for the three months ended September 27, 2002 from $12.9 million, or 27% of total revenues, for the three months ended September 28, 2001. The year-over-year absolute dollar increase was primarily attributable to increased maintenance, support and services costs associated with earning revenues from these sources, offset by a $1.3 million decrease in amortization of developed technologies.

     Cost of licensing revenues. The cost of licensing revenues increased $254,000, or 17%, to $1.8 million, or 4% of licensing revenues, for the three months ended September 27, 2002 from $1.5 million, or 5% of licensing revenues, for the three months ended September 28, 2001. The absolute dollar increase in cost of licensing revenues was primarily due to the license revenue mix, new product releases and maintenance shipments and the increased volume of shipments during the three months ended September 27, 2002 in relation to the comparative period. The efficient management of the fulfillment process has also resulted in cost savings relative to increased licensing revenues. The cost of licensing revenues may vary pending on the volume, distribution method and mix of software licenses shipped.

     Cost of maintenance, support and services revenues. Cost of maintenance, support and services revenues increased $3.8 million, or 37%, to $13.9 million, or 60% of maintenance, support and services revenues for the three months ended September 27, 2002 from $10.1 million, or 59% of maintenance, support and services revenues for the three months ended September 28, 2001. The majority of the increase was the result of additional costs related to our professional services organization in the form of outside services to complete consulting and training engagements to meet the demands of our customers. The use of outside services rather than company personnel generally has higher costs and lower margins. To a lesser extent, the absolute dollar increase in cost of maintenance, support and services revenues was a result of increased costs associated with increased revenues for maintenance and technical support.

     Amortization of Developed Technologies. There was no amortization during the three months ended September 27, 2002 as the net carrying value of the intangible assets was eliminated on June 28, 2002. Amortization of developed technologies decreased by $1.3 million for the three months ended September 27,

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2002 from $1.3 million for the three months ended September 28, 2001. Amortization for the three months ended September 28, 2001 related to amortization of developed technologies of $15.2 million pushed down to our consolidated financial statements as a result of the New SAC Transaction.

Gross Profit

     Our gross profit as a percentage of total revenues increased to 76% for the three months ended September 27, 2002 from 73% for the three months ended September 28, 2001. The absence of amortization of developed technologies in the three months ended September 27, 2002 accounts for this 3% increase. Our gross profit from licensing revenues increased to 96% from 95% from the comparative period as a result of the low total dollar cost of licensing revenues relative to the total dollar amount of licensing revenues and cost savings over the prior period. Our gross profit from maintenance, support and services revenues decreased to 40% from 41%, which was attributable to increased margins for technical support offset by decreased margins associated with our professional services organization.

Operating Expenses

     The following table sets forth information regarding the composition of our operating expenses and fiscal period-to-period changes:

     Sales and Marketing. Sales and marketing expenses increased $2.5 million, or 12%, to $23.9 million, or 37% of total revenues, for the three months ended September 27, 2002 from $21.4 million, or 45% of total revenues, for the three months ended September 28, 2001. The absolute dollar increase in sales was primarily associated with increased personnel costs, as a result of increased headcount in our sales force over last year, and higher commissions associated with higher revenues. Marketing costs increased in absolute dollars

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mainly as a result of increased advertising and promotion during the period associated with major releases. The decrease in our sales and marketing expense as a percentage of total revenues resulted primarily from increased productivity in our corporate sales force in North America and EMEA. We expect sales and marketing expenses to increase in absolute dollars and to vary as a percentage of total revenues.

     Research and Development. Research and development expenses increased $2.5 million, or 35%, to $9.4 million, or 14% of total revenues, for the three months ended September 27, 2002 from $6.9 million, or 15% of total revenues, for the three months ended September 28, 2001. The increase in absolute dollars was primarily associated with increased headcount and associated personnel and facilities costs related to the development of existing and future products. Research and development costs decreased as a percentage of revenue as the result of revenues increasing at a greater rate than research and development costs based on the strength of our technology and products. We expect research and development expenses to continue to vary as a percentage of total revenues in the future as we continue to invest in our products.

     General and Administrative. General and administrative expenses increased $2.5 million, or 62%, to $6.6 million, or 10% of total revenues, for the three months ended September 27, 2002 from $4.1 million, or 8% of total revenues, for the three months ended September 28, 2001. The absolute dollar increase in general and administrative expenses is mainly the result of increased salary and benefit expenses associated with increased personnel. Since the prior period, we have hired for many strategic positions including our new Chief Executive Officer, in an effort to continue to grow our business. In addition, costs associated with reaching the mediated settlement with Vedatech and other legal matters accounted for a portion of the increase in costs. We expect general and administrative expenses to vary in absolute dollars and as a percentage of total revenues.

     Amortization of Intangible Assets. There was no amortization during the three months ended September 27, 2002 as the net carrying value of the intangible assets was eliminated on June 28, 2002. Amortization of intangible assets decreased by $589,000 for the three months ended September 27, 2002 from $589,000 for the three months ended September 28, 2001. Amortization for the three months ended September 28, 2001 related to amortization of assembled workforce of $7.1 million pushed down to our consolidated financial statements as a result of the New SAC Transaction.

     Interest income and other income, net.

     Interest income and other income, net comprised the following:

     Net interest income decreased by approximately $464,000 to $318,000 for the three months ended September 27, 2002. Net interest income fluctuates depending on movements in the general level of interest rates, our average cash and cash equivalents and investment balances, and previously our net position under the revolving loan agreement we had with Seagate Technology LLC and the interest rates applied thereon. Historically, net interest income was primarily attributable to interest earned on balances receivable under the revolving loan agreement. Interest income earned on the net receivable balance under this agreement was

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approximately $301,000 during the three months ended September 28, 2001. During the three months ended September 28, 2001 we also received non-recurring interest payments on tax refunds that resulted from the carry back of losses in foreign jurisdictions. Commencing in October 2001, we earned the majority of our net interest income from our cash and cash equivalent balances at interest rates that were generally lower than those earned from Seagate Technology LLC.

     Net foreign currency exchange gains and losses, which represent the impact of foreign currency fluctuations on the translation of foreign currency transactions into U.S. dollars, vary depending upon movements in currency exchange rates.

     Income Taxes.