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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

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 28, 2003

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

Commission File Number 000-31859

CRYSTAL DECISIONS, INC.

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

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

On March 28, 2003, 76,025,314 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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Part I. FINANCIAL INFORMATION

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 software company, incorporated in Delaware and 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 generally accepted accounting principles (“GAAP”) 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 GAAP 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 and nine months ended March 28, 2003 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 noted.

     Crystal Decisions operates and reports financial results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June 30. 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 March 28, 2003 and March 29, 2002 each comprised 13 weeks. The nine-month periods ended March 28, 2003 and March 29, 2002 each comprised 39 weeks.

     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.

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

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.

     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 consolidated financial statements specifically related to results for the three and nine months ended March 28, 2003 and March 29, 2002:

	•		Revenues. Deferred revenues were revalued at November 22, 2000 and were 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 zero and $128,000 lower for the three and nine months ended March 29, 2002, respectively, than they would have been had the push down adjustments not occurred. There was no impact during the three and nine months ended March 28, 2003.
	•		Depreciation. The long-lived tangible assets were reduced by $4.3 million on November 22, 2000. Consequently, depreciation expense recorded was $160,000 and $312,000 less for the three months ended March 28, 2003 and March 29, 2002, respectively, than would have been recorded had the push down adjustments not occurred. Depreciation expense recorded was $678,000 and $1.2 million less for the nine months ended March 28, 2003 and March 29, 2002, respectively, than would have been recorded had the push down adjustments not occurred.
	•		Amortization. Additional amortization expense of $1.4 million and $4.3 million for the three and nine months ended March 29, 2002, respectively, was recorded resulting from the incremental fair value of intangible assets pushed down to the Company’s consolidated financial statements on November 22, 2000.
	•		Elimination of Intangible Assets, Net of Deferred Tax Liability. As a result of the application of Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes", 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 of $9.1 million 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.

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

3. Accounting for Stock-Based Compensation

     In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123” (“SFAS 148”). This statement amends SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), to provide alternative methods of transition for an entity that voluntarily changes to the fair value-based method of accounting for stock-based compensation under SFAS 123. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 and Accounting Principles Board Opinion No. 28, “Interim Financial Reporting” (“APB 28”) to require prominent disclosure of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS 148’s amendment of the transition and annual disclosure provisions of SFAS 123 is effective for Crystal Decisions’ fiscal 2003. The amendment to disclosure requirements under APB 28 is effective for Crystal Decisions’ fiscal 2003 third quarter.

     Crystal Decisions measures compensation expense for its 1999 Stock Option Plan using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related interpretations.

     The following table provides pro forma disclosures of the effect on net income and earnings per share as if the fair value-based method had been applied in measuring compensation expense (in thousands, except per share amounts):

     Aside from a one-time charge of approximately $41,000 in connection with certain stock options issued to employees in England, no stock-based employee compensation cost is reflected in reported net income for the periods presented as all other stock options granted under the 1999 Stock Option Plan and 2000 Stock Option Plan (the “Plans”) had an exercise price equal to the market value of the underlying common stock at the date

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

of grant. For purposes of the pro forma disclosures, the estimated fair value of the stock options is amortized over the stock options’ vesting period.

     The pro forma effects of applying SFAS 123 for the periods presented are not likely to be representative of the pro forma effects of future periods as the stock options usually vest over a period of four years, no options were issued under the Plans prior to November 1999, the number of stock options granted varies from period to period and the Black-Scholes fair value of each grant depends on the assumptions at the grant date.

     The weighted average assumptions used and the resulting estimates of weighted average fair value of stock options granted are as follows:

     For purposes of pro forma disclosures pursuant to SFAS 123, the expected volatility assumptions used by the Company were based on an average of the Company’s competitors’ historical stock price volatilities over the expected life of the stock options as the Company does not have sufficient historical volatility from its own common stock.

4. New Accounting Policies

     In July 2001, the FASB issued SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”). 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 for impairment annually 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 intangible assets on the consolidated balance sheet as at June 28, 2002 or March 28, 2003.

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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. The adoption of SFAS 144 had no impact on the Company’s financial position or results of operations because there were no impaired long-lived assets as of the date of adoption.

5. Revenue Recognition

     The Company derives revenues from the sale of licenses for software products and services such as maintenance, technical support, training and consulting services. Licenses for software products are sold separately or with services as part of a bundled arrangement. Maintenance and technical support contracts are sold with licenses in a bundled arrangement or sold separately as a contract renewal. Training and consulting services are provided as part of a bundled arrangement or sold separately based on a project or time and materials basis.

     For each sales transaction, the Company determines whether evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection is probable. If any of these criteria are not met, recognition of revenues is deferred until such time as all of the criteria are met.

     In bundled software arrangements that include rights to multiple software products and/or services, the Company recognizes revenues using the residual method as prescribed by Statement of Position 98-9,

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

“Modification of SOP No. 97-2 Software Revenue Recognition with Respect to Certain Transactions.” Under the residual method, revenues are allocated to the undelivered elements based on vendor specific objective evidence of fair value of the undelivered elements and the residual amount of revenues are allocated to the delivered elements. Vendor specific objective evidence of the fair value of maintenance and technical support contracts is based on renewal rates as determined by the prices paid by the Company’s customers when maintenance is sold separately. Vendor specific objective evidence of fair value of training and consulting services is based upon daily rates as determined by the prices paid by the Company’s customers when these services are sold separately.

     For all bundled arrangements, the Company assesses whether the service elements of the arrangement are essential to the functionality of the other elements of the arrangement. When services are considered essential or the arrangement involves significant customization or modification of the software, both the license and service revenues under the arrangement are recognized under the percentage of completion method of contract accounting, based on cost of labor inputs.

     For those arrangements for which the Company has concluded that the service elements are not essential to the other elements of the arrangement, the Company uses vendor specific objective evidence of fair value for the service elements to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. Revenues allocable to maintenance and technical support contracts are recognized ratably over the term of the respective contracts, which are typically one year. Revenues allocable to training and consulting services are recognized as the services are performed.

     For sales to distributors and resellers, revenues are recognized upon product delivery. The Company reserves an amount equal to its estimate of all product subject to rights of return and resale contingencies. Some of the factors that are considered in determining this estimate include historical experience, level of inventory in the distribution channels, nature of the product, fixed or determinable fees and payment terms. The reserve reduces the revenues and the related receivables.

     For sales to original equipment manufacturers (“OEMs”), revenues are recognized when the OEM reports sales that have occurred to an end user customer, provided that collection is probable. Some OEM arrangements include the payment of an upfront arrangement fee which is deferred and recognized either ratably over the contractual period or when the OEM reports sales that have occurred to an end user customer, in accordance with the contractual terms.

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

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

6. Cash, Cash Equivalents, Short-term and Long-term Investments

     The Company’s cash, cash equivalents, short-term and long-term investments are summarized in the table below. Crystal Decisions classifies its investments in debt securities as available-for-sale and records these investments at the amortized cost, which approximates their fair value. Gains and losses on available-for-sale securities held at March 28, 2003 and June 28, 2002 and gross realized gains or losses on sales of available-for-sale securities during the three and nine months ended March 28, 2003 were not significant.

     The above amounts do not include $2.0 million of restricted cash on deposit with The Bank of Nova Scotia (note 7).

7. 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 an overdraft credit facility. The monies held and the interest earned thereon are classified as restricted cash. The overdraft credit facility provides up to Canadian $2.0 million credit for certain overdrafts plus a foreign exchange forward trading line supporting notional contracts of up to $6.0 million. At March 28, 2003, there was no balance outstanding under this overdraft credit facility.

8. Related Party Transactions

     In December 2000, Crystal Decisions signed a software license agreement (the “License Agreement”) with Seagate Technology LLC, an indirect subsidiary of New SAC. Under the terms of the License Agreement, Crystal Decisions granted Seagate Technology LLC a non-exclusive, non-transferable, perpetual license to use certain business intelligence products and receive related maintenance and support services for

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

one year. The total value of the License Agreement was $1.6 million. The License Agreement was priced at an approximate 50% discount to Crystal Decisions’ established list price. During the three and nine months ended March 29, 2002, respectively, Crystal Decisions recognized zero and $151,000 of revenues from the License Agreement. The maintenance and support services related to the License Agreement were renewed for one year during the three months ended December 28, 2001 and for an additional year in the three months ended March 28, 2003. Revenues from maintenance and support services are recognized ratably over 12 months. Crystal Decisions recognized maintenance and support revenues from Seagate Technology LLC of $207,000 and $106,000 in the three months ended March 28, 2003 and March 29, 2002, respectively, and $348,000 and $176,000 in the nine months ended March 28, 2003 and March 29, 2002, respectively. The License Agreement also provided for consulting revenues of which Crystal Decisions earned zero and $30,000 in the three and nine months ended March 29, 2002. No consulting revenues were earned during fiscal 2003. At March 28, 2003, there was approximately $423,000 in accounts receivable due from Seagate Technology LLC as a result of the renewal of the maintenance and support services.

     Seagate Technology LLC 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 $75,000 and $139,000 for the three months ended March 28, 2003 and March 29, 2002, respectively, and $281,000 and $712,000 for the nine months ended March 28, 2003 and March 29, 2002, respectively. 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. Commencing November 23, 2000 and up to and including the three months ended December 27, 2002, these balances include a quarterly charge of $25,000 for consulting and advisory fees under an annual monitoring agreement that were paid on Crystal Decisions’ behalf by Seagate Technology LLC to certain New SAC investors. In December 2002, Seagate Technology LLC discontinued the annual monitoring agreement. In settlement for the remaining term of the agreement, $625,000 was paid by Crystal Decisions, which was included in general and administrative expense on the statement of operations for the three and six months ended December 27, 2002. No significant amounts remain outstanding to Seagate Technology as at March 28, 2003.

9. Revolving Loan Agreement

     In October 2002, Crystal Decisions executed an accounts receivable-based revolving facility (the “Revolving Line”) with Comerica Bank-California (“Comerica”). The Revolving Line provides up to $15.0 million in borrowings for general working capital purposes. Interest is calculated, depending on the nature of the advance, at either Comerica’s U.S. prime rate or Comerica’s LIBOR plus 2.5% per annum. On prime rate advances, interest is payable monthly. On LIBOR advances, interest is payable on a quarterly basis and at the end of each LIBOR period. Borrowings under the Revolving Line are limited to 80% of eligible accounts receivable, with an additional $2.0 million available in any month in which Crystal Decisions maintains $15.0 million of its investment accounts with Comerica or its affiliates. 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 substantially all the Company’s personal property, excluding intellectual property. The agreement also required the Company’s U.S. and Canadian subsidiaries to pledge their assets in support of Crystal Decisions’ obligations under the agreement. The Company was required to pledge shares of most of its subsidiaries to Comerica.

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

     The terms of the Revolving Line require Crystal Decisions to maintain certain quarterly financial covenants related to liquidity, minimum tangible net worth and quarterly free cash flow. The agreement restricts certain of the Company’s activities. For example, it restricts the Company from selling, leasing or otherwise disposing of any part of the business or property under most circumstances. In addition, the agreement prohibits the Company from entering into arrangements which will result in a change of control or in which the Company would incur certain forms of indebtedness without Comerica’s consent. The Company is also restricted from making certain types of distributions and investments. The Company is required to maintain at least an aggregate of $10.0 million in investment accounts with Comerica and some of its affiliates. No amounts were outstanding under the Revolving Line at March 28, 2003. At March 28, 2003, Crystal Decisions maintained $35.1 million of its cash equivalents with Comerica.

10. Income Taxes

     The Company is subject to income taxes in both the United States and numerous foreign jurisdictions and the use of estimates is required in determining the Company’s provision for income taxes. Although the Company believes its tax estimates are reasonable, the ultimate tax determination involves significant judgment that could become subject to audit by tax authorities in the ordinary course of business.

     The effective rate used to record income tax expense for the three and nine months ended March 28, 2003 differed from the U.S. federal statutory tax rate primarily due to the effect of 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 were more likely than not to be realized. The change in effective tax rate from 2002 to 2003 was due primarily to the effect of continuing growth in profitability, an increase in available foreign research and development tax credits and utilization of U.S. net operating losses in fiscal 2002, in respect of which a valuation allowance was provided.

     At March 28, 2003, the Company reduced its valuation allowance against deferred tax assets to reflect the amount of the future tax benefit that was more likely than not to be realized. A valuation allowance continues to be provided against those deferred tax assets for which there is uncertainty of future realization. At June 28, 2002, the Company had provided a valuation allowance against all its deferred tax assets.

11. 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):

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

     As of March 28, 2003 and March 29, 2002, respectively, the total number of outstanding options to purchase common stock was 17,480,775 and 13,012,285. During the three and nine months ended March 28, 2003, respectively, Crystal Decisions issued 60,149 and 161,168 shares of common stock upon the exercise of options granted under the 1999 Stock Option Plan. The number of anti-dilutive options excluded from the net income per share calculation was 516,106 for the three and nine months ended March 28, 2003 and 290,075 and 2,789,075 for the three and nine months ended March 29, 2002, respectively.

12. 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 are excluded from the calculation of net income. The components of comprehensive income were as follows (in thousands):

13. Business Segment Information

     Crystal Decisions has one reportable business segment — information management software.

14. 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, and Crystal Decisions prevailed on all claims except for the quantum meruit claim. The court ordered the parties to mediate the amount of that claim and, in August 2002, the parties came to a mediated settlement. The mediated settlement was not material to Crystal Decisions’ operations and contained no continuing obligations. On November 25, 2002, Vedatech sought to set aside the settlement agreement on grounds of

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

alleged fraud at a hearing before the High Court. At that time, the Judge awarded Crystal Decisions court costs for the hearing and upheld the validity of the mediated settlement agreement. The mediated settlement and related costs are accrued in the consolidated financial statements. In April 2003, Crystal Decisions filed an action in the High Court of Justice seeking a declaration that the mediated settlement agreement is valid and binding. In connection with this request for declaratory relief Crystal Decisions paid the agreed settlement amount into the court. 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.

     In addition to the foregoing, Crystal Decisions is also subject to litigation in the ordinary course of its business. Where the Company believes a loss is probable and can be reasonably estimated, the estimated loss is accrued in the consolidated financial statements; and where the outcome of these matters is not determinable no provision is made in the consolidated financial statements until the loss, if any, is probable and can be reasonably estimated or the outcome becomes known.

     While Crystal Decisions believes that the ultimate outcome of these matters will not have a material adverse effect on the Company, the outcome of these matters is not determinable and negative outcomes may adversely affect the Company’s financial position, liquidity or results of operations.

15. Recent Accounting Pronouncements

     In November 2002, the FASB issued Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 expands the disclosure requirements of guarantee obligations and requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees, including indemnifications, that an entity has issued. The disclosure provisions of FIN 45 are effective for financial statements of interim periods ending after December 15, 2002; however, the provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002.

     The Company has pledged certain assets and shares in connection with the Revolving Line described in Note 9.

     The Company also maintains director and officer liability insurance with respect to liabilities arising out of certain matters, including matters arising under the securities laws. This insurance is subject to limitations, conditions and deductibles set forth in the respective insurance policy. There is no pending litigation or proceeding involving any director or officer of the Company as to which indemnification is being sought, nor is the Company aware of any threatened litigation that may result in claims for Indemnification.

     As part of the New SAC Transaction referred to in note 2, New SAC and certain of their subsidiaries, including Crystal Decisions, entered into an Indemnification Agreement with VERITAS Software Corporation (“VERITAS”) on March 29, 2000. The Indemnification Agreement provides that New SAC, including Crystal Decisions, is required to indemnify VERITAS and its affiliates for specified liabilities of Seagate Technology and Seagate Software Holdings, including selected taxes.

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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 That May Affect 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 software 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 June 30. Accordingly, our fiscal year 2002 ended on June 28, 2002 (“fiscal 2002”) and our fiscal year 2003 will end on June 27, 2003 (“fiscal 2003”). The three-month periods ended March 28, 2003 and March 29, 2002 each comprised 13 weeks. The nine-month periods ended March 28, 2003 and March 29, 2002 each comprised 39 weeks.

     We have reclassified certain comparative period figures to conform to the current basis of presentation. 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 (“GAAP”) and form the basis for the following discussion and analysis on critical accounting policies and estimates. The preparation of these consolidated 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 during the course of preparing these consolidated financial statements. On a regular basis we evaluate our estimates and assumptions including those related to recognition of revenues, allowance for doubtful accounts, contingent liabilities and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates.

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

     Recognition of Revenues. Our revenue recognition policy is significant because revenues are a key component of our results from operations. We follow specific and detailed guidelines in measuring revenues; however, certain judgments and estimates affect the application of the policy. Revenues in any given period are difficult to predict and any shortfall in revenues or delay in recognizing revenues could cause operating results to vary significantly from quarter to quarter.

     We derive revenues from the sale of licenses for software products and services such as maintenance, technical support, training and consulting. We sell licenses for software products separately or with services as part of a bundled arrangement. We sell maintenance and technical support contracts with licenses in a bundled arrangement or separately as a contract renewal. We provide training and consulting services as part of a bundled arrangement or separately based on a project or time and materials basis.

     For each sales transaction, we determine whether evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection is probable. If any of these criteria are not met, we defer recognition of revenues until such time as all of the criteria are met.

     In bundled software arrangements that include rights to multiple software products and/or services, we recognize revenues using the residual method as prescribed by Statement of Position 98-9 “Modification of SOP No. 97-2 Software Revenue Recognition with Respect to Certain Transactions.” Under the residual method, revenues are allocated to the undelivered elements based on vendor specific objective evidence of fair value of the undelivered elements and the residual amount of revenues are allocated to the delivered elements. Vendor specific objective evidence of the fair value of maintenance and technical support contracts is based on renewal rates as determined by the prices paid by our customers when maintenance is sold separately. Vendor specific objective evidence of fair value of training and consulting services is based upon daily rates as determined by the prices paid by our customers when these services are sold separately.

     For all bundled arrangements, we assess whether the service elements of the arrangement are essential to the functionality of the other elements of the arrangement. When services are considered essential or the arrangement involves significant customization or modification of the software, both the license and service revenues under the arrangement are recognized under the percentage of completion method of contract accounting, based on cost of labor inputs.

     For those arrangements for which we have concluded that the service elements are not essential to the other elements of the arrangement, we use vendor specific objective evidence of fair value for the service elements to account for the arrangement using the residual method, regardless of any separate prices stated within the contract for each element. We recognize revenues allocable to maintenance and technical support contracts ratably over the term of the respective contracts, which are typically one year. We recognize revenues allocable to training and consulting services as the services are performed.

     For sales to distributors and resellers revenues, we recognize revenues upon product delivery. We reserve an amount equal to our estimate of all products subject to rights of return and resale contingencies. Some of the factors we consider in determining this estimate include historical experience, level of inventory in the distribution channels, nature of the product, fixed or determinable fees and payment terms. The reserve reduces the revenues and the related receivables.

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     For sales to original equipment manufacturers (“OEMs”), we recognize revenues when the OEM reports sales that have occurred to an end user customer, provided that collection is probable. Some OEM arrangements include the payment of an upfront arrangement fee which is deferred and recognized either ratably over the contractual period or when the OEM reports sales that have occurred to an end user customer, in accordance with the contractual terms.

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

     Allowance for Doubtful Accounts. Our bad debt expense is reflected in general and administrative expenses. The allowance for doubtful accounts, which is netted against our accounts receivable balance on our consolidated balance sheets, totaled $2.4 million and $2.1 million as of March 28, 2003 and June 28, 2002, respectively. The allowance for doubtful accounts represents estimated losses resulting from the inability of our customers to make required payments. We base our estimates on specific identification of probable bad debts based on collection efforts, aging of accounts receivable, our historical experience including bad debt write-offs and other factors. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, we may be required to record additional allowances. If the factors we consider to calculate the allowance do not reflect our future ability to collect outstanding receivables, we may be required to record additional allowances and our future results of our operations could be materially impacted.

     Contingencies and Litigation. We evaluate contingent liabilities including threatened or pending litigation in accordance with Statement of Financial Accounting Standard No. 5, “Accounting for Contingencies.” We assess the likelihood of any adverse judgments or outcomes to a potential claim or legal proceeding, as well as potential ranges of probable losses, when the outcome of the claims or proceedings are probable and estimable. A determination of the amount of reserves required, if any, for these contingencies is made after analysis of each matter. Because of uncertainties related to these matters, we base our accruals on the information available at the time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Any revisions in the estimates of potential liabilities could have a material impact on our results of operations and financial position.

     Income Taxes. We are subject to income taxes in both the United States and numerous foreign jurisdictions and we use estimates in determining our provision for income taxes. 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 that 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 more likely than not, we establish a valuation allowance. We provided a valuation allowance against our deferred tax assets as of June 28, 2002 for which there was uncertainty of future realization. During the three and nine months ended March 28, 2003, we released a portion of the valuation allowance against our deferred tax assets and, as such, we have recorded current and long-term deferred tax assets on our consolidated balance sheet. To the extent we establish any valuation allowance against our deferred tax assets or change this valuation allowance, we reflect the impact in the provision for (benefit from) income taxes in the consolidated statements of operations. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment that could become subject to audit by tax authorities in the ordinary course of business.

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      Stock-Based Compensation.We measure compensation expense for our 1999 Stock Option Plan using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. The fair market value of our common stock on the date of grant was determined by our compensation committee of our board of directors. As there is no public market for our stock, the compensation committee determined the fair value of our common stock by considering a number of factors, including, but not limited to, independent valuations, our current financial performance and prospects for future growth and profitability, the status of product releases and product integration, the absence of a resale market for our common stock, the control position held by New SAC and comparisons to certain of our key metrics with similar metrics for comparable publicly traded companies, including measures of market capitalization based on revenue multiples, price-to-earnings ratios and operating margins.

     We have elected not to apply fair value-based accounting provided under SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”) because it requires the use of options valuation models, which in our opinion, do not provide a reliable measure of the fair value of our employee stock options.

     As required by SFAS 123, as modified by SFAS No. 148 “Accounting for Stock Based Compensation –Transition and Disclosure – an amendment of FASB Statement No. 123”, we provide pro forma disclosure of the effect of using the fair value-based method of measuring compensation expense. For purposes of the pro forma disclosure, we estimate the fair value of stock options issued to employees using the Black-Scholes option valuation model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected life of options and our expected stock price volatility. Therefore, the estimated fair value of our employee stock options could vary significantly as a result of changes in the assumptions used.

Change in Control of Crystal Decisions, Inc.

     As of November 22, 2000, 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 and nine months ended March 28, 2003 and March 29, 2002:

•		Revenues. We revalued deferred revenues at November 22, 2000. Deferred revenues were 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 zero and $128,000 lower for the three and nine months ended March 29, 2002, respectively, than they would have been had the push down adjustments not occurred. There was no impact during the three and nine months ended March 28, 2003.
•		Depreciation. Our long-lived tangible assets were reduced by $4.3 million on November 22, 2000. Consequently, we recorded depreciation expense that was $160,000 and $312,000 lower for the three months ended March 28, 2003 and March 29, 2002, respectively, than we would have recorded had the push down adjustments not been made. We recorded depreciation expense that was $678,000 and $1.2

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		million lower for the nine months ended March 28, 2003 and March 29, 2002, respectively, than we would have recorded had the push down adjustments not been made.
•		Amortization. We recorded additional amortization expense of $1.4 million and $4.3 million for the three and nine months ended March 29, 2002, respectively, resulting from recording the incremental fair value of intangible assets pushed down to our consolidated financial statements on November 22, 2000.
•		Elimination of Intangible Assets, Net of Deferred Tax Liability. As at June 28, 2002, we reduced intangible assets, net of a deferred tax liability, by $9.1 million to zero 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.

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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: