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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the quarterly period ended October 3, 2003

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 October 31, 2003, 76,241,011 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.

(1) The information in this column was derived from the audited consolidated balance sheet as of June 27, 2003.

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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”) provides business intelligence software and services that enable the effective use and management of information within and among organizations. Crystal Decisions develops, markets and supports products that allow organizations of all sizes to access data from disparate systems, create useful, interactive information from that data through analysis and reporting and reliably deliver that information to the users that need it. Crystal Decisions is incorporated in Delaware and headquartered in Palo Alto, California.

     Crystal Decisions is a majority owned subsidiary of Seagate Software (Cayman) Holdings Corporation (“SSCH”), a Delaware corporation, which is a majority owned subsidiary of New SAC, a Cayman Islands limited corporation (“New SAC”), whose predecessor was Seagate Technology, Inc. (“Old Seagate”). Old Seagate’s disc drive business was continued by Seagate Technology, of which New SAC is the majority shareholder. On October 15, 2003, 100 shares of SSCH were transferred to and are held by CB Cayman, a Cayman Islands exempted company and wholly owned subsidiary of New SAC. New SAC 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 Old Seagate and resulted in change of control of Crystal Decisions.

     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 (“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 U.S. 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 financial statements and related notes of the Company in its Annual Report on Form 10-K for the year ended June 27, 2003 as filed with the SEC on August 19, 2003.

     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 October 3, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending July 2, 2004 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 2003 ended on June 27, 2003 and comprised 52 weeks. Fiscal 2004 will be a 53-week year and will end on July 2, 2004. The three-month period ended October 3, 2003 comprised 14 weeks and the three-month period ended September 27, 2002 comprised 13 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. Acquisition by Business Objects S.A.

     On July 18, 2003, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), as amended August 29, 2003, with Business Objects S.A. (“Business Objects”), a société anonyme organized under the laws of the Republic of France, several wholly owned subsidiaries of Business Objects and SSCH. Upon completion of the Mergers, Crystal Decisions will no longer exist. Accordingly, Business Objects has been identified as the acquirer.

     Under the terms of the Merger Agreement, upon consummation of the Mergers, holders of common stock issued and outstanding immediately prior to the consummation, subject to the restrictions set forth in the Form S-4 filed by Business Objects on October 31, 2003 will receive, subject to certain adjustments,

(i)

a number of newly issued Business Objects American depository shares (“ADSs”), each ADS representing one ordinary share of Business Objects to be determined by a formula in the Agreement and Plan of Merger that allocates approximately 26.5 million shares based on the number of shares of Crystal Decisions common stock issued and outstanding immediately prior to the consummation of the Mergers and the value of stock options at the time of closing; and

(ii)

a proportionate amount of $300.0 million in cash, without interest.

     In addition, other than as set forth in the next sentence, options to acquire the Company’s common stock outstanding immediately prior to the consummation of the Mergers will, upon consummation of the Mergers, be converted into options to acquire Business Objects ADSs. Stock options held by nonemployee members of the Company’s board of directors, or that have been granted under the Company’s 1999 Stock Option United Kingdom sub-plan or the Company’s 2000 Stock Option Plan will vest in full prior to the closing of the Mergers and will not be assumed or converted.

     The Mergers are conditioned upon, among other things, (i) the approval of the stockholders of Business Objects and the Company, as applicable, (ii) clearance or expiration of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which waiting periods expired or were terminated in September 2003 and (iii) other customary conditions. In lieu of a meeting of the stockholders of Crystal Decisions, on July 18, 2003, SSCH, which held approximately 98.6% of the outstanding shares of the Company’s common stock on such date, executed a written consent approving and adopting the Merger Agreement. In the event that Crystal Decisions or Business Objects fails to close the proposed merger due to the occurrence of certain events, either party may be required to pay the other a termination fee equal to $21 million.

     Upon the successful completion of the proposed acquisition by Business Objects, Crystal Decisions agreed to pay transaction fees based on a formula and to reimburse certain expenses to its financial advisors contingent upon completion of the Merger. The minimum amount of such fees is estimated to be $6.0 million, although the final amount has yet to be determined. Accordingly, these amounts once they become known will be recorded in the consolidated statements upon completion of the Merger. During the three months ended October 3, 2003, operating expenses included $3.5 million of costs related to the Company’s postponed initial public offering and $4.8 million related to integration costs incurred related to the proposed merger. Other costs associated with the Merger are expensed as incurred.

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

3. Accounting for Stock-Based Compensation

     Crystal Decisions accounts for options granted under its 1999 Stock Option Plan using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“ABP 25”) and related interpretations. Crystal Decisions accounts for options granted under its 2000 Stock Option Plan in accordance with EITF No. 00-23 “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44”, Issue 21, as all stock options were granted to employees of Crystal Decisions’ parent or a company under common control. These options were granted at fair market value and become fully vested and exercisable immediately prior to a merger or sale of substantially all of the Company’s assets or on the effective date of an initial public offering. The Company expects to record a non-cash dividend when vesting of the 2000 Stock Option Plan options occurs.

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

     Aside from a charge of approximately $41,000 in connection with certain stock options issued to employees in England, no stock-based employee compensation cost was 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 of grant. For purposes of the pro forma disclosures, the estimated fair value of the stock options was amortized over the stock options’ vesting period.

     The pro forma effects of applying SFAS No. 123, “Accounting for Stock-Based Compensation” (“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.

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

     The weighted average assumptions used and the resulting estimates of weighted average fair value of stock options granted were 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. 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 the 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 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 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

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

accounting, based on cost of labor inputs. Expected losses, if any, with respect to consulting services are accrued once they become known.

     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. Maintenance contracts include rights to unspecified software product enhancements and upgrades when and as the Company makes them available. 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. If the Company determines, through royalty audits or other means, that an OEM did not report revenues accurately, the Company attempts to reconcile the discrepancies and, if appropriate, records additional revenues upon resolution.

     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.

5. 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 October 3, 2003 and June 27, 2003 and gross realized gains or losses on sales of available-for-sale securities during the three months ended October 3, 2003 and September 27, 2002 were not significant.

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

6. Restricted Cash

     On September 26, 2002, the Company placed $2.0 million on deposit with The Bank of Nova Scotia as a general hypothecation to an overdraft credit facility. The monies held and the interest earned thereon is 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 between $4.0 million and $6.0 million. At October 3, 2003 and June 27, 2003, there was no balance or contract outstanding under this facility.

7. Derivative Financial Instruments

     Beginning in May 2003, Crystal Decisions began hedging a portion of its exposure to the foreign currency exchange risk on the Company’s forecasted Canadian dollar costs. During the three months ended October 3, 2003, all hedges were effective. As a result, no gain or loss related to hedge ineffectiveness was included in net income during the quarter. At October 3, 2003, the Company recorded a mark-to-market adjustment of $1,016,000 related to these hedges to value the existing forward contracts. This amount was included in accumulated other comprehensive income. The total net amount of realized loss was $284,000, which was reclassified into payroll related expense during the three months ended October 3, 2003.

     As of October 3, 2003, the Company held Canadian dollar foreign exchange forward contracts with a notional amount of $40.2 million. The forward contracts have semi-monthly maturities from October 15, 2003 through July 2, 2004, coinciding with the Company’s Canadian payroll periods.

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

     The following table segregates items related to hedging transactions included on the balance sheet:

8. Related Party Transactions

     Seagate Technology LLC

     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 one year. 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 $108,000 and $106,000 in the three months ended October 3, 2003 and September 27, 2002, respectively.

     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 $57,000 and $104,000 for the three months ended October 3, 2003 and September 27, 2002, respectively. Because Seagate Technology LLC charged Crystal Decisions the fair market value of these services, 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 included 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.

     As of October 3, 2003 and June 27, 2003, there were no amounts outstanding from Seagate Technology LLC included in accounts receivable. As of October 3, 2003 and June 27, 2003, respectively, there were approximately $181,000 and $195,000 due to Seagate Technology LLC included in accounts payable.

     Veritas Merger and Indemnification Agreement

     In connection with the New SAC Transaction, New SAC and its affiliates, including Crystal Decisions, entered into an Indemnification Agreement on March 29, 2000 with VERITAS Software Corporation (“VERITAS”) under which the parties agreed to assume and indemnify VERITAS and its affiliates for

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

substantially all liabilities arising in connection with Old Seagate’s and Crystal Decisions operating assets and for selected tax liabilities. In return, VERITAS, Old Seagate and their affiliates agreed to indemnify New SAC and its affiliates, including Crystal Decisions, for certain liabilities, including all taxes of Old Seagate for which New SAC and its affiliates are not obligated to indemnify VERITAS and its affiliates. VERITAS deposited $150 million into an escrow account, of which the full amount remains at October 3, 2003. This amount will reduce these tax liabilities, including those of Crystal Decisions and our subsidiaries. To the extent that any part of the $150 million is not utilized to satisfy these tax liabilities, it will be paid to the former stockholders of Old Seagate.

     In July 2002, Crystal Decisions entered into a Reimbursement Agreement with Seagate Technology and its affiliates which allocates the respective liabilities and obligations of the parties under the Indemnification Agreement. Under the Reimbursement Agreement, if Crystal Decisions and Seagate Technology became obligated to indemnify VERITAS or Old Seagate under the indemnification agreement, a subsidiary of Seagate Technology will be responsible for the first $125 million of the tax liabilities. Any amount in excess of the first $125 million will be allocated pro rata in accordance with the portion of the purchase price allocated to each entity in connection with the New SAC Transaction among various subsidiaries and affiliates of Seagate Technology, including Crystal Decisions. For indemnification obligations other than tax liabilities, the parties agreed that the responsible entity will reimburse any entity that satisfies the obligation on its behalf.

     In connection with the Agreement and Plan of Merger that Crystal Decisions entered into on July 18, 2003 with Business Objects, Crystal Decisions obtained from VERITAS a written release on September 16, 2003, from its obligations to indemnify VERITAS for matters arising prior to the New SAC Transaction. The release will only become effective if the transaction with Business Objects is completed prior to March 31, 2004 and will not be of any force or effect unless and until the proposed acquisition is completed.

     In addition, on July 18, 2003, New SAC entered into an indemnification letter agreement with Crystal Decisions whereby New SAC agreed to reimburse Crystal Decisions and SSCH (and Business Objects as the successor to those parties upon completion of the proposed acquisition) for any claims arising prior to March 31, 2006 and related to tax matters under the Reimbursement Agreement or the Indemnification Agreement. The indemnification letter agreement becomes effective only upon the closing of the proposed acquisition of Crystal Decisions by Business Objects and will not be of any force or effect if the proposed acquisition is not completed.

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. Upon notice to Comerica and without penalty, Crystal Decisions may terminate the agreement at any time provided

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

that all obligations have been paid in full. 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.

     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 October 3, 2003 or June 27, 2003. At October 3, 2003, Crystal Decisions maintained $65.4 million of its cash equivalents balance with Comerica. Crystal Decisions earned interest of $214,000 on its deposits with Comerica at an average rate of 1.3% for the three months ended October 3, 2003.

10. Income Taxes

     The Company is subject to income taxes in both the United States and numerous foreign jurisdictions and the use of estimates are 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 months ended October 3, 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, acquisition costs incurred related to the proposed Business Objects transaction and the reduction in valuation allowance to reflect those future tax benefits that were more likely than not to be realized.

     At October 3, 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.

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

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):

     As of October 3, 2003 and September 27, 2002, respectively, the total number of outstanding options to purchase common stock was 20,356,940 and 13,398,720. During the three months ended October 3, 2003, Crystal Decisions issued 133,870 shares of common stock upon the exercise of options granted under the 1999 Stock Option Plan. The number of anti-dilutive stock options excluded from the diluted net income per share calculation was 2,775,694 for October 3, 2003 and 254,925 for September 27, 2002.

12. Comprehensive Income

     During the three months ended September 27, 2002, accumulated other comprehensive income was comprised solely of foreign currency translation gains and losses. Effective March 29, 2003, Crystal Decisions changed the functional currency of the remainder of its foreign subsidiaries from their respective local currency to the U.S. dollar. Accordingly, thereafter, all gains or losses on foreign currency translation are included in net income. During the three months ended October 3, 2003, accumulated other comprehensive income was comprised solely of the net unrealized gain or loss on derivative financial instruments accounted for as cash flow hedges.

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

     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. In September 2002, however, the Company received a notice that Vedatech is seeking to set aside the settlement. 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 in the court. In October 2003, Vedatech filed an action against Crystal Decisions, Crystal Decisions (UK) Limited and Susan J. Wolfe, Vice President, General Counsel and Secretary of Crystal Decisions, in the United States District Court, Northern District of California, San Jose Division, alleging that the August 2002 mediated settlement was induced by fraud and that the defendants engaged in negligent misrepresentation and unfair competition. In October 2003, Crystal Decisions (UK) filed an application with the High Court of Justice claiming the proceedings in United States District Court, Northern District of California, San Jose Division were commenced in breach of an exclusive jurisdiction clause in the settlement agreement and requesting injunctive relief to restrain Vedatech from pursuing the United States District Court proceedings. Although Crystal Decisions believes that Vedatech’s basis for seeking to set aside the mediated settlement and its claims in the October 2003 complaint are meritless, the outcome cannot be determined at this time. If the mediated settlement were to be set aside or Crystal Decisions were to be found liable in the October 2003 action, 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. Where the outcome of these matters is not determinable no provision is made in the financial statements until the loss, if any, is probable and can be reasonably estimated or the outcome becomes known.

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

     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 at this time and negative outcomes may adversely affect the Company’s financial position or results of operations.

15. Rescission Offer

     Certain shares issued and option grants made under the 1999 Stock Option Plan to residents of California, Maryland and New York may not have complied with all applicable securities laws of those states. Accordingly, the Company has made a rescission offer to these stockholders and optionees which will allow the holders to elect, during a limited period of time, to return their shares or options to the Company in return for a payment equal to their purchase price or 20% of their aggregate exercise price, respectively, plus any applicable interest. The rescission offer opened on November 4, 2003 and expires at 5:00 p.m. Pacific time on December 5, 2003. Approximately 327,970 outstanding shares of the Company’s common stock and approximately 1,439,792 outstanding options are subject to the rescission offer. The shares and options had purchase and exercise prices ranging from $4.00 to $11.82 per share. In the event that all of the persons eligible to participate in the rescission offer accepted the Company’s offer, the Company would make total payments of approximately $3.4 million, which the Company would fund from existing cash balances.

     At the time the rescission offer was mailed to stockholders and optionees, Crystal Decisions reclassified the share capital and related additional paid-in capital associated with the redeemable stock on the consolidated balance sheet as “Redeemable Common Stock”, outside of stockholders’ equity. The carrying value of the redeemable common stock is equal to the exercise price of the stock subject to the rescission offer plus applicable interest from the date of exercise until acceptance by stockholders of the rescission offer. On December 6, 2003, the eligible shares of common stock that are not redeemed and the related additional paid-in capital will be reinstated. The interest paid on the repurchase of shares on acceptance of the offer, if any, will be charged either to compensation expense or to additional paid-in capital. For stock options held by optionees, Crystal Decisions will incur compensation expense equal to the amount of the cash paid, including interest, to repurchase the option, if and when an employee accepts the cash settlement feature up to the date the rescission offer expires.

16. Guarantor’s Accounting for Guarantees

     The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third party claims. These contracts primarily relate to: (i) certain agreements with the Company’s officers and directors, under which the Company may be required to indemnify such persons for liabilities arising out of their duties to the Company; (ii) the pledge of certain assets and shares in connection with the Revolving Line agreement with Comerica described in note 9; (iii) certain real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; and (iv) agreements under which the Company indemnifies customers and partners for claims arising from intellectual property infringement. In addition Crystal Decisions entered into certain indemnification and reimbursement agreements related to the New SAC Transaction.

     Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations, there is no pending litigation or claims related to

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

these obligations, and no liabilities have been recorded for these obligations on the balance sheet as of October 3, 2003 and June 27, 2003.

     The Company warrants that its software products will operate substantially in conformity with product documentation and that the physical media will be free from defect. The specific terms and conditions of the warranties vary depending upon the type of agreement and the product sold, ranging from 30 to 90 days. The Company provides for the costs of warranty when specific problems are identified. The Company has not experienced any significant warranty claims to date and no liabilities related to warranty costs were recorded on the balance sheet as of October 3, 2003 and June 27, 2003.

17. Employment Contract Commitments

     In connection with the proposed acquisition of the Company by Business Objects, Crystal Decisions entered into various employment contracts, change-of-control arrangements and separation agreements.

     The Company entered into an amendment to the employment agreement with Jonathan J. Judge, its President and Chief Executive Officer, and into retention agreements with seven members of the executive team. The terms of these agreements allow for varying payments at varying times, including termination and severance payments, health benefits and other discretionary payments and certain modifications to existing stock option agreements. In addition, each of the individuals under management retention agreements will be entitled to continued employment for a period of three months following the close of the proposed acquisition by Business Objects. All terms are contingent upon the completion of the proposed Merger.

     The new or amended agreements resulted in modifications of the stock option agreements previously entered into by these parties and are being accounted for in accordance with APB 25 and FIN 44, “Accounting for Certain Transactions involving Stock Compensation” (“FIN 44”). Under FIN 44, management is required to make its best estimate of the ultimate benefit that these parties will receive as a result of the modification of existing agreements or the entering into of new agreements. The Company has not recorded any expense for the three months ended October 3, 2003, as the proposed acquisition has not been completed and the Company is currently unable to estimate whether the individuals will retain a benefit that might have otherwise been forfeited. Should the Merger be completed, the current estimate of compensation cost associated with the modification of Mr. Judge’s agreement is $11.3 million based on the difference between the fair market value and the exercise price of his options at the date of the amended employment agreement. This modification is the result of the extension of the exercise period for Mr. Judge’s stock options from 90 days to one year after termination. The ultimate compensation expense that will be reported related to the executive retention agreements will be based on the benefit of accelerated vesting, absent the modification, on the date of termination.

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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 and Audited Consolidated Financial Statements and related notes contained in our Annual Report on Form 10-K for the fiscal year ended June 27, 2003 as filed with the Securities and Exchange Commission (“SEC”) on August 19, 2003. 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 our 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 provides business intelligence software and services that enable the effective use and management of information within and among organizations. Our revenues are derived primarily from licensing fees for software products and, to a lesser extent, fees for services related to these products, including maintenance, technical support, training and consulting. We sell our software products through two channels: directly to end user customers through our sales force and indirectly through resellers, original equipment manufacturers, systems integrators and distributors, including independent software vendors. Original equipment manufacturers, which are independent software vendors and hardware vendors, generally integrate our products with theirs or resell them with their products. Our other indirect vendors resell our software products to end user customers.

     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 2003 ended on June 27, 2003 and comprised 52 weeks. Fiscal 2004 will be a 53-week year and will end on July 2, 2004. The three-month period ended October 3, 2003 comprised 14 weeks and the three-month period ended September 27, 2002 comprised 13 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.

     Recent Events

     On July 18, 2003, we entered into an agreement and plan of merger with Business Objects S.A. (“Business Objects”), several wholly owned subsidiaries of Business Objects and Seagate Software (Cayman) Holdings Corporation (“SSCH”). Pursuant to the agreement and plan of merger, as amended on August 29, 2003, we have agreed to be acquired by Business Objects for aggregate consideration to our stockholders (other than SSCH and stockholders who exercise appraisal rights under Delaware law) and common stockholders of SSCH, of approximately $300 million of cash, subject to adjustments, and a number of newly issued Business Objects ordinary shares or American Depository shares (“ADSs”) to be determined by a

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formula based on our outstanding shares of common stock and the value of our outstanding options to acquire common stock at the time of closing. In addition, certain of our options will be converted into options to acquire Business Objects’ ADSs having a per option value equivalent to the cash and Business Objects’ shares to be received per share by holders of our common stock. The proposed acquisition is subject to the approval of Business Objects shareholders and receipt of various regulatory approvals. Assuming receipt of those approvals, we and Business Objects anticipate that the proposed acquisition will occur prior to the end of calendar 2003.

     Sources of Revenue

     Licensing revenues. We generate licensing revenues from the sale of licenses to use our software products. We price our products on a per user, processor or concurrent user basis. We generally do not sell licenses for our products on a time or subscription basis.

     We currently operate with virtually no order backlog because our software products are typically delivered shortly after orders are received. Licensing revenues in any quarter are substantially dependent on orders booked and delivered in that quarter. Historically, we have recognized a substantial portion of our revenues in the last month of a quarter. As we sell more large-scale deployments of our products, orders may become larger and the impact of the longer sales cycle of these deployments may make our revenues harder to predict.

     Maintenance, support and services revenues. Our maintenance revenues are derived from selling rights to existing customers to receive product upgrades, when and if we make them available. Our maintenance agreements generally have a term of one year. Customers may renew their maintenance agreements for additional consecutive periods. Our technical support revenues are derived from fees charged to customers for post-sales efforts. We sell technical support services under several different programs generally on a 12-month basis, on a fee for use, fixed price or a per incident basis.

     Our professional services organization generates revenues for training and consulting to plan and execute the deployment of our products and accelerate end user adoption. In addition, we provide training to our customers’ employees to enhance their ability to utilize fully the features and functionality of the product purchased. We provide training and consulting services related to the use of our products and receive project- or time-based fees as a result.

     Cost of Revenues

     Our cost of licensing revenues consists primarily of materials, product packaging, distribution costs, related fulfillment personnel and third-party royalties. Our cost of maintenance, support and services revenues consist primarily of personnel and related overhead costs for technical support, training, consulting and the cost of materials delivered with product upgrades and enhancements.

     Operating Expenses

     Sales and marketing expenses include salaries, benefits, commissions and bonuses earned by sales and marketing personnel, advertising, product promotional campaigns, promotional materials, travel, facilities and other overhead costs. Research and development expenses are expensed as incurred and consist primarily of personnel and related costs associated with development of new products, the enhancement and localization of existing products, quality assurance and testing, as well as facilities and other overhead costs. General and administrative expenses consist primarily of personnel and related costs for finance, legal and human resources, as well as other administrative costs. During the three months ended October 3, 2003, operating

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expenses included $3.5 million of costs related to our postponed initial public offering and $4.8 million of costs related to integration costs incurred related to the proposed acquisition by Business Objects.

     Foreign Exchange

     We conduct the majority of our business and collect the majority of our revenues in U.S. dollars, which is the currency in which we report our financial results. We also earn approximately 20% of our revenues in currencies other than the U.S. dollar including the euro, the British pound and the Canadian dollar. Our total revenues are affected by changes in the exchange rates for these currencies relative to the U.S. dollar.

     We incur a significant portion of our expenses in Canadian dollars. Our total expenses fluctuate according to the changes in the exchange rate of the Canadian dollar relative to the U.S. dollar. With the exception of our Canadian dollar expenses, the impact of fluctuations in foreign exchange rates on our net operating income is nominal as our foreign denominated revenues substantially offset our foreign denominated expenses. For the three months ended October 3, 2003, a 10% increase in the exchange rate for the Canadian dollar would have increased our revenues by less than 1% but would have increased our expenses by approximately 4%. We recently implemented a partial hedging strategy for these exposures. We may experience substantial foreign exchange gains or losses due to the volatility of the Canadian dollar or other currencies compared to the U.S. dollar, to the extent our hedging activities are ineffective or to the extent that expenses are not covered under our partial hedging strategy.

     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 but not limited to those related to recognition of revenues, allowance for doubtful accounts, contingencies and litigation, income taxes and stock-based compensation. 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.

     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. 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 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.

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     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 the 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 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. We accrue expected losses, if any, with respect to consulting services once they become known.

     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. Maintenance contracts include rights to unspecified software product enhancements and upgrades when and as we make them available. We recognize revenues allocable to training and consulting services as the services are performed.

     For sales to distributors and resellers, we recognize revenues upon the delivery of our products to these parties. We reserve an amount equal to our estimate of all product held by such parties which are subject to rights of return and resale contingencies. We consider several factors in determining these estimates including historical experience, level of inventory in the distribution channels, nature of the product, fixed or determinable fees and payment terms. We reduce our revenues and the related receivables by this estimate.

     For sales to original equipment manufacturers, we recognize revenues when the original equipment manufacturer (“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. If we determine, through royalty audits or other means, that an OEM did not report revenues accurately, we attempt to reconcile the discrepancies and, if appropriate, record additional revenues upon resolution.

     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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     Allowance for Doubtful Accounts. The allowance for doubtful accounts, which is netted against our accounts receivable on our consolidated balance sheets, totaled $2.6 million as of October 3, 2003 and June 27, 2003. 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 data we use to calculate the allowance does not reflect the future ability to collect outstanding receivables, we may be required to record additional allowances and our future results of operations could be materially impacted. Our bad debt expenses are reflected in general and administrative expenses.

     Contingencies and Litigation. We evaluate contingent liabilities including threatened or pending litigation in accordance with SFAS 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 worldwide 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 recorded on the consolidated balance sheet. Our deferred tax assets consist primarily of net operating losses carried forward. We assess the likelihood that deferred tax assets will be recovered from future taxable income, and, a valuation allowance is recognized if it is more likely than not that some portion of the deferred tax assets will not be recognized. We provided a full valuation allowance against all our deferred tax assets as of June 28, 2002. During fiscal 2003 and the three months ended October 3, 2003, we released a portion of our valuation allowance against our deferred tax assets and have recorded current and long-term deferred tax assets at October 3, 2003 and September 27, 2002. To the extent we establish any valuation allowance against our deferred tax assets or change this valuation allowance in a period, we reflect the impact in the provision for (benefit from) income taxes in our 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.

     Stock-Based Compensation. We measure compensation expense for the majority of our stock option plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Because there has been no public market for our stock, the compensation committee previously determined the fair value of our common stock by considering a number of factors, including, but not limited to, contemporaneous 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. Commencing on July 18, 2003, the compensation committee determined our fair market value pursuant to the exchange ratios set forth in the agreement and plan of merger.

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     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

     We became an indirect subsidiary of New SAC (“New SAC”) on November 22, 2000 when New SAC indirectly acquired 75,001,000, or 99.7% of our common stock outstanding at that date, under the terms of a stock purchase agreement with Old Seagate and Seagate Software Holdings. In the acquisition, New SAC purchased all of the operating assets of Old Seagate and its consolidated subsidiaries for cash and borrowings of $1.84 billion, including transaction costs of $25 million. This included Old Seagate’s rigid disc drive, storage area network, removable tape storage solutions businesses and operations, our common stock, and certain cash balances, but excluded the approximately 128 million shares of VERITAS Software Corporation (“VERITAS”) common stock then held by Seagate Software Holdings and certain of Old Seagate’s equity investments.

     The New SAC transaction resulted in a change in control of our company. Under rules and regulations of the Securities and Exchange Commission, because more than 95% of our company was acquired and a change of control occurred, we restated all our assets and liabilities in our financial statements as of November 22, 2000 on a push down accounting basis, which involved the application of the purchase method of accounting to the financial statements of our company in the business combination. We recorded $75,000 and $270,000 less depreciation expense for the three months ended October 3, 2003 and September 27, 2002, respectively, than we would have had the push down adjustments not been made. There was no other impact on the financial results in the periods reported.

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Results of Operations

     The following table sets forth certain consolidated statement of operations data expressed 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 (dollars in thousands):

     The majority of our revenues were derived from licensing fees for our products and we anticipate that licensing fees will continue to represent the majority of our revenues for the foreseeable future. Our revenues have increased as the result of the continued delivery of new products, better sales training, the increased size and productivity of our sales force, increased numbers of distributors and OEMs and our targeted marketing campaigns. Additionally, we continued to add new customers with our Crystal 8 and 9 suite offerings, which included major releases including Crystal Enterprise 8.5 in May 2002, Crystal Analysis 8.5 in June 2002, Crystal Reports 9.0 in August 2002 and Crystal Enterprise 9.0 in January 2003. Our Crystal Reports and

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Crystal Enterprise products comprise over 95% of our total revenues. The total revenues from these products for the three months ended October 3, 2003 increased 36% over the three months ended September 27, 2002.

     During the three months ended September 27, 2002, revenues from a distributor, Ingram Micro, Inc. (“Ingram”), totaled $6.2 million or 10% of total revenues. Revenues from Ingram represented less than 10% of total revenues for the three months ended October 3, 2003. No other customer or distributor accounted for 10% or more of our total revenues during these periods.

     For the three months ended October 3, 2003, our revenues were $61.9 million, or 75% of total revenues, from customers in North America, $14.1 million, or 17% of total revenues, from customers in Europe, the Middle East and Africa and $6.3 million, or 8% of total revenues, from customers in the Asia Pacific region. For the three months ended September 27, 2002, our revenues were $48.1 million, or 74% of total revenues, from customers in North America, $12.6 million, or 19% of total revenues, from customers in Europe, the Middle East and Africa and $4.3 million, or 7% of total revenues, from customers in the Asia Pacific region. Total revenues increased across all consolidated regions for the three months ended October 3, 2003 from the three months ended September 27, 2002.

     Licensing revenues. The increase in licensing revenues occurred across all sales channels and all consolidated regions, and was primarily the result of the increased size and productivity of our sales force and the addition of new customers purchasing through our direct channel.

     Maintenance, support and services revenues. The increase in maintenance, support and services revenues was primarily attributable to increased maintenance fees associated with sales of new licenses of our products and increased technical support revenues. Because many of our customers renew maintenance and technical support each year, increased maintenance and technical support revenues are generated from the cumulative growth in our customer base.

Cost of Revenues

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

     The absolute dollar decrease in cost of licensing revenues was primarily due to the absence of the shipment of a major product release in the three months ended October 3, 2003 compared to the costs associated with releasing Crystal Reports 9.0 in August 2002. In addition, we changed our method of distribution for manuals, which reduced costs. Cost of licensing revenues will vary depending on the volume, distribution method and mix of software licenses shipped. Cost of maintenance, support and services revenues increased as we continued to expand our customer support and professional services organizations to meet the demands of our growing customer base. These costs included increases in salary and benefit costs of $1.6 million, associated with an increase of over 50 employees. This increase was partially offset by cost

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control initiatives and the absence of certain costs that were incurred in the three months ended September 27, 2002 in connection with hiring of key personnel.

Gross Margin

     Our gross profit as a percentage of total revenues, or gross margin, increased from 76% for the three months ended September 27, 2002 to 81% for the three months ended October 3, 2003. Our gross margin from licensing revenues increased from 96% to 97% and our gross margin from maintenance, support and services revenues increased from 40% to 51%. The increase in maintenance, support and services margins resulted primarily from an increase in margins in maintenance, consulting and training. Our support and services margins are impacted by the rate of utilization of our personnel and personnel costs relating to the use of our employees versus outside contractors, who are generally more expensive than our personnel. During the three months ended October 3, 2003, the use of outside services by our professional services organization decreased by $1.1 million.

Operating Expenses

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

     Sales and Marketing. The increase in sales expenses in absolute dollars was primarily associated with increased salary and benefits expense of $4.3 million related to an overall increase in our sales force and the resultant higher total commissions. In addition, ancillary costs such as travel and entertainment increased by $632,000; however, these were offset by $619,000 in lower advertising and promotion costs. In addition, increases in facilities and overhead costs accounted for $1.5 million of the increase. The decrease in our sales and marketing expenses as a percentage of revenues resulted primarily from increased productivity in our direct sales force.

     Research and Development. The increase in research and development expenses in absolute dollars primarily resulted from increased salary and benefit costs of $1.2 million associated with increased headcount and increased outsourcing costs of $274,000. In addition, allocations for increases in facilities and overhead costs accounted for $993,000 of the increase. We expect research and development expenses to increase in absolute dollars in future periods as we invest in new products and improvements to our existing products.

     General and Administrative. The increase in general and administrative expenses in absolute dollars and as a percentage of total revenues was primarily due to increases in salary and benefits expense of $1.1 million relating to increased staffing to support our growth, the write-off of $3.5 million of costs related to our postponed initial public offering and $4.6 million of the $4.8 million in costs associated with the proposed

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acquisition by Business Objects. Professional fees not included in either of these groups, decreased by approximately $915,000 due to decreased legal accruals and the absence of certain relocation fees.

     Net interest and other income, net.

     Net interest and other income, net comprised the following (dollars in thousands):

     Net interest income fluctuates depending on movements in the general level of interest rates, our average cash and available-for-sale securities balances and the interest rates applied thereon. The increase in net interest income is primarily the result of increased cash and available-for-sale securities balances.

     Other income (expense) was largely comprised of net foreign exchange gains or losses, which represent the impact of foreign currency fluctuations on the translation of foreign currency transactions and quarter end balances into U.S. dollars and varies depending upon movements in currency exchange rates. During the three months ended October 3, 2003 and September 27, 2002, respectively, we realized a net foreign currency gain of $61,000 and $124,000.

     Income Taxes

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Liquidity and Capital Resources

* Includes cash equivalents and short and long-term investments and excludes restricted cash of approximately $2.0 million in each period.

     The majority of our cash and available-for-sale securities are held in U.S. dollar denominated bank deposits or highly liquid investments in accordance with our investment policy. The remaining portion of our cash balance is denominated in the local currencies of our foreign operations, including Canadian dollars, British pounds, Japanese yen, euros and other currencies. All of our cash is maintained in accounts with high credit quality financial institutions and our available-for-sale securities are maintained in highly rated instruments.