ASCENTIAL SOFTWARE CORP - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-15325

ASCENTIAL SOFTWARE CORPORATION
(FORMERLY INFORMIX CORPORATION)
(Exact name of registrant as specified in its charter)

DELAWARE 94-3011736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

50 WASHINGTON STREET, WESTBOROUGH, MA 01581
(Address of principal executive office)

508-366-3888
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01
PAR VALUE
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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 [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of January 31, 2002 based on the closing sales price of the
Company's common stock, as reported on The Nasdaq Stock Market, was
approximately $1,141,510,191. Shares of common stock held by each officer and
director have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.

As of January 31, 2002, the registrant had 256,519,144 shares of Common
Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for its annual
meeting of stockholders for the fiscal year ended December 31, 2001, which will
be filed with the Securities and Exchange Commission within 120 days after the
end of the registrant's fiscal year, are incorporated by reference into Part III
hereof.

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ASCENTIAL SOFTWARE CORPORATION

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

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PART I

This report contains forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or anticipated results. These risks and uncertainties
include, but are not limited to, those set forth under "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Factors That
May Affect Future Results" and elsewhere in, or incorporated by reference into,
this report. Readers of this report should review carefully these factors as
well as the description of risks and uncertainties, which, together with other
detailed information about the Company, is contained in other documents and
periodic reports that the Company files from time to time with the Securities
and Exchange Commission. These forward-looking statements reflect management's
opinions only and only as of the date of this report and the Company disclaims
any obligation to update or revise these statements.

ITEM 1. BUSINESS

BUSINESS OVERVIEW

Ascential Software Corporation ("Ascential" or the "Company") is a global
provider of information asset management solutions. Ascential designs, develops,
markets and supports enterprise data integration software products and solutions
to allow its worldwide customers, mid-sized and large organizations and
governmental institutions, to transform vast amounts of disparate, unrefined
data into reliable, reusable information assets. Ascential also offers to its
customers a variety of services such as consulting, including implementation
assistance and project planning and deployment, software product enhancements
and support, and education.

The Company was incorporated in Delaware in 1986 and, until the third
quarter of 2001, operated under the name "Informix Corporation." During 2000,
the Company consolidated its business units into two operating businesses: (i)
Informix Software, which operated the Company's database software systems
business, and (ii) Ascential Software, which operated the Company's solutions
software business. During the third quarter of 2001, the Company sold to
International Business Machines Corporation ("IBM") substantially all of the
assets relating to the database business, including the name "Informix," for
approximately $1.0 billion in cash (the "IBM Transaction") (See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview -- The IBM Transaction"). In connection with the IBM
Transaction, the Company changed its name to Ascential Software Corporation and
changed the symbol under which the Company's common stock is traded on the
Nasdaq National Market to "ASCL."

Ascential is headquartered in Westborough, Massachusetts and has offices
worldwide supporting more than 1,800 customers in such industries as
telecommunications, insurance, financial services, healthcare,
media/entertainment, government and retail.

PRODUCTS

DATASTAGE

The DataStage product family is a highly comprehensive data integration
platform that enables customers worldwide to create and manage scalable, complex
data integration infrastructures for successful implementation of business
initiatives such as customer relationship management analytics, decision
support, enterprise applications and e-business. From its data integration
capabilities to its available meta data management module and data quality
assurance functions, the DataStage product family helps enterprises use
information assets to gain a competitive advantage.

DataStage was first shipped in January of 1997. DataStage provides data
integration, which is the extraction of data from disparate sources (i.e., such
as legacy mainframes, servers, databases, flat files and other systems
throughout an organization), transformation of that data into a compatible
format, and delivery of that data to a target system (i.e., a data warehouse
residing on a server). Two strategic acquisitions enhanced DataStage, by adding
meta data technology and mainframe data integration technology. These
acquisitions significantly expanded Ascential's product set and helped drive
expansion of its customer base.

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During the later part of 1999 and into early 2000, Ascential further enhanced
DataStage by adding ERP solution integration and real time capability through an
interface to IBM's MQ Series. The latest version of DataStage, version 5, was
introduced in November 2001. In November 2001, Ascential also completed the
acquisition of Torrent Systems, Inc. ("Torrent"). The Torrent Orchestrate
product increases the scalability of DataStage, by incorporating parallel
processing technology. The significant features of DataStage include:

- Comprehensive Platform -- The complete enterprise data integration
platform supports the collection, integration and transformation of high
volumes of data, with data structures ranging from simple to highly
complex.

- Increased Scalability -- The DataStage platform is designed to seamlessly
scale to satisfy the demands created by ever growing data volumes and
ever shrinking batch windows.

- End-To-End Meta Data Management -- Meta data integration ties together
the total data integration infrastructure. End-to-end integration of all
the tools making up the data integration ecosystem enables a clear and
unambiguous picture of the business through the automatic connection of
all relevant enterprise meta data.

- Collaboration/Reuse of Analytical Assets -- DateStage enables disparate
units within across an enterprise can share and leverage information
derived from multiple business intelligence tools and deliver it to a
single point, or multiple points, of access.

- Embedded Data Quality Assurance -- Data quality assurance will help to
ensure that integrated data is complete, accurate and consistent for its
intended use. This function is critical to realizing value in enterprise
information. High quality data allows decision makers to know the things
they need to know, and therefore make informed decisions intended to
create value for their business.

- Advanced Maintenance and Development -- The ability of DataStage to
provide full-scale data integration reduces the development and
maintenance cycle for data integration projects by simplifying
administration and maximizing development resources.

On March 12, 2002, Ascential announced the signing of a definitive
agreement to acquire Vality Technology, Inc. ("Vality") in a transaction valued
at approximately $92 million in cash, net of proceeds from options to be
exercised upon closing and cash on Vality's balance sheet. Vality is a privately
held company, headquartered in Boston, Massachusetts, that specializes in
enterprise data quality management. The transaction is expected to close in
April 2002, subject to approval of Vality shareholders and other customary
closing conditions. Ascential believes that the data cleansing technologies
offered by Vality will complement the data and meta data management capabilities
of the DataStage product suite and provide more comprehensive functionality to
our customers.

MEDIA360 PRODUCT FAMILY

In January 2002, Ascential announced that it had engaged an investment bank
to assist in divesting its media content management business associated with
Ascential's Media360 product family. The Media360 product family is an
enterprise content management system for collecting, organizing and delivering
multiple types of media assets. Ascential's announcement was principally the
result of its decision to focus its development and sales efforts on its core
data integration product offerings.

As described above, Ascential's primary product offerings are DataStage,
the core data integration product; and Media360. Along with the i.Sell product,
which was discontinued in the first quarter of 2001, these product families have
accounted for the following percentages of Ascential's revenue for 2001, 2000
and 1999, respectively: DataStage -- 84%, 64%, 82%; Media360 -- 14%, 12%, 2% and
i.Sell -- 2%, 24%, 16%.

SERVICES

Ascential believes that a high level of customer service is required for
success in the enterprise software market. Services revenues consist primarily
of software maintenance and support fees, consulting fees and customer training
fees.
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Ascential maintains both field-based and centralized corporate technical
staffs to provide a comprehensive range of assistance to customers and partners.
Services include post-sales technical support, consulting, and product
education. Consultants and educators provide services to customers to assist
their use of Ascential products and their design and development of applications
that utilize Ascential products.

- CUSTOMER CARE

Ascential also provides customer service via telephone and e-mail. All
Ascential maintenance customers have access to customer service resources,
delivered by service professionals focused on resolution of customer issues.

- CONSULTING SERVICES

Ascential offers a variety of consulting services to its customers and
third-party consulting firms, including implementation assistance, project
planning and deployment, and minor software enhancements. Ascential's advanced
consulting group is focused on new technologies and product releases, and in
helping customers implement them. Ascential works with leading international and
regional third-party consulting and systems integration firms that complement
its professional service offerings and provide customers with a full range of
service options.

- CUSTOMER EDUCATION AND TRAINING

Ascential offers comprehensive education and training courses which provide
a full suite of classroom, computer-based certification, and custom education
offerings that enable customers and partners to optimally deploy and use
Ascential products. Training is also available to third-party consultants.

SALES AND MARKETING

Ascential distributes its products through four main channels: direct
end-user licensing, embedded resellers, value-added resellers, and solutions
vendors addressing specific markets. Ascential uses a multiple channel
distribution strategy to maintain broad market coverage and competitiveness.
Discount policies and reseller licensing programs are intended to support each
distribution channel with a minimum of channel conflict. The principal
geographic markets for Ascential's products are North America, Europe, the Asia/
Pacific region, and Latin America. Ascential's revenues for 2001, 2000 and 1999
attributable to its operations inside the United States were 52%, 49% and 50% of
total revenues, respectively, while its revenues attributable to its
international operations during the same periods were 48%, 51% and 50% of total
revenues, respectively. See Note 9 of Notes to Consolidated Financial Statements
attached to this report for summary information regarding revenues derived from
Ascential's geographic operating segments.

In support of its sales efforts, Ascential conducts comprehensive marketing
programs, which include telemarketing, direct mail and e-mail campaigns, public
relations, seminars, tradeshows and ongoing customer communications programs.
The sales cycle begins with the generation of a sales lead, or often the receipt
of a request for proposal from a prospective customer, followed by a
qualification of the lead, analysis of the customer's needs, response to the
request for proposal (if solicited by the customer), one or more presentations
to the customer, customer internal approval activities, contract negotiation and
shipment to the customer. While the sales cycle from customer to customer can
vary considerably, the sales cycle has historically been three to twelve months.

Ascential's sales and marketing strategy is based on building and
maintaining strong relationships with organizations that can positively
influence the sale of its products. Ascential's customers and potential
customers often rely on third-party systems integrators or other technology
partners (e.g., analytic, database, enterprise software and hardware vendors) to
develop, deploy and manage an overall solution that can include Ascential
products. Ascential has conducted several joint marketing and sales programs
with partners in each of these categories, including seminars, direct mail
campaigns and trade show participation.

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LICENSING

- END-USER LICENSING

Ascential licenses its products to organizations worldwide through a direct
sales force and telesales group. Ascential's infrastructure solutions are sold
to Global 2000 and government organizations looking to convert their volumes of
unrefined data and content into reliable and reusable information assets. A
majority of these organizations enter into standard agreements for
industry-standard discount structures. Certain organizations have begun to
standardize their information asset management solutions enterprise-wide and are
entering into more global enterprise agreements that can result in discounts for
those organizations.

- EMBEDDED RESELLER, VALUE-ADDED RESELLER AND SOLUTION VENDOR LICENSING

Ascential licenses its products to application vendors who distribute
Ascential's products. A typical application vendor develops an application
(e.g., a risk management analytic application) using Ascential software. The
application vendor purchases a license for the use of the product to develop the
application program. Depending on the application developed, the vendor may
purchase a run-only license, a full version license or multiple product
licenses. In addition, the application vendor may resell Ascential products to
end users for use in conjunction with its own applications.

Ascential has specialized programs to support the application vendor
distribution channel. Under these programs, Ascential has provided to selected
application vendors a combination of marketing development services, consulting
and technical marketing support and discounts.

PRODUCT DEVELOPMENT

Major product releases resulting from research and development projects in
2001 include the following:

- DataStage XE Version 5 including updates to all major components of the
DataStage product suite

- DataStage 4.2 Kanji Edition including Quality Manager

- DataStage Portal Edition

- Enterprise Application Interfaces, including:

-- DS Load PACK for SAP BW 2.0

-- DS Extract PACK for SAP BW 2.0

-- DS Extract PACK for PeopleSoft

-- DS Extract PACK for Siebel

-- IBM MQ Series

- Media 360, including

-- Core 2.0

-- NewsRoom Edition 2.0

-- Video 2.0

-- Image 2.0

-- Web Publishing 2.1

-- Desktop Publishing

Ascential's current product development efforts are focused on:

-- Further enhancing the performance and scalability of the DataStage
products through the integration of the Parallel Extender (formerly
Torrent Orchestrate) framework.

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-- Extending the real-time capabilities of Ascential's data integration
infrastructure as well as expanding connectivity to enterprise
applications and messaging services.

-- Enhancing the usability of all Ascential's infrastructure solutions.

-- Extending the functionality of Ascential's data integration
infrastructure to address broader market requirements including enhanced
data quality and data-centric application integration.

-- Enhancing solutions to leverage new hardware platforms and emerging
software industry standards, including web services.

RESEARCH AND DEVELOPMENT EXPENDITURES

Ascential's research and development expenditures for 2001, 2000 and 1999
were $87.0 million, $166.1 million and $188.1 million, respectively,
representing approximately 18% of net revenues for these periods. Of the $87.0
million incurred during 2001, $54.4 million, representing approximately 63% of
the total annual research and development expenditures, is attributable to
product development activities relating to the Company's database business, the
assets of which were sold to IBM during the third quarter of 2001. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Costs and Expenses."

INTELLECTUAL PROPERTY

Ascential regards certain aspects of its internal operations, products and
documentation as proprietary, and Ascential primarily relies on a combination of
patent, copyright, trademark and trade secret laws and other measures to protect
its proprietary rights. Ascential also relies on contractual restrictions in its
agreements with customers, employees and others to protect its intellectual
property rights. However, Ascential cannot ensure that these agreements will not
be breached, that Ascential would have adequate remedies for any breach or that
Ascential's trade secrets will not otherwise become known.

Ascential currently holds seven United States patents, five of which were
obtained in connection with the Torrent acquisition, with respect to
technologies included in its products and may continue to file patent
applications in the future. Ascential cannot ensure that any patents will result
from any such applications or that, if issued, such patents will provide any
meaningful competitive advantage. Ascential believes that, because of the rapid
pace of technological change in the computer software industry, factors such as
the expertise, ability and experience of Ascential employees, frequent software
product enhancements and the timeliness and quality of support services are key
to its success. This success is also dependent, in part, upon its proprietary
technology and other intellectual property rights.

Ascential's products are generally licensed to end-users on a
"right-to-use" basis pursuant to a license that restricts the use of the
products for the customer's internal business purposes. Ascential also relies on
"shrink wrap" and "click wrap" licenses, which include a notice informing the
end-user that, by opening the product packaging or, in the case of an online
transaction, by downloading the product, the end-user agrees to be bound by the
license agreement printed on the package or displayed on the customer's computer
screen. Despite such precautions, it may be possible for unauthorized third
parties to copy aspects of current or future products or to obtain and use
information regarded as proprietary. In particular, Ascential has licensed the
source code of its products to certain customers for restricted uses under
certain circumstances. Ascential has also entered into source code escrow
agreements with a number of customers that generally require release of source
code to the customer in the event of Ascential's bankruptcy, liquidation,
inability to provide maintenance or otherwise ceasing to conduct business. The
source code for Ascential's products is protected both as a trade secret and as
a copyrighted work. Ascential cannot ensure that these protections will be
adequate or that competitors will not independently develop technologies that
are substantially equivalent or superior to Ascential's technology or technology
that Ascential may acquire or develop in the future.

Ascential believes that its products, trademarks or other proprietary
rights do not infringe the proprietary rights of third parties. However,
Ascential cannot ensure that third parties will not assert infringement claims

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against Ascential in the future with respect to current or future products or
that any such assertion will not require Ascential to enter into royalty
arrangements or result in costly and time consuming litigation.

COMPETITION

The information asset management software market is extremely competitive
and subject to rapid technological change and frequent new product introductions
and enhancements. Ascential's competitors in the market include vendors that
develop and market data integration, business intelligence and portal software.
Principal competitors include Acta, ETI, Informatica, Hummingbird and Sagent.

Competitors in the information asset management market compete primarily on
the basis of product performance but also technical product support, services
and price. With respect to product performance, we believe that the following
factors pertain to Ascential's competitive position in the market:

- The speed with which Ascential's products can extract data from multiple
sources and transform that data into reliable, reusable information.

- The ability of Ascential's products to integrate all of the tools of the
data integration system.

- The extent to which Ascential's products allow segments within an
enterprise to share information from a single point of access.

- The reliability and serviceability of Ascential's products.

- Ascential's ability to develop, introduce and support innovative products
and the market's acceptance of such technical innovations.

EMPLOYEES

As of December 31, 2001, Ascential employed approximately 870 people,
including approximately 200 in services, approximately 370 in sales and
marketing, approximately 200 in research and development and approximately 100
in general and administrative functions. Approximately 500 employees were
located in the United States. None of Ascential's employees in the United States
are represented by a labor union or are subject to a collective bargaining
agreement. Certain of the international employees are covered by the customary
employment contracts and agreements of the countries in which they are employed.

VALITY TECHNOLOGY INCORPORATED

On March 12, 2002, Ascential and Vality Technology Incorporated ("Vality")
jointly announced the signing of a definitive agreement for Ascential to acquire
Vality, a privately held company, headquartered in Boston, Massachusetts, that
specializes in enterprise data quality management. The transaction is valued at
approximately $92.0 million, net of proceeds from options to be exercised upon
closing and cash on Vality's balance sheet. Management of Ascential believes
that the data cleaning technologies offered by Vality will complement the data
and meta data management capabilities of the DataStage product suite and provide
more comprehensive functionality to customers. The transaction is expected to
close in April 2002, subject to approval by Vality shareholders and other
customary closing conditions. Vality stockholders holding more than two-thirds
of Vality's outstanding capital stock have already agreed to support and vote in
favor of the proposed transaction at the meeting of Vality's stockholders, which
is expected to be convened in early April.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information concerning our executive
officers as of December 31, 2001.

Peter Gyenes has served as the Chairman and Chief Executive Officer of
Ascential since July 2000. Mr. Gyenes has more than 30 years of experience in
sales, marketing and general management positions within the computer systems
and software industry. Prior to Informix's acquisition of Ardent Software, Inc.
in 2000, he was chairman, president and CEO of Ardent, which he joined in 1996.
Before joining Ardent, he was president and CEO of Racal InterLan, Inc.
Previously, Mr. Gyenes served in executive sales, marketing, and general
management positions at Prime Computer Inc., Encore Computer and Data General
Corporation (now part of EMC Corporation). Earlier in his career, Mr. Gyenes
held technical positions with Xerox Data Systems and IBM. He serves on the
boards of Applix Computer Systems, Axis Computer Systems, Davox Corporation and
the Massachusetts Software and Internet Council. Mr. Gyenes received a Bachelor
of Arts degree in Mathematics and a Masters of Business Administration degree
from Columbia University.

Peter Fiore has served as the President of Ascential since July 2000.
Previously Mr. Fiore served as Senior Vice President of Informix Corporation and
President of Ascential Software, Inc. after serving as the head of the Informix
Business Solutions business unit. Prior to the acquisition by Informix of Ardent
Software, Inc. in 2000, Mr. Fiore served as vice president of worldwide
marketing operations of Ardent, which he joined in 1994. Before joining Ardent,
Mr. Fiore directed channel marketing for CrossComm Corporation and held sales
and marketing management positions at Stratus Computer, Inc. Mr. Fiore received
a Bachelor of Science degree in Engineering and Applied Sciences from Harvard
University.

Robert McBride has served as the Vice President and Chief Financial Officer
of Ascential since July 2001. Mr. McBride joined Informix Corporation in June
2001 serving as the Vice President and Chief Financial Officer of Ascential
Software, Inc. Mr. McBride directs Ascential's financial, operational and
administrative business functions. He brings more than 25 years of financial and
administration experience at Fortune 500 information systems companies to the
Company. During a 17-year tenure at Data General Corporation (now part of EMC
Corporation), Mr. McBride served as vice president, chief administrative
officer, corporate controller and corporate treasurer, among other senior
financial management positions. He also held a variety of senior management
positions in the Information Systems and Finance areas of Burroughs Corporation.
Mr. McBride received a Master's Degree in business administration from
Washington University and a Bachelor's Degree from Ohio Wesleyan University.

Scott Semel has served as the Vice President, Legal, General Counsel and
Secretary of Ascential since August 2001. Mr. Semel manages Ascential's legal,
regulatory and compliance matters, and directs its worldwide legal department.
Mr. Semel comes to Ascential with more than 20 years of extensive legal
experience, having previously served as general counsel and corporate secretary
to NaviSite, Inc. and Designs, Inc.

ITEM 2. PROPERTIES

Ascential's corporate headquarters is in a 93,000 square foot facility in
Westborough, Massachusetts that was formerly occupied by Ardent Software, Inc.
This facility also contains Ascential's marketing, finance, sales and
administration functions and a significant portion of its customer service,
manufacturing and research and development operations. The lease for the
Westborough facility expires on December 31, 2008.

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In addition, significant parts of Ascential's research and development
organizations are housed in facilities in Oakland, California (26,000 square
feet); Los Gatos, California (7,000 square feet) and Milton Keynes, United
Kingdom (7,000 square feet). These buildings are under lease until May 2003,
December 2002 and September 2012, respectively.

Ascential also leases office space, principally for sales and support
offices, in a number of facilities in the United States, Canada and outside
North America. As of December 31, 2001, Ascential controlled approximately
780,000 square feet of office and/or manufacturing space for these facilities.
Approximately 37% of the facilities are actively being utilized, while the
balance have been either vacated or sublet. Of all Ascential's leased property,
approximately 67% is located in the Americas (United States, Canada and Latin
America), 23% is located in Europe, the Middle East and Africa and the remaining
10% is located in the Asia Pacific region. Ascential's European, Middle Eastern
and African sales and services headquarters is housed in a 21,000 square foot
facility in Paris, France, which is under lease until March 2008. Ascential also
maintains a major sales and services office in London, England (19,000 square
feet), which is under lease until September 2018. Ascential's Asia Pacific sales
and services headquarters is based in an 8,300 square foot facility in Sydney,
Australia, which is under lease until March 2004. Ascential's has two principal
sales offices serving Latin America, Mexico City, Mexico and Sao Paulo, Brazil,
which are under lease until July 2005 and August 2002, respectively.

Ascential believes that its existing facilities are adequate to meet its
business needs through the next twelve months.

Under the terms of the IBM Transaction, Ascential assigned to IBM office
space in the following ten locations: 4 buildings in a Menlo Park, California
campus, which was formerly the corporate headquarters for Informix Software;
Lenexa, Kansas; Portland Oregon; Oakland, California; Denver, Colorado; Miami,
Florida; London, United Kingdom; Dublin, Ireland; Sydney, Australia and Tokyo,
Japan. These offices together made up the corporate headquarters and principal
research and development and sales offices of the database business which was
sold to IBM and totaled approximately 610,000 square feet. Ascential has
approximately 370,000 square feet of vacant space that it is seeking to sublease
to third parties or surrender to landlords. Management believes Ascential has
adequately provided for the costs to dispose of this space.

ITEM 3. LEGAL PROCEEDINGS

On May 26, 1999, Ascential entered into a memorandum of understanding
regarding the settlement of pending private securities and related litigation
against Ascential, including a federal class action, a derivative action, and a
state class action. In November 1999, the settlement was approved by the
applicable federal and state courts. The settlement resolves all material
litigation arising out of the restatement of Ascential's financial statements
that was publicly announced in November 1997. In accordance with the terms of
the memorandum of understanding, Ascential paid approximately $3.2 million in
cash during the second quarter of 1999 and an additional amount of approximately
$13.8 million of insurance proceeds was contributed directly by certain of
Ascential's insurance carriers on behalf of certain Ascential's current and
former officers and directors. As part of the settlement, Ascential also agreed
to contribute a minimum of 9.0 million shares of its common stock, which was
required to provide a guaranteed value of $91.0 million for a maximum term of
one year from the date of the final approval of the settlement by the courts.
The first distributions of shares of Ascential's common stock occurred in
November and December 1999 when Ascential issued approximately 2.9 million
shares to the plaintiff's counsel. The stock price guarantee was satisfied with
respect to the first distributions of settlement shares. In April 2001,
Ascential issued the remaining 6.1 million of the minimum 9.0 million shares to
be issued under the settlement. Pursuant to the terms of the settlement,
Ascential paid an additional amount of $26.2 million in cash in November 2001 to
satisfy the stock price guarantee with respect to the remaining 6.1 million
shares issued under the Settlement. Ascential's former independent auditors,
Ernst & Young LLP, paid $34.0 million in cash. The total amount of the
Settlement was $142.0 million.

In July 1997, the Securities and Exchange Commission (the "SEC") issued a
formal order of private investigation of Ascential and certain unidentified
other entities and persons with respect to non-specified

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accounting matters, public disclosures and trading activity in Ascential's
securities. During the course of the investigation, Ascential learned that the
investigation concerned the events leading to the restatement of Ascential's
financial statements, including fiscal years 1994, 1995 and 1996, that was
publicly announced in November 1997. Ascential has entered into a settlement
with the SEC regarding the investigation. Pursuant to the settlement, Ascential
consented to the entry by the SEC of an Order Instituting Public Administrative
Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C
of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease
and Desist Order (the "Order"). The Order was issued by the SEC on January 11,
2000. Pursuant to the Order, Ascential neither admitted nor denied the findings,
except as to jurisdiction, contained in the Order. The Order directs Ascential
to cease and desist from committing or causing any violation, and any future
violation, of Section 17(a) of the Securities Act ("Securities Act"), Sections
10(b), 13(a) and 13(b) of the Exchange Act ("Exchange Act") and Rules 10b-5,
12b-20, 13a-1, 13a-13 and 13b2-1 under the Exchange Act. Pursuant to the Order,
Ascential is also required to cooperate in the SEC's continuing investigation of
other entities and persons. As a consequence of the issuance of the Order,
Ascential is statutorily disqualified, pursuant to Section 27A(G)(1)(A)(ii) of
the Securities Act and Section 21E(b)(1)(A)(ii) of the Exchange Act, for a
period of three years from the date of the issuance of the Order, from relying
on the protections of the "safe harbor" for forward-looking statements set forth
in Section 27(A)(c) of the Securities Act and Section 21(E)(c) of the Exchange
Act.

EXPO 2000 filed an action against Ascential Software GmbH (Ascential's
German subsidiary) in the Hanover (Germany) district court in September 1998
seeking recovery of approximately $6.0 million, plus interest, for breach of a
sponsorship contract signed in 1997. Ascential filed a counterclaim for breach
of contract, seeking recovery of approximately $3.1 million. In August 1999, the
court entered a judgment against Ascential in the amount of approximately $6.0
million, although approximately $2.1 million of the judgment is conditioned upon
the return of certain software by EXPO 2000. Ascential filed an appeal and
reserved approximately $3.1 million for the expected outcome of the appeal. In
April 2001, the German appellate court set aside the lower court's judgment and
issued a judgment in favor Ascential in the amount of approximately $2.5
million. During the quarter ended September 2001, EXPO 2000 filed an appeal
against the decision with the German appellate court. Consideration of this
final appeal has been deferred until at least March 2002. Accordingly, Ascential
continues to have a reserve of approximately $3.1 million for the estimated
outcome.

Ascential is a defendant in two actions filed against Unidata, Inc.
("Unidata" -- a company Ascential merged with in 1998). One action was filed in
May 1996 in the U.S. District Court for the Western District of Washington, and
the other action was filed in September 1996 in the U.S. District Court for the
District of Colorado. The plaintiff, a company controlled by a former
stockholder of Unidata and a distributor of its products in certain parts of
Asia, alleges in both actions the improper distribution of certain Unidata
products in the plaintiff's exclusive territory and asserts damages of
approximately $30.0 million (among other relief) under claims for fraud, breach
of contract, unfair competition, racketeering and corruption, and trademark and
copyright infringement. Unidata denied the allegations against it in its answers
to the complaints. In the Colorado action, Unidata moved that the matter be
resolved by arbitration in accordance with its distribution agreement with the
plaintiff. In May 1999, the U.S. District Court for the District of Colorado
issued an order compelling arbitration and in September 2000, the arbitrator
issued an award against Ascential for $3.5 million plus attorneys' fees and
expenses estimated to be approximately $0.8 million.

Ascential has also been joined as a party in an action in China filed
against Unidata, its former distributor and a customer by the same plaintiff who
filed the U.S. actions against Unidata and a related company. This action in
China arises out of the same facts at issue in the U.S. actions. Ascential has
agreed in principle with the plaintiff to a settlement pursuant to which, among
other things, Ascential would pay the plaintiff approximately $16.0 million to
settle all claims in all pending litigation, with the exception of potential
claims for indemnity between Ascential and other co-defendants relating to
attorneys fees and any amounts paid in settlement, which are not estimable at
December 31, 2001. Ascential has reserved $16.0 million for this settlement as
of December 31, 2001. The settlement, however, has not yet been finalized.

9

On February 3, 2000, IBM filed an action against Ascential in the United
States District Court for the District of Delaware alleging infringement of six
United States patents owned by IBM. On March 28, 2000, Ascential filed an answer
and counter claims in the United States District Court for the District of
Delaware against IBM denying IBM's allegations of patent infringement and
alleging infringement by IBM of four United States patents owned by Ascential.
In the complaint and answer, IBM sought against Ascential, and Ascential sought
against IBM, permanent injunctions against further alleged infringement,
unspecified compensatory damages, unspecified treble damages, interest, costs
and attorney's fees. In addition, on March 28, 2000, Ascential filed a separate
action against IBM in the United States District Court for the Northern District
of California alleging infringement of four other United States patents owned by
Ascential. On June 22, 2000, that action was transferred to the United States
District Court for the District of Delaware. In connection with the IBM
Transaction (See Note 13 of the Notes to Consolidated Financial Statements), IBM
and the Company entered into an agreement to settle the existing outstanding
patent infringement litigation for no consideration. This settlement became
effective upon the closing of the IBM Transaction.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

We did not submit any matters to a vote of security holders during the
fourth quarter of 2001.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Ascential's Common Stock is traded on the Nasdaq National Market under the
symbol "ASCL." The following table lists the high and low sales prices of
Ascential's Common Stock for the periods indicated.

At February 28, 2002, there were approximately 11,939 stockholders of
record of our Common Stock, as shown in the records of our transfer agent.

DIVIDEND POLICY

Ascential has never declared or paid cash dividends on its Common Stock.
Ascential expects to retain future earnings, if any, for use in the operation of
its business and does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future.

10

ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL OVERVIEW

The following selected consolidated financial data should be read in
conjunction with Ascential's consolidated financial statements and the related
notes, and with "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere in this report.

FIVE-YEAR SUMMARY

- ---------------

(1) In 2001, Ascential recorded merger, realignment and other charges of $54.4
million. In addition, Ascential recorded a gain on the sale of the database
business of $865.7 million. In connection with the Torrent acquisition,
Ascential recorded a charge of $5.5 million for in-process research and
development that had not yet reached technological feasibility and had no
alternative future uses. Also, Ascential recorded impairment losses on
long-term investments of $10.2 million, which relate to both publicly traded
and non-marketable investments.

(2) In 2000, Ascential recorded merger, realignment and other charges of $126.8
million.

(3) In 1999, Ascential recorded restructuring-related adjustments that increased
operating income by $0.6 million and, in connection with Ascential's
acquisition of Cloudscape, Inc. ("CloudScape") in October 1999, Ascential
recorded a charge of $2.8 million for merger related expenses. In addition,
Ascential recorded a charge of $97.0 million related to the settlement of
private securities and related litigation against Ascential. In connection
with Ardent Software, Inc.'s acquisition of Prism Solutions, Inc. ("Prism"),
Ascential recorded a charge of $9.9 million for merger and restructuring
charges as well as a $5.1 million charge for in-process research and
development that had not yet reached technological feasibility and had no
alternative future uses.

(4) In 1998, Ascential recorded restructuring-related adjustments that increased
operating income by $10.3 million and, in connection with our acquisition of
Red Brick Systems, Inc. in December 1998, Ascential recorded a charge of
$2.6 million for in-process research and development that had not yet
reached technological feasibility and had no alternative future uses. In
addition, Ascential recorded a charge of $14.9 million for merger and
restructuring charges related to Ardent's merger with Unidata.

(5) In 1997, Ascential recorded a restructuring charge of $108.2 million and a
write-down of certain assets in Japan of $30.5 million. In connection with
our acquisition of Centerview, Ascential recorded a charge to operations of
$7.0 million for in-process research and development that had not yet
reached technological feasibility and had no alternative future uses. Also,
in connection with Ardent's acquisition of O2 Technologies, Ascential
recorded a charge of $3.0 million for in-process research and development
that had not yet reached technological feasibility and had no alternative
future uses.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements relating to future
events or Ascential's future financial performance, which involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under "Factors That May Affect Future Results," and elsewhere in
this annual report on Form 10-K. The following discussion and analysis should be
read in conjunction with Ascential's consolidated financial statements and
related notes appearing elsewhere in this report.

OVERVIEW

Ascential is a global provider of information asset management solutions.
Ascential designs, develops, markets and supports enterprise data integration
software products and solutions to allow our worldwide customers, which consists
of mid-sized and large organizations and governmental institutions, to transform
vast amounts of disparate, unrefined data into reliable, reusable information
assets. Ascential also offers to its customers a variety of services such as
consulting, including implementation assistance and project planning and
deployment, software product enhancements and support, and education.

Ascential was incorporated in Delaware in 1986 and, until the third quarter
of 2001, operated under the name "Informix Corporation." During 2000, we
consolidated our business units into two operating businesses: (i) Informix
Software, which operated our database software systems business, and (ii)
Ascential Software, which operated our information asset management ("IAM")
software and solutions business. During the third quarter of 2001, we completed
the IBM Transaction, which consisted of the sale of our database business,
including the name "Informix," to IBM for approximately $1.0 billion in cash
(See Note 13 of Notes to Consolidated Financial Statements). In connection with
the IBM Transaction, we changed our name to "Ascential Software Corporation" and
changed the symbol under which the Company's Common Stock is traded on the
Nasdaq National Market to "ASCL." These changes became effective in July 2001.

On November 28, 2001, Ascential completed the acquisition of Torrent
Systems, Inc. ("Torrent") for $44.1 million in cash. The Torrent Orchestrate
product provides scalability, using parallel processing technology, to
Ascential's core data integration product offering, DataStage. See "Ascential
Products and Services" below.

On March 12, 2002, Ascential announced the signing of a definitive
agreement to acquire Vality Technology, Inc. ("Vality") in a transaction valued
at approximately $92 million in cash, net of proceeds from options to be
exercised upon closing and cash on Vality's balance sheet. Vality is a privately
held company, headquartered in Boston, Massachusetts, which specializes in
enterprise data quality management. The transaction is expected to close in
April 2002, subject to approval of Vality shareholders and other customary
closing conditions. Ascential believes that the data cleansing technologies
offered by Vality will complement the data and meta data management capabilities
of the DataStage product suite and provide more comprehensive functionality to
Ascential's customers.

Ascential is headquartered in Westborough, Massachusetts and has offices
worldwide, supporting more than 1,800 customers in such industries as
telecommunications, insurance, financial services, healthcare,
media/entertainment, government and retail. Ascential currently has
approximately 784 employees and will build from a revenue base of $124 million,
which was the revenue generated in 2001 by the Ascential business operations
(including the i.Sell product, which was discontinued in the first quarter of
2001 and the Media 360 product, which Ascential intends to divest, as announced
in the first quarter of 2002).

ASCENTIAL PRODUCTS AND SERVICES

The DataStage product suite is a leading data integration platform. It
offers an enterprise a single integration platform for virtually any style of
structured data using a unified meta data backbone. At its core, the DataStage
suite provides enterprises with components for data integration, the portability
and transformation of data from diverse sources, combined with tools for meta
data integration and data quality assurance.

12

Extending this capability, DataStage allows each customer to extract data from
diverse sources including: legacy mainframe systems; Enterprise Applications
such as SAP, Siebel, and PeopleSoft; message-based middleware and complex file
structures such as XML and web logs. The data is then transformed so that it may
be made available to end-user applications such as customer relationship
management, decision support, e-business, or other applications. In addition,
the web-based components of DataStage enable remote administration of an
organization's warehouse investment, and the accessibility of an organization's
business intelligence investments in analytic application tools such as those
provided by Business Objects, Hyperion and Cognos.

We offer a full range of consulting, educational and support services to
assist customers through all phases of a project. Based on tested methodologies,
these services represent years of accumulated knowledge and experience, gained
through hundreds of successful engagements in a wide range of industry and
government installations.

As part of the IBM Transaction, we entered into a strategic alliance with
IBM, which became effective upon the closing of the sale, to jointly promote and
market our IAM solutions.

THE IBM TRANSACTION

During the third quarter of 2001, we completed the IBM Transaction, which
consisted of the sale to IBM of substantially all of the assets and certain
liabilities of our database business, for approximately $1.0 billion in cash.
IBM has retained $100.0 million of the sale proceeds as a holdback to satisfy
any indemnification obligations that might arise in respect of any
representations or warranties made by us. IBM will retain the holdback until
December 31, 2002, except for any funds necessary to provide for any claims made
prior to that date. On July 1, 2001, interest began to accrue at 6% per annum on
the amount of the holdback ultimately released to us. Accrued interest on the
holdback was $3.0 million at December 31, 2001. In connection with the sale, we
paid IBM $11.6 million, which is equal to 18% of certain deferred revenues of
the database business for which we had received payment. In addition, we are
obligated to pay IBM $13.2 million on or before March 31, 2002 to fund the
transfer of certain employee-related accruals.

As a result of the IBM Transaction, we recorded a gain, after transaction
costs and related charges, but excluding taxes, of $865.7 million during the
year ended December 31, 2001. The following table sets forth the components of
the gain (in millions):

See Notes 13 and 14 of Notes to Consolidated Financial Statements for
discussion of components of the gain and other items related to the IBM
Transaction.

Prior to the IBM transaction, we capitalized approximately $6.0 million of
costs that were incurred in connection with the implementation of our SAP
information system. As part of the IBM Transaction, IBM assumed ownership of
this asset but granted us the right to copy and retain certain functionality
components of the SAP information system, which we intend to continue to use in
our on-going operations. We used the cost recovery approach to account for the
IBM Transaction which resulted in our cost basis of this asset being zero.

13

During 2001, we used a portion of the proceeds from the IBM Transaction to
fund the repurchase of $143.0 million of common stock as part of our $350
million stock repurchase program, and for the acquisition of Torrent for $44.1
million. We intend to continue to apply a portion of the proceeds from the IBM
Transaction to fund Ascential's business, including any further strategic
acquisitions that we may undertake, and any continuing stock repurchase
activity.

STRATEGIC REALIGNMENT

During the second half of 2000, we undertook a strategic realignment to
transition from five former business units into two operating businesses. By
December 31, 2000, we defined and allocated personnel among the management,
selling, marketing, research and development and service organizations for these
two operating businesses. However, our core infrastructure groups (operations,
finance and administration) were retained by Informix Software and these groups
provided services to both operating businesses through the first half of 2001,
until the closing of the IBM Transaction.

Prior to December 31, 2000, we had not achieved sufficient separation of
the employees and infrastructure of the two operating businesses to properly
measure the results of the operations on a stand-alone basis. Accordingly,
although separate revenue information is disclosed for the two operating
businesses on a historical basis, we do not present separate historical expense
or operating income information for periods prior to December 31, 2000. As a
result of this, our discussion and analysis of costs and expenses, as compared
to 2000, is presented on a combined basis for the two operating businesses. Our
discussion and analysis of costs and expenses for the Ascential Software
operating business is based on a comparison of the results for quarters ended
December 31, 2001 and September 30, 2001. We do not present a corresponding
discussion and analysis of costs and expenses for Informix Software in 2001, as
we do not believe it to be relevant due to the IBM Transaction.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of
operations below is based on our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the periods covered in this filing.

On an ongoing basis, we evaluate our estimates, including those related to
revenue recognition, accounts receivable, investments, intangible assets, income
taxes, merger and realignment activities, and contingencies and litigation. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. There can be no
assurance that actual results will not differ from those estimates.

We have identified the accounting policies below as the policies critical
to our business operations and the understanding of our results of operations.
In compliance with the Securities and Exchange Commission's recent guidance, we
are providing additional disclosure about these "critical accounting policies
and practices" within the appropriate sections of Management's Discussion and
Analysis of Financial Condition and Results of Operations.

For a detailed discussion on the application of these and other accounting
policies, see Note 1 to the Notes to the Consolidated Financial Statements. Our
critical accounting policies are as follows:

- Revenue recognition.

- Charges for residual lease obligations and restoration costs for
facilities abandoned as a result of the IBM Transaction and our merger
and realignment activities.

- Charges for severance and employment-related costs.

14

- Allowance for doubtful accounts.

- Impairment of long-term investments.

RESULTS OF OPERATIONS

The discussion and analysis of our results of operations for the years
ended December 31, 2001, 2000, 1999 is structured to take the following events
into account:

- The IBM Transaction, which was completed at the beginning of the quarter
ended September 30, 2001. The database business, which we sold to IBM,
accounted for 84% of our revenue during the first half of 2001.

- The strategic realignment that we undertook during the second half of
2000. This realignment led to a transition from five former business
units into the two operating businesses -- Ascential Software and
Informix Software (the database business that we sold to IBM in the IBM
Transaction).

As discussed above, we present separate revenue information for the two
operating businesses, Ascential Software and Informix Software, on a historical
basis, but we do not present separate historical expense or operating income
information for periods prior to December 31, 2000. Accordingly, 2001 revenues
for Ascential Software and Informix Software operating businesses are compared
to those for 2000 and 1999. However, our discussion and analysis of costs and
expenses for 2001, as compared to 2000 and 1999, is presented on a combined
basis for the two operating businesses. Our discussion and analysis of costs and
expenses for Ascential Software is based on a comparison of the results for the
most recent quarters ended December 31, 2001 and September 30, 2001. We do not
provide a corresponding discussion and analysis of costs and expenses for
Informix Software in 2001 due to the IBM Transaction.

A comparison of revenue and expenses for the years ended December 31, 2001
and 2000, respectively, provides little insight as a result of the IBM
Transaction. Accordingly, the discussion and analysis of our results of
operations is presented as follows:

I. Overview of Results of Operations -- Ascential Software
Corporation
Revenues and expenses are presented as a percentage of revenues for
the years ended December 31, 2001, 2000 and 1999.

II. Revenues -- Ascential Software and Informix Software
Discussion and analysis of revenues, including: (1) table of revenues
by type for Ascential Software and Informix Software for the years ended
December 31, 2001, 2000 and 1999, respectively; (2) description of
revenues; (3) discussion and analysis of Ascential Software revenues for
the years ended December 31, 2001, 2000 and 1999, respectively; and (4)
discussion and analysis of Informix Software revenues for the six-month
periods ended June 30, 2001 and December 31, 2001, respectively, (with each
as compared to the corresponding periods in 2000) and for the years ended
December 31, 2000 and 1999.

III. Costs and Expenses -- Ascential Software Corporation
This consists of (1) discussion and analysis of total costs and
expenses for Ascential Software Corporation for the six months ended June
30, 2001 and 2000, respectively; (2) analysis of costs and expenses for
Ascential Software Corporation (being the combined total of Informix
Software and Ascential Software) for the six months ended December 31,
2001, as segmented between Ascential Software and Informix Software. This
analysis includes a discussion of merger, realignment and other charges for
2000 and 2001.

IV. Results of Operations -- Ascential Software
Discussion and analysis of the results of operations of Ascential
Software, the operating business. This provides a comparison of the
revenues and expenses for the quarters ended December 31, 2001 and
September 30, 2001.

15

V. Other Income (Expense) -- Ascential Software Corporation
Discussion and analysis of other income (expense) for the years ended
December 31, 2001, 2000 and 1999.

VI. Income Taxes -- Ascential Software Corporation
Discussion and analysis of income taxes for the years ended December
31, 2001, 2000 and 1999.

The gain resulting from the IBM Transaction is discussed above and
therefore is excluded from this discussion. See "The IBM Transaction."

I. OVERVIEW OF RESULTS OF OPERATIONS -- ASCENTIAL SOFTWARE CORPORATION

The following table and discussion compares the results of operations for
the years ended December 31, 2001, 2000 and 1999.

II. REVENUES -- ASCENTIAL SOFTWARE AND INFORMIX SOFTWARE

The following table compares the revenues for the businesses of Ascential
Software and Informix Software for the years ended December 31, 2001, 2000 and
1999 (in millions):

Description of Revenues

We derive revenues from licensing software and providing post-license
technical product support and updates to customers and from consulting and
education services.

License Revenues. License revenues may involve the shipment of product by
us or the granting of a license to a customer to manufacture products. Our
products are sold directly to end-user customers or through resellers, including
OEMs, distributors and value added resellers ("VAR's"). Revenue from license
agreements with resellers is recognized as earned by us, generally, when the
licenses are resold or utilized by the reseller and all of our related
obligations have been satisfied. Accordingly, amounts received from customers in
advance of revenue being recognized are recorded as a liability in "advances
from customers" in our financial statements. Advances in the amount of $0.1
million and $10.5 million as of December 31, 2001 and 2000, respectively, had
not been recognized as earned revenue. During 2001, we recognized revenue from
resellers with previously recorded customer advances of $8.4 million. The $8.4
million recognized included $8.2 million of revenues related to licenses that
were resold or utilized by the reseller and $0.2 million related to contractual
reductions in customer advances, which typically arise when a reseller agreement
expires before the advance balance is fully utilized. In addition, we recorded
$2.0 million of further reductions to the customer advances liabilities during
2001 as the net result of the transfer of the database customer advances to IBM
(as part of the IBM Transaction), which were offset by any additional amounts we
received from customers during 2001. During 2000 and 1999, we recognized revenue
of $11.1 million and $11.4 million, respectively, as a result of contractual
reductions in customer advances. During 2001, we recorded $1.1 million of
revenue from the customer advances balance in respect of a transaction with a
customer that was previously a supplier of services to Informix Software under a
long-term contract. Concurrent with the revenue transaction with this customer,
we entered into an arrangement to terminate these services, pursuant to which we
paid a termination fee of $3.0 million.

17

Our license transactions can be relatively large in size and difficult to
forecast both in timing and dollar value. As a result, license transactions have
caused fluctuations in net revenues and net income (loss) because of the
relatively high gross margin on such revenues. As is common in the software
industry, a disproportionate amount of our license revenue is derived from
transactions that close in the last weeks or days of a quarter. The timing of
closing large license agreements also increases the risk of quarter-to-quarter
fluctuations. We expect that these types of transactions and the resulting
fluctuations in revenue will continue.

Service Revenues. Service revenues are comprised of maintenance,
consulting and education revenues. Maintenance contracts generally call for us
to provide technical support and software updates to customers. Maintenance
revenue is recognized ratably over the term of the maintenance contract,
generally on a straight-line basis when all revenue recognition requirements are
met. Other service revenue, primarily training and consulting, is generally
recognized at the time the service is performed and it is determined that we
have fulfilled our obligations resulting from the services contract.

As described above, we have identified revenue recognition as one of our
critical accounting practices. As part of the revenue recognition process,
significant management judgments and estimates must be made and used in
connection with the revenue recognized in any accounting period. Material
differences may result in the amount and timing of our revenue for any period if
our management made different judgments or utilized different estimates. Revenue
results are difficult to predict, and any shortfall in revenue or delay in
recognizing revenue could cause our operating results to vary significantly from
quarter to quarter.

As discussed in Note 1 of Notes to Consolidated Financial Statements, we
recognize revenue using the residual method in accordance with Statement of
Position ("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions. Under the residual method, revenue is recognized in a multiple
element arrangement in which Company-specific objective evidence of fair value
exists for all of the undelivered elements in the arrangement, but does not
exist for one or more of the delivered elements in the arrangement.
Company-specific objective evidence of fair value of maintenance and other
services is based on our customary pricing for such maintenance and/or services
when sold separately. We have analyzed all of the elements included in our
multiple-element arrangements and believe that we have sufficient
Company-specific objective evidence to allocate revenue to maintenance services
and professional services components of our license arrangements. We sell our
professional services separately on a time-and-materials basis and at times
without a software license, and we have established Company-specific objective
evidence on this basis. Company-specific objective evidence for maintenance is
determined based upon the either the renewal rates when maintenance is sold
separately or the option price for annual maintenance renewals included in the
underlying customer contract. At the outset of the arrangement with the
customer, we defer revenue for the fair value of its undelivered elements (e.g.,
maintenance, consulting, and training) and recognize revenue for the remainder
of the arrangement fee attributable to the elements initially delivered in the
arrangement (i.e., software product) when the basic criteria in SOP 97-2 have
been met. If such evidence of fair value for each element of the arrangement
does not exist, all revenue from the arrangement is deferred until such time
that evidence of fair value does exist or until all elements of the arrangement
are delivered.

Under SOP 97-2, revenue attributable to an element in a customer
arrangement is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable, collectibility is
probable, and the arrangement does not require services that are essential to
the functionality of the software. If we determine that the arrangement fee is
not fixed or determinable at the outset of the customer arrangement, then we do
not recognize revenue until the arrangement fee becomes due and payable.

Persuasive evidence of an arrangement exists. For our license arrangements
with end-users, our customary practice is to have a written contract, which is
signed by both the customer and us, or a purchase order from those customers who
have previously negotiated a standard license arrangement with us. Sales to most
of our resellers are evidenced by a master agreement governing the relationship
together with binding purchase orders on a transaction-by-transaction basis. For
certain of our database OEM resellers, we accrue royalty revenue through the end
of the reporting period based on reseller royalty reports or other forms of
customer-specific historical information. In the absence of customer-specific
historical information, royalty

18

revenue is recognized when the customer-specific objective information becomes
available. Any subsequent changes to previously recognized royalty revenues are
reflected in the period when the updated information was received from the
reseller. Prior to the IBM Transaction, the amount of accrued royalty revenue
averaged $2 million at the end of each quarter in 2001. Subsequent to the IBM
Transaction, the amount of accrued royalty revenue has been insignificant.

Delivery has occurred. Our software may be either physically or
electronically delivered to the customer. Delivery is deemed to have occurred
upon the shipment of physical product, provided title and risk of loss have
passed to the customer, or upon online availability of product to the customer.
If undelivered products or services exist in an arrangement that are essential
to the functionality of the delivered product, delivery is not considered to
have occurred until these products or services are delivered. In the case of
arrangements with resellers, revenue is generally recognized upon
"sell-through." Evidence of sell-through may take a variety of forms, including
the following: (1) purchase order identifying an end-user customer, usually in
the "ship to" location, (2) a copy of the purchase order or contract between
reseller and end-user, (3) a royalty report, (4) sell through report or (5)
other documented, objective evidence that indicates that the reseller does not
have product in inventory, such as ending inventory reports.

The fee is fixed or determinable. We consider a fee fixed only if (1) it
is required to be paid at a set amount; (2) it is not subject to refund or
adjustment and (3) payments are due on a known or fixed schedule. We generally
consider arrangements with payment terms extending beyond one year not to be
fixed and determinable. If the fee is not fixed and determinable, we recognize
revenue as payments become due from the customer.

Collectibility is probable. Collectibility is assessed on a
customer-by-customer basis. Prior to the IBM Transaction, we frequently sold to
customers for whom we had a history of successful collection. Subsequent to the
IBM Transaction, we have a larger proportion of new customers as part of our
business. New customers were and are still subjected to a credit review process,
which evaluates the customers' financial position and ultimately their ability
to pay. If it is determined from the outset of an arrangement that
collectibility is not probable based upon our credit review process, revenue is
recognized on a cash-collected basis.

Functionality of the software. Our professional services generally are not
essential to the functionality of the software. Our software products are fully
functional upon delivery and implementation and do not require any significant
modification or alteration. Customers purchase these professional services to
facilitate the adoption of our technology and dedicate personnel to participate
in the services being performed, but they may also decide to use their own
resources or appoint other professional service organizations to provide these
services. Software products are billed separately and independently from
professional services, which are generally billed on a time-and-materials or
milestone-achieved basis. We generally recognize revenue from professional
services as the services are performed. If consulting services are essential to
the functionality of the licensed software, then both the license revenue and
the consulting service revenue are recognized under either the percentage of
completion or the completed contract method of contract accounting.

Our arrangements do not generally include acceptance clauses. However, if
an arrangement includes an acceptance provision, acceptance occurs upon the
earlier of receipt of a written customer acceptance or expiration of the
acceptance period. Our arrangements do not generally provide for a right of
return, and historically product returns have not been significant. We provide
for sales return allowances on an estimated basis.

During the fourth quarter of 2000, the Company adopted Staff Accounting
Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. The
adoption of SAB No. 101 did not have a material effect on the Company's
consolidated statement of financial position or results of operation.

Deferred revenue includes amounts received from customers for which revenue
has not been recognized that generally result from deferred maintenance and
support, consulting or training services not yet rendered and license revenue
deferred until all requirements under SOP 97-2 are met. Deferred revenue is
recognized upon delivery of our product, as services are rendered, or as other
requirements requiring deferral under

19

SOP 97-2 are satisfied. Accounts receivable include amounts due from customers
for which revenue has been recognized.

Ascential Software -- Revenues

LICENSE REVENUES -- YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

The following table compares the license revenues for the Ascential
Software product lines for the years ended December 31, 2001, 2000 and 1999 (in
millions):

License revenues decreased 6% to $62.4 million in 2001 and increased 28% to
$66.7 million in 2000 from $52.0 million in 1999. During the first quarter of
2001, we discontinued the e-commerce solution i.Sell. During the first quarter
of 2002, we announced a decision to seek to divest our content management
business, which primarily consisted of the Media 360 product. License revenues
for our continuing data integration products, which primarily consists of the
DataStage product line, increased 27% to $52.3 million in 2001 and decreased 4%
to $41.3 million in 2000 from $42.8 million in 1999. We experienced a slowing of
license revenue growth during the second half of 2001. We believe this was due
in part to certain customers and potential customers deferring spending on
information technology as a result of the general economic downturn.

During 2001, we entered into agreements with Hewlett-Packard, IBM, Business
Objects and SAP that will allow these companies to resell certain of our
products. These arrangements began to generate revenue in the fourth quarter of
2001. As a result of these and other reseller agreements, we expect there will
be a shift in our distribution model from one that is primarily based on a
direct sales force to a more balanced model with an increased amount of
indirect- or reseller-influenced business.

SERVICE REVENUES -- YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

Service revenues increased 12% to $61.5 million in 2001 and increased 83%
to $55.0 million in 2000 from $30.1 million in 1999. Service revenues accounted
for 50%, 45% and 37% of total revenues in 2001, 2000 and 1999, respectively.
Maintenance revenues increased 45% to $29.1 million in 2001 and 191% to $20.1
million in 2000 from $6.9 million in 1999. Our maintenance revenues are
increasing as we continue to build our installed customer base. We expect that
maintenance revenue growth will flatten slightly in future periods until
maintenance on the discontinued i.Sell and Content Management products is
replaced by maintenance revenue from our ongoing product offerings. Consulting
and education revenues decreased 7% to $32.4 million in 2001 and increased 50%
to $34.9 million in 2000 from $23.2 million in 1999. These changes in consulting
and education revenues are primarily a result of license revenues during the
same periods, as consulting and education revenues have historically been driven
by engagements and projects associated with new license revenues.

Informix Software -- Revenues

Due to the IBM Transaction, we separately discuss the revenue of Informix
Software for the first and second halves of 2001 compared to the corresponding
periods in 2000. We then separately discuss the revenue of Informix Software for
2000 compared to 1999.

20

INFORMIX SOFTWARE - REVENUES FOR YEARS ENDED DECEMBER 31, 2001 AND 2000

The following table compares the revenues for the Informix Software for the
six-month periods ended June 30, 2001 and 2000, respectively, together with the
six-month periods ended December 31, 2001 and 2000, respectively, and the years
ended December 31, 2001 and 2000, respectively (in millions):

License and service revenues -- six months ended December 31, 2001 and
2000. License revenues of $0.1 million and service revenues of $1.4 million for
the six months ended December 31, 2001 arose from the database operations during
July 2001 for the nine remaining countries in which our database operations were
not terminated as part of the IBM Transaction until August 1, 2001 (the "Phase 2
countries"). For the corresponding six-month period ended December 31, 2000,
license and service revenues for Informix Software were $149.7 million and
$225.5 million, respectively.

License revenues -- six months ended June 30, 2001 and 2000. License
revenues decreased 21% to $149.2 million for the six months ended June 30, 2001
from $188.0 million for the same period in 2000. The decline was primarily a
result of a decrease in license revenues from the traditional client-server
products of the database business and also from a decrease in large enterprise
transactions. These trends resulted from our being less successful in attracting
significant new database customers and in securing additional business from our
existing database customers. Our principal competitors in the database business,
Oracle, IBM and Microsoft, were much larger, much better financed, and continued
to invest substantially in their database businesses. Strategic partners in the
database business (including the major enterprise software application
providers) therefore promoted our competitors' products more than they promoted
our database products. As a result, we were not successful in attracting
significant new database customers. In addition, most of our database customers
who had invested in our traditional client-server and tools products were in the
process of replacing those products and purchasing newer products. Because of
our competitive position described above, many of our database customers chose
to purchase newer database products from our competitors. We also believe that
the prevailing economic slowdown had led to a deferral by some existing
customers and potential customers of their decisions to enter into large
enterprise transactions. In addition, during the second quarter of 2001, we
believe the impending closing of the IBM Transaction may have impaired our
ability to close certain transactions.

Service revenues -- six months ended June 30, 2001 and 2000. Service
revenues for the six months ended June 30, 2001 decreased 15% to $206.7 million
from $244.4 million for the same period in 2000. Service revenues accounted for
58% and 57% of total revenues during the first half of 2001 and 2000,
respectively. The decrease in service revenues in 2001 was attributable
primarily to a decline in consulting revenue in our database business. The
increase in service revenues, as a percentage of total revenues in 2001, was
attributable primarily to the decline in the license revenue of our database
business. Maintenance revenues decreased 9% to $182.5 million for the six months
ended June 30, 2001 from $199.8 million for the same period in 2000. The
decrease in maintenance revenues in 2001 was attributable primarily to our
inability to maintain maintenance revenue levels from our installed base in a
climate of decreasing license revenues. Consulting and education revenues for
the six months ended June 30, 2001 decreased 46% to $24.2 million from $44.6 for
the same period in 2000. The decrease in consulting and education revenues in
2001 was primarily due to the decline in

21

license revenues experienced during the first half of 2001, as consulting and
education revenues are typically driven by engagements and projects associated
with new license revenues.

INFORMIX SOFTWARE -- REVENUES FOR THE YEARS ENDED DECEMBER 31, 2000 AND
1999

License revenues. License revenues for 2000 decreased 30% to $337.7
million from $483.9 million in 1999. The decrease in license revenues was due in
large part to a significant decline in revenues from our traditional
client-server and tools products (which we referred to as "Classic" products)
and our Enterprise database servers. We believe that this decline was
attributable to slower market demand for our Classic products in the post-Y2K
environment and the inability of our sales and field marketing organizations to
effectively market and sell our products due to a number of factors, including
attrition and turnover in our sales and marketing organization, the announcement
during the third quarter of 2000 of our corporate restructuring and
reorganization, and delays encountered in integrating certain operations and
products of Ardent Software, Inc. ("Ardent"), which we acquired in 2000, into
our sales, product marketing and general operations.

Service revenues. Service revenues decreased 1% to $469.9 million in 2000
from $473.1 million in 1999. Service revenues accounted for 58% and 49% of total
revenues in 2000 and 1999, respectively. Maintenance revenues increased 9% to
$392.4 million in 2000 from $361.3 million in 1999. The increase in maintenance
revenues was attributable primarily to the renewal of maintenance contracts and
our growing installed customer base. During 2000, consulting and education
revenues decreased 31% to $77.5 million from $111.8 million primarily due to the
30% decline in license revenues experienced in 2000 as consulting and education
revenues have historically been driven by engagements and projects associated
with new license revenues.

III. COSTS AND EXPENSES -- ASCENTIAL SOFTWARE CORPORATION

The following table compares the costs and expenses for Ascential Software
Corporation (as the combined total of Informix Software and Ascential Software)
for the six-month periods ended June 30, 2001 and 2000, respectively, together
with the six-month periods ended December 31, 2001 and 2000, respectively, and
the years ended December 31, 2001, 2000 and 1999, respectively (in millions):

Costs and Expenses-Ascential (combined total of Informix Software and Ascential
Software) -- six months ended June 30, 2001 and 2000, and the years ended
December 31, 2000 and 1999.

Cost of software. Cost of software consists primarily of: (1)
manufacturing personnel costs, (2) third-party royalties, and (3) amortization
of previously capitalized software development costs, any write-offs of
previously capitalized software and amortization of acquired developed
technology. During the six months ended June 30, 2001, cost of software
decreased 1% to $25.8 million from $26.0 million from the same period in 2000.
The decrease in 2001 was primarily due to a decrease in capitalized software
amortization as certain database products became fully amortized during 2000.
This decrease was partially offset by an increase in third-party royalties
associated with increased license revenue from certain Ascential product
offerings.

22

Cost of software distribution increased slightly to $50.4 million in the
year ended December 31, 2000 from $50.1 million in the year ended December 31,
1999 despite a decrease in license revenues by 25% during 2000. This increase
was primarily due to an increase in third-party royalties associated with
increased license revenue from certain Ascential Software product offerings.
This increase was partially offset by a decrease in capitalized software
amortization as certain database products became fully amortized during 2000 and
a decrease in manufacturing costs as we realized efficiencies due to the
consolidation of our manufacturing operations.

Cost of services. Cost of services consists primarily of maintenance,
consulting and training personnel expenses. Cost of services decreased 12% to
$85.5 million for the six months ended June 30, 2001 when compared to the
corresponding period in 2000. Service margins remained fairly consistent at
64%-65% during the six-month periods ended June 30, 2001 and 2000. The absolute
dollar decrease in cost of services in 2001 was primarily due to cost
containment actions that included headcount reductions as a result of the
strategic realignment in the second half of 2000.

Cost of services decreased 11% to $184.6 million in the year ended December
31, 2000 from $208.0 million in the year ended December 31, 1999 and service
margins increased to 65% in the year ended December 31, 2000 from 59% in the
year ended December 31, 1999. The decrease in cost of services in absolute
dollars and as a percentage of net service revenues is primarily due to cost
containment actions that included headcount reductions as a result of the
realignment and synergies realized from the Ardent acquisition. The increase in
service margins experienced during 2000 was also due to the mix of service
offerings, as there was a lower proportion of consulting and training revenue in
2000, which generate significantly lower margins than maintenance.

Sales and marketing expenses. Sales and marketing expenses consist
primarily of salaries, commissions, marketing and communications programs and
related overhead costs. Sales and marketing expenses decreased 21% to $164.1
million for the six months ended June 30, 2001 when compared to the same period
in 2000. The decrease in 2001 was due primarily to a reduction in headcount and
related overhead costs, as we have reduced our cost profile in line with the
reduction in revenue that we are experiencing. This cost reduction resulted from
the realignment activities that we undertook during the second half of 2000. The
decrease was also attributable to a significant reduction in advertising
expenditures compared to the corresponding period in 2000. Sales and marketing
expense declined as a percentage of revenue to 39% as compared to 42% in the
corresponding period in 2000.

Sales and marketing expenses increased 9% to $402.6 million in the year
ended December 31, 2000 from $370.7 million in the year ended December 31, 1999.
The increase in 2000 was due primarily to increased marketing costs for
advertising and marketing programs focused on promoting our Internet-based
electronic commerce and business intelligence products and solutions.

Research and development expenses. Research and development expenses
consist primarily of salaries, project consulting and related overhead costs for
product development. Research and development expenses for the six-month periods
ended June 30, 2001 were $71.9 million, or 17% of net revenues, compared to
$87.0 million, or 18% of net revenues, for the corresponding period in 2000. As
a percentage of net revenues, research and development expenses have remained
fairly consistent at 17-18% due to the realization of cost containment efforts
employed during 2001, which included headcount and overhead reductions resulting
from the realignment in 2000.

Research and development expenses decreased 12% to $166.1 million in the
year ended December 31, 2000 from $188.1 million in the year ended December 31,
1999 but as a percentage of net revenues such expenses remained consistent at
18% for both 2000 and 1999 due to the realization of cost containment efforts
employed during 2000, which included headcount reductions resulting from the
realignment.

General and administrative expenses. General and administrative expenses
consist primarily of finance, legal, information systems, human resources, bad
debt expense and related overhead costs. General and administrative expenses
increased 19% to $54.6 million for the six-month periods ended June 30, 2001
when compared to the same period in 2000. The increase in 2001 was caused by
increased bad debt and litigation

23

related expenses offset by a decrease in employee-related costs. Bad debt
expense was $5.3 million during the six-month period ended June 30, 2001, as a
result of increased reserves against defaults by technology start-up companies
and other companies experiencing the downturn in the general economic
environment and also as a result of the reserves required due to the
discontinuation of our i.Sell product during the first quarter of 2001.
Litigation related expenses increased to $6.9 million in the six-month period
ended June 30, 2001 primarily as a result of the charge that was recognized
during the period in connection with the tentative settlement of the actions
filed against the Unidata operations in Asia. We assumed these obligations as
part of the merger with Ardent. (See Note 12 of Notes to Consolidated Financial
Statements). During the six-month period ended June 30, 2001, general and
administrative expense increased as a percentage of revenue to 13% compared to
9% for the corresponding period in 2000.

During the year ended December 31, 2000, general and administrative
expenses increased $10.6 million to $100.0 million from $89.4 million in the
year ended December 31, 1999. As a percentage of net revenues, general and
administrative expenses were 11% and 9% in 2000 and 1999, respectively. The
increase in general and administrative expenses experienced during 2000 was
caused by increased bad debt and legal expenses offset by a decrease in
employee-related costs. Bad debt expense increased approximately $7.1 million as
a result of increased reserves against defaults by technology start-up
companies, write-offs of certain receivables acquired in the merger with Ardent
and reserves related to several Eastern European government entities where
political changes made collection no longer probable. The increase in legal
expenses was related primarily to a $4.3 million reserve with respect to the
Unidata lawsuit and $3.0 million paid to Cincom Systems, Inc. See Note 12 of
Notes to Consolidated Financial Statements.

As discussed above, we believe that the recording of the allowance for
doubtful accounts is one of our critical accounting policies. The preparation of
financial statements requires our management to assess the collectibility of our
accounts receivables and make estimates of any allowances required in respect of
doubtful accounts. We record an increase in the allowance for doubtful accounts
when the prospect of collecting a specific account receivable becomes doubtful.

We regularly review the adequacy of our allowance for doubtful accounts
after considering the size of the accounts receivable aging, the age of each
invoice, each customer's expected ability to pay and our collection history with
each customer. We review any invoice greater than 90 days past due to determine
if an allowance is appropriate based on the risk category using the factors
discussed above. In addition, we maintain an unallocated reserve for all
invoices that are not specifically reserved. The allowance for doubtful accounts
represents our best estimate, but changes in circumstances relating to accounts
receivable may result in a requirement for additional allowances in the future.

Our accounts receivable balance was $38.3 million, net of allowance for
doubtful accounts of $8.4 million as of December 31, 2001.

Write-off of acquired research and development. In-process research and
development represents the estimated fair value of incomplete technologies
acquired by us for our own development efforts. The write-off of acquired
research and development in connection with the Torrent acquisition in 2001 is
discussed below (See Costs and Expenses -- Ascential Software: Write-off of
acquired research and development.)

In connection with Ardent's acquisition of Prism in April 1999, Ardent
recorded a charge of approximately $5.1 million, or 6.9% of the $74.2 million in
total consideration and liabilities assumed, for in-process research and
development expense that had not yet reached technological feasibility and had
no alternative future uses. Actual results to date have been consistent, in all
material respects, with the assumptions used at the time of the Prism
acquisition. The assumptions primarily consisted of an expected completion date
for the in-process projects, estimated costs to complete the projects, and
revenue and expense projections once the products had entered the market.

Merger, realignment and other charges. During 2001, we recorded $54.4
million of merger, realignment and other charges. The following table summarizes
the components of these charges, as separated between

24

charges that relate to the ongoing Ascential Software business and those that
relate to the database business sold in the IBM Transaction (in millions):

The merger, realignment and other charges recorded during 2001 are
described below. See Note 14 of Notes to Consolidated Financial Statements for
further discussion of these items.

Merger, realignment and other charges -- year ended December 31, 2001

We have identified the recording of charges related to the IBM Transaction
and our Merger, realignment and other activities as one of our critical
accounting policies. Management's judgment and estimates are required in
determining the amount and classification of these charges.

We have recorded charges for facilities costs related to our Merger,
realignment and other activities in accordance with Emerging Issues Task Force
("EITF") No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). These facilities costs relate to residual lease obligations
and restoration costs for facilities that we have permanently vacated or planned
to permanently vacate at December 31, 2001.

We have recorded charges for severance and employment-related costs related
to the IBM Transaction or our Merger, realignment and other activities in
accordance with either EITF No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring) or Statement of Financial Accounting
Standards ("SFAS") No. 112, Employers' Accounting for Post-employment Benefits.
We do not accrue for severance costs related to future terminations or a
reduction-in-force that are recognized in accordance with SFAS No. 112 because
the costs are not estimable.

Ascential Software

During the third quarter of 2001, we approved plans to realign the business
operations of Ascential Software. This included a worldwide workforce reduction,
which was initiated in the third quarter of 2001, of approximately 180 sales and
marketing employees, 20 general and administrative employees, 10 research and
development employees and 50 professional services and manufacturing employees.
As a result of this reduction in workforce, we recorded $10.1 million of charges
for severance and employment related costs during 2001.

The $1.9 million charge for the write-off of abandoned technology relates
to the iDecide product, which was discontinued as a result of the sale of the
database business.

25

Database business

In connection with the IBM Transaction (See Note 14 of Notes to
Consolidated Financial Statements), we recorded a $35.3 million charge during
2001 for facilities and equipment costs related to facilities of the database
business that were not required by either IBM or the Ascential business
operations. This charge is comprised of a charge for the residual lease
obligations and restoration costs and a write-off related to leasehold
improvements and other fixed assets at these abandoned facilities.

As a result of the 2000 strategic realignment and prior merger and
realignment activities, we also recorded charges of $3.5 million for severance
and employment related costs, $2.1 million for facilities and equipment costs,
$1.0 million to complete the exit from a commitment related to the database
business and $0.5 million for ongoing professional fees related to the 2000
realignment.

Merger, realignment and other charges -- years ended December 31, 2000 and
1999

During the six-month period ended December 31, 2000, we recorded a charge
of $76.8 million principally to account for the actions undertaken to realign
our operational structure into two separate companies and to refine our product
strategy. Included in this charge was $40.9 million for severance and employment
related costs, $32.0 million for the write-off of goodwill and intangible
assets, $7.5 million for the closure of facilities and equipment costs, $4.0
million for costs to exit various commitments and programs, $2.5 million of
miscellaneous other charges and a credit of approximately $10.1 million for
adjustments recorded in order to reduce previously accrued merger and
restructuring charges primarily for a decrease in estimated facility costs
related to the merger with Ardent. See Note 14 to the Consolidated Financial
Statements.

During the quarter ended March 31, 2000, we recorded a charge of $50.0
million associated with the acquisition of Ardent. Of this amount, approximately
$10.1 million related to integration and transition costs incurred during the
quarter ended March 31, 2000. Also included in the $50.0 million was
approximately $39.9 million of accrued merger and restructuring costs which
consisted of the following components: $14.5 million for financial advisor,
legal and accounting fees related to the merger; $13.0 million for severance and
employment related costs; $8.9 million for the closure of facilities and
equipment costs and $3.5 million for the write-off of redundant technology and
other duplicate costs.

During the quarter ended December 31, 1999, we recorded a charge of $2.8
million associated with the acquisition of Cloudscape. This amount included $1.2
million for financial advisor, legal and accounting fees related to the merger
and $1.6 million for costs associated with combining the operations of the two
companies; including expenditures of $0.7 million for severance and related
costs, $0.4 million for closure of facilities and $0.5 million for the write-off
of redundant assets.

During the quarter ended June 30, 1999, Ardent adopted a formal plan to
exit the operations of O2 Technologies, Inc., which had been acquired by Ardent
in December 1997, and recorded a charge of $9.9 million for accrued
restructuring charges. The charge was comprised of $5.9 million for asset
impairment, $3.6 million for severance and related costs and $0.4 million for
facility closings and other obligations.

As discussed above and in Note 14 of Notes to Consolidated Financial
Statements, we have recorded significant charges in connection with our
abandonment of certain operating leases as a result of the IBM Transaction and
our merger and realignment activities. At December 31, 2001, the $35.1 million
of accrued merger, realignment and other charges included $28.0 million in
respect of estimated residual lease obligations and restoration costs for
abandoned facilities. The accrued residual lease obligations include remaining
lease liabilities (which are included as commitments under non-cancelable
operating leases in Note 8 of Notes to Consolidated Financial Statements) and
brokerage fees, offset by estimated sublease income. These accrued charges
contain significant estimates related to sublease costs and income and to our
ultimate restoration obligations for abandoned facilities. We prepare these
estimates with assistance from a commercial real estate broker, which we retain
on an ongoing basis. These estimates are based on assumptions regarding the
period required to locate and contract with suitable sub-lessees, the sublease
rates that can be achieved and the extent of any expected restoration required
for abandoned properties. These estimates are based on market

26

information supplied by the broker's local offices, which have specific
knowledge of the local commercial real estate market and the condition of the
properties.

The estimates are updated by the broker and reviewed by management each
quarter. To the extent that the underlying assumptions change due to changes in
the market, the ultimate charges for these abandoned facilities could vary by
material amounts.

Costs and Expenses Ascential Software Corporation (Combined total of Informix
Software and Ascential Software) -- six months ended December 31, 2001 and 2000

The following table presents the costs and expenses of Ascential Software,
Informix Software and Ascential Software Corporation for the six months ended
December 31, 2001 and of Ascential Software Corporation for the six months ended
December 31, 2000 (in millions):

As described above, our analysis of costs and expenses is presented on a
combined basis for the two operating businesses for 2000. The costs and expenses
for Ascential Software for the six months ended December 31, 2001 are discussed
below. See Results of Operations -- Ascential Software.

The costs and expenses for Informix Software for the six months ended
December 31, 2001, consist primarily of expenses resulting from the database
operations in nine countries where the IBM Transaction did not close until
August 1, 2001 and transitional database costs that are not expected to recur.
The $10.1 million of general and administrative expenses for the six months
ended December 31, 2001 consisted primarily of: (1) a $4.8 million charge
recorded in respect of the actions filed with respect to the Unidata operations
in Asia (See Note 12 of Notes to Consolidated Financial Statements) and (2) $3.2
million of salary and related costs for transitional employees and executives of
the database business that did not join IBM subsequent to the IBM Transaction.
The $36.8 million of merger, realignment and other charges recorded for Informix
Software during the six months ended December 31, 2001 consists primarily of the
$35.3 million charge for facilities and equipment costs related to facilities
that we no longer occupy as a result of the IBM Transaction (See Note 13 of
Notes to Consolidated Financial Statements).

IV. RESULTS OF OPERATIONS -- ASCENTIAL SOFTWARE

As discussed above, our discussion and analysis of costs and expenses for
Ascential Software is based on a comparison of the results for the quarters
ended December 31, 2001, and September 30, 2001, respectively.

The following table and discussion compares the results of operations of
Ascential Software for the three months ended December 31, 2001 and September
30, 2001, respectively and the six months ended December 31, 2001.

27

ASCENTIAL SOFTWARE
CONSOLIDATED STATEMENTS OF OPERATIONS

- ---------------

* Operating loss includes amortization of goodwill and purchased intangibles of
$1.6 million and $1.5 million for the quarters ended December 31, 2001 and
September 30, 2001, respectively.

Costs and Expenses -- Ascential Software

Cost of software. During the quarter ended December 31, 2001, cost of
software increased 20% to $4.2 million from $3.5 million from the quarter ended
September 30, 2001. Cost of software consists primarily of amortization of
previously capitalized software, which increased $0.3 million, and third-party
royalties, which increased due to higher license revenue levels.

Cost of services. The cost of services decreased 15% to $9.6 million for
the quarter ended December 31, 2001, from $11.3 million for the quarter ended
September 30, 2001. Service margins increased to 26% during the quarter ended
December 30, 2001 from 20% during the quarter ended September 30, 2001. Cost of
services decreased during the quarter ended December 31, 2001 as we adjusted our
delivery capacity to meet lower demand levels. Service margins increased in the
quarter ended December 31, 2001 as delivery capacity/revenue levels were more
aligned than in the quarter ended September 30, 2001.

Sales and marketing expenses. Sales and marketing expenses decreased 7% to
$19.8 million for the quarter ended December 31, 2001, from $21.3 million for
the quarter ended September 30, 2001. The decrease was driven by the full impact
of a reduction in force to reduce headcount during the quarter ended September
30, 2001.

Research and development expenses. Research and development expenses
decreased 3% to $7.2 million for the quarter ended December 31, 2001 from $7.4
million for the quarter ended September 30, 2001 as we completed our efforts to
consolidate and reduce facilities and headcount in order to streamline and focus
on our research and development effort to our core strategy and products.

General and administrative expenses. General and administrative expenses
decreased by $4.5 million to $6.2 million for the quarter ended December 31,
2001 from $10.7 million for the quarter ended September 30, 2001. The decrease
resulted primarily from a $3.7 million reduction in bad debt expense recorded in
the

28

quarter ended December 31, 2001 compared to the amount recorded during the
quarter ended September 30, 2001.

Write-off of acquired research and development. In connection with the
Torrent acquisition in November 2001, we recorded a charge of $5.5 million, or
10.9% of the $50.7 million in total consideration and liabilities assumed, for
in-process research and development costs ("IPRD"). The value allocated to the
project identified as IPRD was charged to operations in the fourth quarter of
2001.

At the acquisition date, Torrent's major in-process project was to add a
new graphical user interface as well as additional features and functionality to
an existing product. This technology had not yet reached technological
feasibility and had no alternative uses. The technological feasibility of the
in-process product is established when the enterprise has completed all
planning, designing, coding and testing activities that are necessary to
establish that the product can be produced to meet its design specifications.

At the date of the acquisition, management estimated that completion of the
project would be accomplished by the end of February 2002. The initial
development effort commenced in January 2001. At the acquisition date, IPRD was
approximately 50% complete, based on costs expended to date and estimated costs
to complete the product. At the date of the acquisition, the Company expected to
invest another $1.3 million of development costs in this product. The Company
currently expects to complete the project in mid-2002 and does not expect a
significant change in the estimated completion costs.

The value of IPRD was determined using an income approach. This approach
takes into consideration earnings remaining after deducting from cash flows
related to the in-process technology, the market rates of return on contributory
assets including assembled workforce, customer accounts and existing technology.
The cash flows are then discounted to present value at an appropriate rate.
Discount rates are determined by an analysis of the risks associated with each
of the identified intangible assets. The discount rate used for IPRD was 35%, a
premium over the estimated weighted-average cost of capital of 26%. The
resulting net cash flows to which the discount rate was applied are based on
management's estimates of revenues, operating expenses, and income taxes from
such acquired technology. See Note 11 of Notes to Consolidated Financial
Statements.

Merger, realignment and other charges. Merger, realignment and other
charges for Ascential Software for the three months ended December 31, 2001 and
September 30, 2001, respectively are discussed above -- see Costs and
Expenses -- Ascential Software Corporation.

V. OTHER INCOME (EXPENSE) -- ASCENTIAL SOFTWARE CORPORATION

Interest income -- years ended December 31, 2001, 2000 and 1999. Interest
income increased to $24.1 million in 2001 and increased to $14.3 million in 2000
from $12.4 million in 1999. The increase in 2001, when compared to 2000, was due
to an increase in the average interest-bearing cash and short-term investment
balances as a result of the proceeds received from the IBM Transaction. The
increase in 2000, when compared to 1999, was due in part to the increase in
interest rates experienced during 2000 as well as an increase in the average
interest-bearing cash and short-term investment balances held during 2000 when
compared to 1999.

Interest expense -- years ended December 31, 2001, 2000 and 1999. Interest
expense decreased to $0.2 million for 2001 and decreased to $0.5 million for
2000 from $4.5 million in 1999. The decrease in 2001, when compared to 2000, was
due primarily to a decrease in interest charges on capital lease payments. The
decrease in 2000, when compared to 1999, was due to a decline in the interest
charges related to the line of credit which was terminated effective December
31, 1999, a decrease in the financing of customer accounts receivable, and a
decrease in interest charges on capital lease payments.

Impairment of long-term investments -- years ended December 31, 2001, 2000
and 1999. We assess the valuation of our strategic equity investments on a
quarterly basis to determine whether there has been a decline in the carrying
amount of the investment that is other-than-temporary. We have established
criteria that we use in determining the following: (1) whether the value of an
investment has declined below it's adjusted cost; (2) whether the decline in
value of an investment below it's adjusted cost is other-than-

29

temporary; and (3) the amount of any realized loss that should be recorded. As a
result of our periodic assessments, we realized a loss of $10.2 million during
2001 for declines in value that were considered other-than-temporary. There were
no corresponding losses recorded in 2000 or 1999.

As of December 31, 2001, the remaining book value of long-term investments
was approximately $1.8 million, after certain asset disposals and impairment
write-downs during 2001. Due to the rapid changes occurring in the business
sectors in which our strategic investments operate, additional impairment
charges are possible in the future.

Litigation settlement expense -- years ended December 31, 2001, 2000 and
1999. During 1999, we recorded a charge of $97.0 million in connection with our
entering into a memorandum of understanding regarding the settlement of the
private securities and related litigation against us. The charge consisted of
$3.2 million in cash and $91.0 million in common stock for settlement expenses
plus approximately $2.8 million in legal fees required to obtain and complete
the settlement. The charge excludes approximately $13.8 million of insurance
proceeds, which, according to the terms of the memorandum of understanding, were
contributed directly by our insurance carriers. There were no corresponding
charges in 2001 or 2000.

Other, net -- years ended December 31, 2001, 2000 and 1999. Other, net
decreased to a net other expense of $1.0 million for 2001 from a net other
income of $5.0 million in 2000. For 2001, other expense included approximately
$4.5 million of net foreign currency transaction losses offset primarily by $1.6
million of excess rent on subleased facilities, a gain of approximately $0.8
million on cash surrender value of life insurance policies and $0.4 million of
net realized gains on the sale of a long-term investment. Other income increased
to $5.0 million for 2000 from 2.6 million for 1999. For 2000, other income
included approximately $2.9 million of net realized gains on the sale of
long-term investments and approximately $1.3 million of VAT refunds received in
China. For 1999, other income included approximately $3.7 million of net
realized gains on the sale of long-term investments offset by a downward
adjustment of $0.5 million to the carrying value of certain investments and
approximately $0.3 million of net foreign currency transaction losses.

VI. INCOME TAXES -- ASCENTIAL SOFTWARE CORPORATION

Income tax expense was $157.4 million, $16.0 million and $32.0 million for
2001, 2000 and 1999, respectively. Income tax expense in 2001 was primarily
attributable to taxable gains in the United States and foreign jurisdictions
resulting from the gain from the IBM Transaction. The income tax expense on the
gain resulting from the IBM Transaction is calculated after the utilization of
net operating loss carry forwards that were previously fully reserved. Income
tax expense in 2000 and 1999 resulted primarily from foreign withholding taxes
and taxable earnings in certain foreign jurisdictions.

QUARTERLY OPERATING RESULTS (UNAUDITED)

During the closing for the quarter ended December 31, 2001, the Company
discovered errors in previously reported net income for the three-month period
ended September 30, 2001. The errors relate to: (1) $1.2 million of tangible
assets that IBM purchased that were included on the Company's balance sheet at
September 30, 2001 and that were identified and transferred to IBM during the
fourth quarter of 2001; and (2) $4.5 million of additional obligations relating
to facilities that the Company has either permanently exited or has plans to
permanently exit resulting from the IBM Transaction. As a result, previously
reported net income, and basic and diluted earnings per share of $651.4 million,
$2.34 and $2.28, respectively, for the quarter ended September 30, 2001 have
been restated to $645.7 million, $2.32 and $2.26, respectively.

In addition, in the 2001 year-end financial statements, the Company
reclassified $21.4 million of facilities and equipment costs related to the IBM
Transaction from the Gain on sale of database business line item to the Merger,
realignment and other charges line item. (See Note 14 to Notes to Consolidated
Financial Statements).

Liquidity and Capital Resources -- Ascential Software Corporation

Our cash, cash equivalents and short-term investments totaled $758.6
million at December 31, 2001. The increase of $541.6 million from $217.0 million
at December 31, 2000, was primarily the result of $888.4 million in proceeds
received from the IBM Transaction (See Note 13 of Notes to Consolidated
Financial Statements) offset by stock repurchases of $143.0 million, income tax
payments of $67.6 million, the purchase of Torrent for $44.1 million and a cash
payment of $26.2 million in connection with the settlement of our private
securities litigation (See Note 12 of Notes to Consolidated Financial
Statements).

We will continue to invest in research and development activities as well
as sales and marketing and product support for the Ascential Software business.
Our investment in property and equipment will continue as we purchase computer
systems for research and development, sales and marketing, support and
administrative staff. During 2001, capital expenditures totaled $17.7 million.

As of December 31, 2001, we did not have any significant long-term debt or
significant commitments for capital expenditures. We believe that the proceeds
from the IBM Transaction, together with our current cash, cash equivalents and
short-term investments balances and cash generated from operations will be
sufficient to meet our working capital requirements for at least the next 12
months. We also believe that we will have sufficient resources to fund the
remaining portion of the announced $350 million stock repurchase program and any
strategic acquisitions that we may undertake, including the Vality acquisition,
which is expected to close in April 2002, subject to approval of Vality
shareholders and other customary closing conditions.

Disclosures About Market Rate Risk

Market Rate Risk. The following discussion about our market rate risk
involves forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. We

31

are exposed to market risk related to changes in interest rates, foreign
currency exchange rates and equity security price risk. We do not use derivative
financial instruments for speculative or trading purposes.

Interest Rate Risk. Our exposure to market rate risk for changes in
interest rates relates primarily to our investment portfolio. We maintain a
short-term investment portfolio consisting mainly of debt securities with an
average maturity of less than two years. We do not use derivative financial
instruments in our investment portfolio and we place our investments with high
quality issuers and, by policy, limit the amount of credit exposure to any one
issuer. We are averse to principal loss and ensure the safety and preservation
of our invested funds by limiting default, market and reinvestment risk. These
available-for-sale securities are subject to interest rate risk and will
decrease in value if market interest rates increase. If market interest rates
were to increase immediately and uniformly by 10 percent or less from levels at
December 31, 2001 and 2000, the fair value of the portfolio would decline by
approximately $1.3 million. We have the ability to hold our fixed income
investments until maturity and believe that the effect, if any, of reasonably
possible near-term changes in interest rates on our financial position, results
of operations and cash flows would not be material.

Equity Security Price Risk. We hold a small portfolio of marketable-equity
traded securities that are subject to market price volatility. Equity price
fluctuations of plus or minus 10% would have had a $0.1 million and $0.4 million
impact on the value of these securities in 2001 and 2000, respectively.

Foreign Currency Exchange Rate Risk. We enter into foreign currency
forward exchange contracts to reduce our exposure to foreign currency risk due
to fluctuations in exchange rates underlying the value of intercompany accounts
receivable and payable denominated in foreign currencies (primarily European and
Asian currencies) until such receivables are collected and payables are
disbursed. A foreign currency forward exchange contract obligates us to exchange
predetermined amounts of specified foreign currencies at specified exchange
rates on specified dates or to make an equivalent U.S. dollar payment equal to
the value of such exchange. These foreign currency forward exchange contracts
are denominated in the same currency in which the underlying foreign currency
receivables or payables are denominated and bear a contract value and maturity
date which approximate the value and expected settlement date of the underlying
transactions. As these contracts are not designated and effective as hedges,
discounts or premiums (the difference between the spot exchange rate and the
forward exchange rate at inception of the contract) are recorded in earnings to
other income (expense), net at the time of purchase, and changes in market value
of the underlying contract are recorded in earnings as foreign exchange gains or
losses in the period in which they occur. We operate in certain countries in
Latin America, Eastern Europe, and Asia/Pacific where there are limited forward
foreign currency exchange markets and thus we have unhedged exposures in these
currencies.

Most of our international revenue and expenses are denominated in local
currencies. Due to the substantial volatility of currency exchange rates, among
other factors, we cannot predict the effect of exchange rate fluctuations on our
future operating results. Although we take into account changes in exchange
rates over time in our pricing strategy, we do so only on an annual basis,
resulting in substantial pricing exposure as a result of foreign exchange
volatility during the period between annual pricing reviews. In addition, the
sales cycle for our products is relatively long, depending on a number of
factors including the level of competition and the size of the transaction.
Notwithstanding our efforts to manage foreign exchange risk, there can be no
assurances that our hedging activities will adequately protect us against the
risks associated with foreign currency fluctuations.

The table below provides information about our foreign currency forward
exchange contracts. The information is provided in U.S. dollar equivalents and
presents the notional amount (contract amount), the weighted average contractual
foreign currency exchange rates and fair value. Fair value represents the

32

difference in value of the contracts at the spot rate at December 31, 2001 and
the forward rate. All contracts mature within twelve months.

Forward Contracts

- ---------------

* Not material

Recent Accounting Pronouncements

See Note 1 of Notes to Consolidated Financial Statements.

FACTORS THAT MAY AFFECT FUTURE RESULTS

The risks and uncertainties described below are not the only risks we face.
Additional risks and uncertainties that are not presently known to us or that
are currently deemed immaterial may also impair our business operations. If any
of the following occur, our financial condition and operating results could be
materially adversely affected.

RISKS RELATED TO THE IBM TRANSACTION

BECAUSE OF THE IBM TRANSACTION, WE HAVE A NARROWER FOCUS OF BUSINESS AND HAVE
LOST A SUBSTANTIAL PORTION OF OUR HISTORICAL LICENSE AND SERVICE REVENUE.

Our future financial results could be materially adversely affected as a
result of our losing a substantial portion of our historical license and service
revenue in the IBM Transaction. Historically, the license and service revenue
attributable to our data integration product family has represented a relatively
small portion of our total revenue. But beginning with the third quarter of
2001, substantially all of our revenue has and will continue to be generated
solely from our data integration product offerings. Moreover, we have lost the
benefit of any future revenue growth that could have been generated by our
continued operation of the database

33

business. In addition, we cannot ensure that the future revenue from our data
integration product offerings will equal or exceed the historical revenue
generated by the database business that we have sold to IBM.

THE IBM TRANSACTION EXPOSES US TO POTENTIAL CONTINGENT LIABILITIES AND WE RETAIN
SOME PRE-CLOSING LIABILITIES OF THE DATABASE BUSINESS.

As part of the IBM Transaction, we agreed to indemnify IBM for certain
representations and warranties that we have made under the terms of the IBM
Transaction agreements. Indemnification claims by IBM, should they be made,
could materially adversely affect our financial results. In addition, IBM
assumed only certain current liabilities of the database business at closing. As
a result, we continue to be responsible for some liabilities of the database
business, particularly contractual obligations that were not assumed by IBM.

In addition, as a result of the IBM Transaction, we have permanently
abandoned certain facilities used by the database business. As at December 31,
2001, we have a reserve of approximately $25 million for estimated residual
obligations and restoration costs under the leases covering those database
facilities that we no longer occupy. Those estimates are based in part on
assumptions regarding the real estate markets in which the facilities are
located. If those assumptions are incorrect, our actual future obligations may
be significantly different than the reserve we have established. If the actual
costs are significantly higher than our estimates, our financial results could
be materially adversely affected.

AS A RESULT OF THE IBM TRANSACTION, WE LOST, AND WILL HAVE TO REPLACE, MUCH OF
OUR INFRASTRUCTURE.

As part of the IBM transaction, we sold to IBM, and therefore will have to
replace, significant portions of our infrastructure, including financial and
other business processes, product and services order administration, and
information technology. Also as part of the sale to IBM, we entered into
agreements with IBM to provide and purchase some of these services for a
transitional period not to exceed 18 months. During the six months ended
December 31, 2001, we provided to IBM and purchased from IBM transitional
services amounting to $2.6 million and $4.1 million, respectively. We expect the
level of these services that we provide and purchase to decline significantly
during the first half of 2002. If the transitional services agreements with IBM
do not provide us with the services that we expect in the future, or if we are
not able to establish our own infrastructure prior to the expiration of the
transitional services agreements, our operations, and potentially our financial
results, might be adversely affected. In addition, we anticipate that there will
be substantial costs associated with establishing our own infrastructure.

RISKS RELATED TO OUR BUSINESS OPERATIONS

IF WE DO NOT USE EFFECTIVELY THE PROCEEDS OF THE SALE OF THE DATABASE BUSINESS
OPERATIONS, OUR FINANCIAL RESULTS COULD SUFFER AND THE VALUE OF OUR COMMON STOCK
COULD DECLINE.

Our ability to increase stockholder value is dependent, in part, on our
effective use of the cash proceeds of the sale of our database business
operations to IBM. At December 31, 2001, as a result of the IBM Transaction and
our continuing operations, we held approximately $759 million in cash, cash
equivalents and short-term investments. We intend to use the proceeds to
continue to operate our business, repurchase shares of our common stock and to
finance any strategic acquisitions. We cannot ensure that continuing to
repurchase shares of our common stock will increase stockholder value. In
addition, we cannot ensure that spending the proceeds on strategic acquisitions,
if any, will result in an increase in our revenues.

IF WE ARE UNABLE TO INCREASE REVENUE FROM, AND EXPAND THE MARKET SHARE OF, OUR
CORE DATA INTEGRATION PRODUCT, OUR FINANCIAL RESULTS WILL BE MATERIALLY
ADVERSELY AFFECTED.

If we do not increase sales of our DataStage product, our financial results
will be materially adversely affected. In addition to the loss of revenue
resulting from our sale of the database business, we have discontinued one
product (i.Sell) and announced our intention to divest the intellectual property
related to a second product (Media360). We derived approximately 16% of our
non-database license revenue from these two products during 2001. As a result,
our revenue is derived almost entirely from our core data integration

34

product, DataStage. In order to increase revenues and grow our business, we must
be able to increase sales of DataStage and our share of the information asset
management market. We cannot ensure that our current customers will continue to
purchase our DataStage product offering and related services and that new
customers will choose DataStage over our competitors' product offerings.

IF THE INFORMATION ASSET MANAGEMENT MARKET DECLINES OR DOES NOT GROW, WE MAY
SELL FEWER PRODUCTS AND SERVICES AND OUR BUSINESS MAY BE UNABLE TO SUSTAIN ITS
CURRENT LEVEL OF OPERATIONS.

If the growth rates for the information asset management market decline for
any reason, there will be a decrease in demand for our products and services,
which would have a material adverse effect on our financial results. We have
invested substantial resources in developing data integration products and
services to compete in this market. The market for these products and services
is evolving, and its growth depends upon a growing need to store and manage
complex data and upon broader market acceptance of our products as a solution
for this need. Declining demand for our products and services could threaten our
ability to sustain our present level of operations and meet our expectations for
future growth.

INTENSE COMPETITION COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS AND
SERVICES.

We may not be able to compete successfully against current and future
competitors and such inability could impair our ability to sell our products.
The market for our products and services is highly competitive, diverse and is
subject to rapid change. In particular, we expect that the technology underlying
our products and services will continue to change rapidly. It is possible that
our products and solutions will be rendered obsolete by technological advances.

We currently face intense competition from a number of sources, including
several large vendors that develop and market applications, development tools,
decision support products, consulting services and/or complete database-driven
solutions for the Internet. Our principal competitors in the information asset
management business include Acta, ETI, Informatica, Hummingbird and Sagent.
These competitors may be able to respond more quickly than we can to new or
emerging technologies, evolving markets and changes in customer requirements.

COMPETITION MAY AFFECT THE PRICING OF OUR PRODUCTS OR SERVICES, AND CHANGES IN
PRODUCT MIX MAY OCCUR, EITHER OF WHICH MAY REDUCE OUR PROFIT MARGINS.

Existing and future competition or changes in our product or service
offerings or pricing could result in an immediate reduction in the prices of our
products or services. In addition, a significant change in the mix of software
products and services that we sell, including the mix between higher margin
software and maintenance products and lower margin consulting and training,
could materially adversely affect our operating results for future quarters. In
addition, the pricing strategies of competitors in the software database
industry have historically been characterized by aggressive price discounting to
encourage volume purchasing by customers. We may not be able to compete
effectively against competitors who continue to aggressively discount the prices
of their products.

OUR FINANCIAL RESULTS ARE SUBJECT TO FLUCTUATIONS CAUSED BY MANY FACTORS THAT
COULD RESULT IN OUR FAILING TO ACHIEVE ANTICIPATED FINANCIAL RESULTS.

Our quarterly and annual financial results have varied significantly in the
past and are likely to continue to vary in the future due to a number of factors
described below and elsewhere in this "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" section, many of which are
beyond our control. In particular, if a large number of the orders that are
typically booked at the end of a quarter are not booked, our net income for that
quarter could be substantially reduced. In addition, the failure to meet market
expectations could cause a sharp drop in our stock price. These and any one or
more of the factors listed below

35

or other factors could cause us to fail to achieve our revenue or profitability
expectations. These factors include:

- Changes in demand for our products and services, including changes in
growth rates in the software industry as a whole and in the information
asset management business,

- The size, timing and contractual terms of large orders for our software
products and services,

- Possible delays in or failure to recognize revenue as the result of our
revenue recognition process,

- The budgeting cycles of our customers and potential customers,

- The reaction of our customers and potential customers to the IBM
Transaction,

- Any downturn in our customers' businesses, in the domestic economy or in
international economies where our customers do substantial business,

- Changes in our pricing policies resulting from competitive pressures,
such as aggressive price discounting by our competitors, or other
factors,

- Our ability to develop and introduce on a timely basis new or enhanced
versions of our products and services,

- Changes in the mix of revenues attributable to domestic and international
sales and

- Seasonal buying patterns which tend to peak in the fourth quarter.

OUR COMMON STOCK HAS BEEN AND LIKELY WILL CONTINUE TO BE SUBJECT TO SUBSTANTIAL
PRICE AND VOLUME FLUCTUATIONS THAT MAY PREVENT STOCKHOLDERS FROM RESELLING THEIR
SHARES AT OR ABOVE THE PRICES AT WHICH THEY PURCHASED THEIR SHARES.

Fluctuations in the price and trading volume of our common stock may
prevent stockholders from selling their shares at or above the prices at which
they purchased their shares. Stock prices and trading volumes for many software
companies fluctuate widely for a number of reasons, including some reasons that
may be unrelated to the companies' businesses or financial results. This market
volatility, as well as general domestic or international economic, market and
political conditions, could materially adversely affect the market price of our
common stock without regard to our operating performance. In addition, our
operating results may be below the expectations of public market analysts and
investors. The market price of our common stock has fluctuated significantly in
the past and may continue to fluctuate significantly for a number of reasons,
including:

- Market uncertainty about our business prospects as a result of the IBM
Transaction,

- Market uncertainty about our business prospects or the prospects for the
information asset management business market,

- Revenues or results of operations that do not meet or exceed analysts'
and investors' expectations,

- The introduction of new products or product enhancements by us or our
competitors,

- General business conditions in the software industry, the technology
sector, or in the domestic or international economies and

- Uncertainty and economic instability resulting from terrorist acts and
other acts of violence or war.

OUR FINANCIAL SUCCESS DEPENDS UPON OUR ABILITY TO MAINTAIN AND LEVERAGE
RELATIONSHIPS WITH STRATEGIC PARTNERS.

We may not be able to maintain our strategic relationships or attract
sufficient additional strategic partners who are able to market our products and
services effectively. Our ability to increase the sales of our products and our
future success depends in part upon maintaining and increasing relationships
with strategic partners. In addition to our direct sales force, we rely on
relationships with a variety of strategic partners,

36

including systems integrators, resellers and distributors in the United States
and abroad. Our strategic partners may offer products of several different
companies, including, in some cases, products that compete with our products. We
have limited control, if any, as to whether these strategic partners devote
adequate resources to promoting, selling and implementing our products. If our
strategic partners do not devote adequate resources for implementation of our
products and services, we will incur substantial additional costs associated
with hiring and training additional qualified technical personnel to implement
solutions for our customers. In addition, our relationships with our strategic
partners may not generate enough revenue to offset the significant resources
used to develop these relationships.

WE MAY NOT BE ABLE TO RETAIN OUR KEY PERSONNEL AND ATTRACT AND RETAIN THE NEW
PERSONNEL NECESSARY TO GROW OUR BUSINESSES, WHICH COULD MATERIALLY ADVERSELY
AFFECT OUR ABILITY TO DEVELOP AND SELL OUR PRODUCTS, SUPPORT OUR BUSINESS
OPERATIONS AND GROW OUR BUSINESSES.

The competition for experienced, well-qualified personnel in the software
industry is intense. Our future success depends on retaining the services of key
personnel in all functional areas of our company, including engineering, sales,
marketing, consulting and corporate services. For instance, we may be unable to
continue to develop and support technologically advanced products and services
if we fail to retain and attract highly qualified engineers, and to market and
sell those products and services if we fail to retain and attract well-
qualified marketing and sales professionals. We may be unable to retain key
employees in all of these areas and we may not succeed in attracting new
employees. If we fail to retain, attract and motivate key employees, we may be
unable to develop, market and sell new products and services, which could
materially adversely affect our operating and financial results.

FLUCTUATIONS IN THE VALUE OF FOREIGN CURRENCIES COULD RESULT IN CURRENCY
TRANSACTION LOSSES.

Despite efforts to manage foreign exchange risk, our hedging activities may
not adequately protect us against the risks associated with foreign currency
fluctuations. As a consequence, we may incur losses in connection with
fluctuations in foreign currency exchange rates. Most of our international
revenue and expenses are denominated in local currencies. Due to the substantial
volatility of currency exchange rates, among other factors, we cannot predict
the effect of exchange rate fluctuations on our future operating results.
Although we take into account changes in exchange rates in our pricing strategy,
there would be a time lapse between any sudden or significant exchange rates
movements and our implementation of a revised pricing structure.

The result is substantial pricing exposure as a result of foreign exchange
volatility during the period between pricing reviews. In addition, as noted
previously, the sales cycles for our products are relatively long. Foreign
currency fluctuations could, therefore, result in substantial changes in the
financial impact of a specific transaction between the time of initial customer
contact and revenue recognition. We have implemented a foreign exchange hedging
program consisting principally of the purchase of forward foreign exchange
contracts in the primary European and Asian currencies. This program is intended
to hedge the value of intercompany accounts receivable or intercompany accounts
payable denominated in foreign currencies against fluctuations in exchange rates
until such receivables are collected or payables are disbursed.

IF WE DO NOT RESPOND ADEQUATELY TO OUR INDUSTRY'S EVOLVING TECHNOLOGY STANDARDS
OR DO NOT CONTINUE TO MEET THE SOPHISTICATED NEEDS OF OUR CUSTOMERS, SALES OF
OUR PRODUCTS AND SOLUTIONS MAY DECLINE.

Our future success will depend on our ability to address the increasingly
sophisticated needs of our customers by supporting existing and emerging
hardware, software, database and networking platforms. We will have to develop
and introduce commercially viable enhancements to our existing products and
services on a timely basis to keep pace with technological developments,
evolving industry standards and changing customer requirements. If we do not
enhance our products and services to meet these evolving needs, we will not sell
as many products and services and our position in existing, emerging or
potential markets could be eroded rapidly by product advances. In addition,
commercial acceptance of our products and services also could be adversely
affected by critical or negative statements or reports by brokerage firms,
industry and

37

financial analysts and the media about us or our products or business, or by the
advertising or marketing efforts of competitors, or by other factors that could
adversely affect consumer perception.

Our product development efforts will continue to require substantial
financial and operational investment. We may not be able to internally develop
new products and services quickly enough to respond to market forces. As a
result, we may have to acquire technology or access to products or services
through mergers and acquisitions, investments and partnering arrangements.
Alternatively, we may not be able to forge partnering arrangements or strategic
alliances on satisfactory terms, or at all, with the companies of our choice.

OUR FUTURE REVENUE AND OUR ABILITY TO MAKE INVESTMENTS IN DEVELOPING OUR
PRODUCTS IS SUBSTANTIALLY DEPENDENT UPON OUR INSTALLED CUSTOMER BASE CONTINUING
TO LICENSE OUR PRODUCTS AND RENEW OUR SERVICE AGREEMENTS.

We depend on our installed customer base for future revenue from services
and licenses of additional products. If our customers fail to renew their
maintenance agreements, our revenue will decline. Our maintenance agreements are
generally renewable annually at the option of the customers and there are no
minimum payment obligations or obligations to license additional software.
Therefore, current customers may not necessarily generate significant
maintenance revenue in future periods. In addition, customers may not
necessarily purchase additional products or services. Our services revenue and
maintenance revenue also depends upon the continued use of these services by our
installed customer base. Any downturn in software license revenue could result
in lower services revenue in future quarters.

SEASONAL TRENDS IN SALES OF OUR SOFTWARE PRODUCTS COULD ADVERSELY AFFECT OUR
QUARTERLY OPERATING RESULTS AND LENGTHY SALES CYCLES FOR PRODUCTS MAKES REVENUES
SUSCEPTIBLE TO FLUCTUATIONS.

Our sales of software products and services have been affected by seasonal
purchasing trends that materially affect our quarter-to-quarter operating
results. We expect these seasonal trends to continue in the future. Revenue and
operating results in our quarter ended December 31 are typically higher relative
to other quarters because many customers make purchase decisions based on their
calendar year-end budgeting requirements and because we measure our sales
incentive plans for sales personnel on a calendar year basis.

Our sales cycles typically take many months to complete and vary depending
on the product or service that is being sold. The length of the sales cycle may
vary depending on a number of factors over which we have little or no control,
including the size of a potential transaction and the level of competition that
we encounter in our selling activities. The sales cycle can be further extended
for sales made through third party distributors.

THE SUCCESS OF OUR INTERNATIONAL OPERATIONS IS DEPENDENT UPON MANY FACTORS THAT
COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR PRODUCTS INTERNATIONALLY AND
COULD AFFECT OUR PROFITABILITY.

International sales represent approximately 40% to 50% of our total
revenue. Our international operations are, and any expanded international
operations will be, subject to a variety of risks associated with conducting
business internationally that could adversely affect our ability to sell our
products internationally, and therefore, our profitability, including the
following:

- Difficulties in staffing and managing international operations,

- Problems in collecting accounts receivable,

- Longer payment cycles,

- Fluctuations in currency exchange rates,

- Seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world,

- Uncertainties relative to regional, political and economic circumstances,

- Recessionary environments in domestic or foreign economies and

38

- Increases in tariffs, duties, price controls or other restrictions on
foreign currencies or trade barriers imposed by foreign countries, and
other changes in applicable foreign laws.

IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, COMPETITORS MAY BE ABLE
TO USE OUR TECHNOLOGY OR TRADEMARKS AND THIS WOULD WEAKEN OUR COMPETITIVE
POSITION, REDUCE OUR REVENUE AND INCREASE COSTS.

Our business success will continue to be heavily dependent upon proprietary
technology. We rely primarily on a combination of patent, copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect our proprietary rights. These means of protecting
proprietary rights may not be adequate, and the inability to protect
intellectual property rights may adversely affect our business and/or financial
condition. We currently hold a number of United States patents and pending
applications. There can be no assurance that any other patents covering our
inventions will be issued or that any patent, if issued, will provide
sufficiently broad protection or will prove enforceable in actions against
alleged infringements. Our ability to sell our products and services and to
prevent competitors from misappropriating our proprietary technology and trade
names is dependent upon protecting our intellectual property. Our products are
generally licensed to end-users on a "right-to-use" basis under a license that
restricts the use of the products for the customer's internal business purposes.
We also rely on "shrink-wrap" and "click-wrap" licenses, which include a notice
informing the end-user that by opening the product packaging, or in the case of
a click-on license by clicking on an acceptance icon and downloading the
product, the end-user agrees to be bound by the license agreement.

Despite such precautions, it may be possible for unauthorized third parties
to copy aspects of our current or future products or to obtain and use
information that is regarded as proprietary. In addition, we have licensed the
source code of our products to certain customers under certain circumstances and
for restricted uses. We also have entered into source code escrow agreements
with a number of our customers that generally require release of source code to
the customer in the event the company enters bankruptcy or liquidation
proceedings or otherwise ceases to conduct business. We may also be unable to
protect our technology because:

- Competitors may independently develop similar or superior technology,

- Policing unauthorized use of software is difficult,

- The laws of some foreign countries do not protect proprietary rights in
software to the same extent as do the laws of the United States,

- "Shrink-wrap" and/or "click-wrap" licenses may be wholly or partially
unenforceable under the laws of certain jurisdictions and

- Litigation to enforce intellectual property rights, to protect trade
secrets, or to determine the validity and scope of the proprietary rights
of others could result in substantial costs and diversion of resources.

IN THE FUTURE, THIRD PARTIES COULD, FOR COMPETITIVE OR OTHER REASONS, ASSERT
THAT OUR PRODUCTS INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS.

In the future, third parties could, for competitive or other reasons,
assert that our products infringe their intellectual property rights. Any such
claims could be time consuming to defend, result in costly litigation, cause
product shipment delays or require us to enter into royalty or licensing
agreements. Royalty or license agreements may not be available on acceptable
terms or at all. We expect that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in the
software industry segment grows and the functionality of products in different
industry segments overlaps.

OUR INABILITY TO RELY ON THE STATUTORY "SAFE HARBOR" AS A RESULT OF THE
SETTLEMENT OF THE SECURITIES AND EXCHANGE COMMISSION INVESTIGATION COULD HARM
OUR BUSINESS.

Effective January 11, 2000, the Securities and Exchange Commission, (the
"SEC") and we entered into a settlement of the investigation against us.
Pursuant to the settlement, we consented to the entry by the SEC

39

of an Order Instituting Public Administrative Proceedings Pursuant to Section 8A
of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of
1934, Making Findings, and Imposing a Cease and Desist Order. Pursuant to the
order, we neither admitted nor denied the findings, except as to jurisdiction,
contained in the order.

The order prohibits us from violating and causing any violation of the
anti-fraud provisions of the federal securities laws, for example by making
materially false and misleading statements concerning our financial performance.
The order also prohibits us from violating or causing any violation of the
provisions of the federal securities laws requiring us to: (1) file accurate
quarterly and annual reports with the SEC; (2) maintain accurate accounting
books and records; and (3) maintain adequate internal accounting controls.
Pursuant to the order, we are also required to cooperate in the SEC's continuing
investigation of other entities and persons. In the event that we violate the
order, we could be subject to substantial monetary penalties.

As a consequence of the issuance of the January 2000 order, we will not,
for a period of three years from the date of the issuance of the order, be able
to rely on the "safe harbor" for forward-looking statements contained in the
federal securities laws. The "safe harbor," among other things, limits potential
legal actions against us in the event a forward-looking statement concerning our
anticipated performance turns out to be inaccurate, unless it can be proved
that, at the time the statement was made, we actually knew that the statement
was false. If we become a defendant in any private securities litigation brought
under the federal securities laws, our legal position in the litigation could be
materially adversely affected by our inability to rely on the "safe harbor"
provisions for forward-looking statements.

PROVISIONS IN OUR CHARTER DOCUMENTS MAY DISCOURAGE POTENTIAL ACQUISITION BIDS
AND PREVENT CHANGES IN OUR MANAGEMENT THAT OUR STOCKHOLDERS MAY FAVOR. THIS
COULD ADVERSELY AFFECT THE MARKET PRICE FOR OUR COMMON STOCK.

Provisions in our charter documents could discourage potential acquisition
proposals and could delay or prevent a change in control transaction that our
stockholders may favor. The provisions include:

- Elimination of the right of stockholders to act without holding a
meeting,

- Certain procedures for nominating directors and submitting proposals for
consideration at stockholder meetings and

- A board of directors divided into three classes, with each class standing
for election once every three years.

These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board of directors and in the policies
formulated by the board of directors and to discourage certain types of
transactions involving an actual or threatened change of control. These
provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal and, accordingly, could discourage potential acquisition
proposals and could delay or prevent a change in control. Such provisions are
also intended to discourage certain tactics that may be used in proxy fights but
could, however, have the effect of discouraging others from making tender offers
for shares of our common stock, and consequently, may also inhibit fluctuations
in the market price of our common stock that could result from actual or rumored
takeover attempts. These provisions may also have the effect of preventing
changes in our management.

In addition, we have adopted a rights agreement, commonly referred to as a
"poison pill," that grants holders of our common stock preferential rights in
the event of an unsolicited takeover attempt. These rights are denied to any
stockholder involved in the takeover attempt and this has the effect of
requiring cooperation with our board of directors. This may also prevent an
increase in the market price of our common stock resulting from actual or
rumored takeover attempts. The rights agreement could also discourage potential
acquirers from making unsolicited acquisition bids.

40

PROVISIONS IN OUR CHARTER DOCUMENTS WITH RESPECT TO UNDESIGNATED PREFERRED STOCK
MAY DISCOURAGE POTENTIAL ACQUISITION BIDS FOR ASCENTIAL.

Our board of directors is authorized to issue up to approximately four
million shares of undesignated preferred stock in one or more series. Our board
of directors can fix the price, rights, preferences, privileges and restrictions
of such preferred stock without any further vote or action by its stockholders.
However, the issuance of shares of preferred stock may delay or prevent a change
in control transaction without further action by our stockholders. As a result,
the market price of our common stock and the voting and other rights of the
holders of our common stock may be adversely affected. The issuance of preferred
stock with voting and conversion rights may adversely affect the voting power of
the holders of our common stock, including the loss of voting controls to
others.

DELAWARE LAW MAY INHIBIT POTENTIAL ACQUISITION BIDS, WHICH MAY ADVERSELY AFFECT
THE MARKET PRICE FOR OUR COMMON STOCK AND PREVENT CHANGES IN OUR MANAGEMENT THAT
OUR STOCKHOLDERS MAY FAVOR.

We are incorporated in Delaware and are subject to the anti-takeover
provisions of the Delaware General Corporation Law, which regulates corporate
acquisitions. Delaware law prevents certain Delaware corporations, including us,
whose securities are listed for trading on the NASDAQ National Market, from
engaging, under certain circumstances, in a "business combination" with any
"interested stockholder" for three years following the date that the stockholder
became an interested stockholder. For purposes of Delaware law, a "business
combination" would include, among other things, a merger or consolidation
involving us and an interested stockholder and the sale of more than 10% of our
assets. In general, Delaware law defines an "interested stockholder" as any
entity or person beneficially owning 15% or more of the outstanding voting stock
of a corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. Under Delaware law, a Delaware corporation
may "opt out" of the anti-takeover provisions. We have not and do not intend to
"opt out" of these anti-takeover provisions of Delaware law.

OUR CURRENT STRATEGY CONTEMPLATES FUTURE ACQUISITIONS, WHICH WILL REQUIRE US TO
INCUR SUBSTANTIAL COST AND POTENTIAL BENEFITS FOR WHICH WE MAY NEVER REALIZE THE
ANTICIPATED BENEFITS.

Our business strategy contemplates future acquisitions of complementary
companies or technologies. We cannot ensure that we will be able to implement
our growth strategy, or that this strategy will ultimately be successful. Any
potential acquisition may result in significant transaction expenses, increased
interest and amortization expense, increased depreciation expense and increased
operating expense, any of which could have a material adverse effect on our
operating results.

Achieving the benefits of any acquisitions will depend in part on our
ability to integrate those businesses with our business in an efficient manner.
Our consolidation of operations following any acquisition may require
significant attention from our management. The diversion of management attention
and any difficulties encountered in the transition and integration process could
have a material adverse effect on our ability to achieve expected net sales,
operating expenses and operating results for any acquired business. We cannot
ensure that we will realize any of the anticipated benefits of any acquisition,
and if we fail to realize these anticipated benefits, our operating performance
could suffer.

On November 28, 2001, we completed the acquisition of Torrent. We
consummated the transaction with the expectation that it will result in mutual
benefits including, among other things, expanded and complementary product
offerings, increased market opportunity, new technology and the addition of
strategic personnel. Achieving the benefits of the acquisition will depend, in
part, on the continued integration of our technology, operations and personnel
in an efficient manner so as to minimize the risk that the acquisition will
result in the loss of market opportunity or key employees or the diversion of
the attention of management. We cannot assure you that we will be successful. In
addition, we cannot assure you that our business will achieve revenues,
efficiencies or synergies or that the acquisition will result in increased
earnings for the combined company in any future period.

On March 12, 2002, we announced the signing of a definitive agreement to
acquire Vality. The transaction is expected to close in April 2002, subject to
approval of Vality shareholders and customary closing

41

conditions. We cannot assure you that this acquisition will close or that it
will achieve any of the intended benefits. In addition, we cannot assure you
that we will be able to successfully integrate the technology, operations and
personnel of Vality into our business in a timely and efficient manner, or that
the diversion of our management's time and attention will not impair our future
results.

TERRORIST ATTACKS, SUCH AS THE ATTACKS THAT OCCURRED IN NEW YORK AND WASHINGTON,
D.C. ON SEPTEMBER 11, 2001, AND OTHER ACTS OF VIOLENCE OR WAR MAY AFFECT THE
MARKETS IN WHICH WE OPERATE, OUR OPERATIONS AND OUR PROFITABILITY.

Terrorist attacks may negatively disrupt and negatively impact our
operations. We are unable to predict whether there will be future terrorist
attacks against the United States or United States businesses, or against other
countries or businesses located in those countries. These attacks may directly
impact our physical facilities and those of our suppliers or customers.
Furthermore, these attacks may make the travel of our employees more difficult
and expensive and ultimately may affect our sales.

Also, as a result of terrorism, the United States may enter into an armed
conflict that could have a further impact on our sales and our ability to
deliver product to our customers. Political and economic instability in some
regions of the world may also result and could negatively impact our business
generated in those regions. The consequences of any of these armed conflicts are
unpredictable, and we may not be able to foresee events that could have an
adverse effect on our business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is set forth in the section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations captioned "Disclosures about Market Rate Risk."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is set forth in our Financial
Statements and Notes thereto beginning at page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

Certain information required by Part III of this Form 10-K is omitted
because we will file a definitive proxy statement pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Form 10-K,
and certain information to be included therein is incorporated herein by
reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding directors and compliance with Section 16(a) of
the Securities Exchange Act of 1934, as amended, required by Item 10 of this
Form 10-K is incorporated herein by reference to our definitive proxy statement.
Certain information regarding executive officers is included in Part I of this
Form 10-K under the section captioned "Executive Officers of the Registrant."

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 of Form 10-K is incorporated herein by
reference to our definitive proxy statement under the section captioned
"Executive Compensation." The information specified in Item 402 (k) and (l) of
Regulation S-K and set forth in our definitive proxy statement is not
incorporated by reference.

42

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 of Form 10-K is incorporated herein by
reference to our definitive proxy statement under the section captioned
"Security Ownership of Certain Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 of Form 10-K is incorporated herein by
reference to our definitive proxy statement under the section captioned "Certain
Relationships and Related Transactions."

43

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The following are filed as a part of this Annual Report and included in
Item 8:

(a) 1. FINANCIAL STATEMENTS

(a) 2. FINANCIAL STATEMENT SCHEDULE

Schedule II--Valuation and Qualifying Accounts.............. S-1

(a) 3. EXHIBITS

- ---------------

(1) Filed herewith

(2) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-1 (333-43991)

(3) Incorporated by reference to exhibits filed with the Registrant's report on
Form 8-K filed with the Commission on December 4, 1997

(4) Incorporated by reference to exhibits filed with the amendment to the
Registrant's Registration Statement on Form 8-A/A (File No. 000-15325)
filed with the Commission on September 3, 1997

45

(5) Incorporated by reference to exhibit filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1988

(6) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 33-31116)

(7) Incorporated by reference to exhibits filed with Registrant's Registration
Statements on Form S-8 (File Nos: 33-22862, 33-31117 and 33-506-10)

(8) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-31369) filed with the
Commission on July 16, 1997

(9) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-8 (File No. 333-31371) filed with the
Commission on July 16, 1997

(10) Incorporated by reference to exhibits filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 2000

(11) Incorporated by reference to exhibits filed with the Registrant's annual
report on Form 10-K for the fiscal year ended December 31, 1997

(12) Incorporated by reference to exhibits filed with the Registrant's annual
report on Form 10-K for fiscal year ended December 31, 1999

(13) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended March 31, 2000

(14) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the fiscal quarter ended September 30, 2000

(15) Incorporated by reference to exhibits filed with the Registrant's report on
Form 8-K filed with the Commission on January 19, 2000

(16) Incorporated by reference to Annex A to the Registrant's definitive Proxy
Statement on Schedule 14A filed on May 10, 2001, file No. 000-15325

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable.

(B) REPORTS ON FORM 8-K

None

46

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Westborough, Commonwealth of Massachusetts, on the 26th day of March
2002.

ASCENTIAL SOFTWARE CORPORATION

By: /s/ PETER GYENES
------------------------------------
Peter Gyenes
Chief Executive Officer and
Chairman of the Board of Directors

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE
APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS PETER GYENES AND SCOTT SEMEL AND
EACH ONE OF THEM, ACTING INDIVIDUALLY AND WITHOUT THE OTHER, AS HIS
ATTORNEY-IN-FACT, EACH WITH FULL POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL
CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS TO THIS REPORT ON FORM 10-K AND TO
FILE THE SAME, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, HEREBY RATIFYING AND
CONFIRMING ALL THAT EACH OF SAID ATTORNEYS-IN-FACT, OR HIS SUBSTITUTE OR
SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT ON FORM 10-K HAS BEEN SIGNED ON BEHALF OF THE REGISTRANT BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.

47

ASCENTIAL SOFTWARE CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders --
Ascential Software Corporation

We have audited the accompanying consolidated balance sheets of Ascential
Software Corporation and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2001.
The consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits. We did not audit the financial
statements of Ardent Software, Inc., a company acquired by Ascential Software
Corporation in a business combination accounted for as a pooling-of-interests as
described in Note 11 to the consolidated financial statements, which statements
reflect total revenues constituting 16% in fiscal 1999 of the consolidated
total. Those financial statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for Ardent Software, Inc., is based solely on the report of the other
auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Ascential Software Corporation and
subsidiaries as of December 31, 2001 and 2000 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.

/s/ KPMG LLP

Mountain View, California
March 8, 2002

F-2

REPORT OF INDEPENDENT AUDITORS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF ASCENTIAL SOFTWARE CORPORATION:

We have audited the consolidated statements of operations, stockholders'
equity, comprehensive income (loss), and cash flows of Ardent Software, Inc. and
its subsidiaries for the year ended December 31, 1999 (not included separately
herein). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audit, such consolidated financial statements
present fairly, in all material respects, the results of their operations and
their cash flows for the year ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 1 to those financial statements, on March 1, 2000,
Ardent Software, Inc. and its subsidiaries merged into Ascential Software
Corporation (formerly known as Informix Corporation). The consolidated financial
statements do not include any adjustments that might result from such event.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
January 28, 2000 (March 1, 2000 as to Note 1, "Merger with Informix
Corporation")

F-3

ASCENTIAL SOFTWARE CORPORATION

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements.
F-4

ASCENTIAL SOFTWARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

See Notes to Consolidated Financial Statements.

F-5

ASCENTIAL SOFTWARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

F-6

See Notes to Consolidated Financial Statements.
F-7

ASCENTIAL SOFTWARE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

F-8

F-9

ASCENTIAL SOFTWARE CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

- ---------------

(1) Disclosure of reclassification amount for the years ended:

See Notes to Consolidated Financial Statements.

F-10

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Operations. Ascential Software Corporation ("Ascential"
or the "Company") was incorporated in Delaware in 1986 and, until the third
quarter of 2001, operated under the name "Informix Corporation." During the
third quarter of 2001, the Company sold to International Business Machines
Corporation ("IBM") substantially all of the assets relating to its database
management systems business, including the name "Informix," for approximately
$1.0 billion in cash (the "IBM Transaction"-- see Note 13, below, in these Notes
to Consolidated Financial Statements). In connection with the sale to IBM, the
Company changed its name to Ascential Software Corporation.

Ascential is a global provider of information asset management ("IAM")
solutions. Ascential designs, develops, markets and supports enterprise data
integration software products and solutions to allow its worldwide customers,
mid-sized and large organizations and governmental institutions, to turn vast
amounts of disparate, unrefined data into reliable, reusable information assets.
The Company also offers to its customers a variety of services such as
consulting, including implementation assistance and project planning and
deployment, software product enhancements and support, and education.

The principal geographic markets for the Company's products are North
America, Europe, Asia/Pacific, and Latin America. Customers include businesses
ranging from medium-sized corporations to Fortune 1000 companies, principally in
the manufacturing, financial services, telecommunications, media,
retail/wholesale, hospitality, and government services sectors.

Basis of Presentation. The consolidated financial statements have been
prepared to give retroactive effect to the merger with Cloudscape, Inc.
("Cloudscape") on October 8, 1999 and the merger with Ardent Software Inc.
("Ardent") on March 1, 2000. The mergers were accounted for as poolings of
interests and, accordingly, the consolidated financial statements have been
restated for all periods presented as if Cloudscape, Ardent and the Company had
always been combined.

Use of Estimates. The Company's consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
that the Company makes estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, the Company evaluates
its estimates, including those related to revenue recognition, provision for
doubtful accounts and returns, fair value of investments, fair value of acquired
intangible assets, useful lives of intangible assets, property and equipment,
income taxes, and contingencies and litigation, among others. The Company bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results could differ
from the estimates made by management with respect to these items and other
items that require management's estimates.

Principles of Consolidation. The consolidated financial statements include
the accounts of Ascential Software Corporation and its wholly owned
subsidiaries. All material intercompany balances and transactions have been
eliminated in consolidation.

Foreign Currency Translation. For foreign operations with the local
currency as the functional currency, assets and liabilities are translated at
year-end exchange rates, and statements of operations are translated at the
exchange rates during the year. Exchange gains or losses arising from
translation of such foreign entity financial statements are included as a
component of other comprehensive income (loss).

For foreign operations with the U.S. dollar as the functional currency,
monetary assets and liabilities are remeasured at the year-end exchange rates as
appropriate and non-monetary assets and liabilities are remeasured at historical
exchange rates. Statements of operations are remeasured at the exchange rates
during

F-11

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the year. Foreign currency transaction gains and losses are included in other
income (expense), net. The Company recorded net foreign currency transaction
losses of $4.5 million, $0.3 million and $0.3 million for the years ended
December 31, 2001, 2000 and 1999, respectively.

Derivative Financial Instruments. The Company enters into foreign currency
forward exchange contracts to reduce its exposure to foreign currency risk due
to fluctuations in exchange rates underlying the value of intercompany accounts
receivable and payable denominated in foreign currencies (primarily European and
Asian currencies) until such receivables are collected and payables are
disbursed. A foreign currency forward exchange contract obligates the Company to
exchange predetermined amounts of specified foreign currencies at specified
exchange rates on specified dates or to make an equivalent U.S. dollar payment
equal to the value of such exchange. These foreign currency forward exchange
contracts are denominated in the same currency in which the underlying foreign
currency receivables or payables are denominated and bear a contract value and
maturity date which approximate the value and expected settlement date of the
underlying transactions. As the Company's contracts are not designated and
effective as hedges for financial reporting, discounts or premiums (the
difference between the spot exchange rate and the forward exchange rate at
inception of the contract) are recognized immediately in earnings as a component
of other income (expense), net and changes in market value of the underlying
contract are recorded in earnings as foreign exchange gains or losses. The
Company operates in certain countries in Latin America, Eastern Europe, and
Asia/Pacific where there are limited forward currency exchange markets and thus
the Company has unhedged exposures in these currencies.

Most of the Company's international revenue and expenses are denominated in
local currencies. Due to the substantial volatility of currency exchange rates,
among other factors, the Company cannot predict the effect of exchange rate
fluctuations on the Company's future operating results. Although the Company
takes into account changes in exchange rates over time in its pricing strategy,
it does so only on an annual basis. This results in substantial pricing exposure
due to foreign exchange volatility during the period between annual pricing
reviews. In addition, the sales cycles for the Company's products is relatively
long, depending on a number of factors including the level of competition and
the size of the transaction. Notwithstanding the Company's efforts to manage
foreign exchange risk, there can be no assurances that the Company's hedging
activities will adequately protect the Company against the risks associated with
foreign currency fluctuations.

On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended. SFAS No. 133 establishes new standards for recognizing
all derivatives as either assets or liabilities, and measuring those instruments
at fair value. As discussed in Note 4 to these Notes to Consolidated Financial
Statements, the adoption of SFAS No. 133 did not have a significant impact on
the Company's financial condition or results of operations.

Revenue Recognition. Revenue consists principally of fees for licenses of
the Company's software products, maintenance, consulting, and training. The
Company's license arrangements provide for an initial fee for use of the
Company's software products in perpetuity. The Company's licenses its software
in multiple element arrangements in which the customer purchases a combination
of software, maintenance, consulting and training. The Company recognizes
revenue using the residual method in accordance with Statement of Position
("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification
of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions.
Under the residual method, revenue is recognized in a multiple element
arrangement in which Company-specific objective evidence of fair value exists
for all of the undelivered elements in the arrangement, but does not exist for
one or more of the delivered elements in the arrangement. Company-specific
objective evidence of fair value of maintenance and other services is based on
the Company's customary pricing for such maintenance and/or services when sold
separately. At the outset of the arrangement with the customer, the Company
defers revenue for the fair value of its undelivered elements (e.g.,
maintenance, consulting, and training) and recognizes revenue for the

F-12

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

remainder of the arrangement fee attributable to the elements initially
delivered in the arrangement (i.e., software product) when the basic criteria in
SOP 97-2 have been met. If such evidence of fair value for each element of the
arrangement does not exist, all revenue from the arrangement is deferred until
such time that evidence of fair value does exist or until all elements of the
arrangement are delivered.

Under SOP 97-2, revenue attributable to an element in a customer
arrangement is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable, collectibility is
probable, and the arrangement does not require services that are essential to
the functionality of the software. If at the outset of the customer arrangement,
the Company determines that the arrangement fee is not fixed or determinable or
that collectibility is not probable, revenue is recognized when the arrangement
fee becomes due and payable or when collected, respectively.

The Company's specific policies for recognition of license revenues and
services revenues are as follows:

License Revenue. The Company recognizes revenue from sales of
software licenses to end users upon persuasive evidence of an arrangement,
delivery of the software to a customer, determination that collection of a
fixed or determinable license fee is considered probable, and determination
that no undelivered services are essential to the functionality of the
software.

If consulting services are essential to the functionality of the
licensed software, then both the license revenue and the consulting service
revenue are recognized under either the percentage of completion or the
completed contract method of contract accounting. The Company's
arrangements generally do not include services that are essential to the
functionality of the software.

Revenue for transactions with application vendors, OEMs, and
distributors is generally recognized as earned when the licenses are resold
or utilized by the reseller and all related obligations of the Company have
been satisfied. The Company provides for sales allowances on an estimated
basis. The Company accrues royalty revenue through the end of the reporting
period based on reseller royalty reports or other forms of
customer-specific historical information. In the absence of
customer-specific historical information, royalty revenue is recognized
when the customer-specific objective information becomes available. Any
subsequent changes to previously recognized royalty revenues are reflected
in the period when the updated information is received from the reseller.

Service Revenue. Maintenance contracts generally call for the Company
to provide technical support and software updates and upgrades to
customers. Maintenance revenue is recognized ratably over the term of the
maintenance contract, generally on a straight-line basis when all revenue
recognition requirements are met. Other service revenue, primarily training
and consulting, is generally recognized at the time the service is
performed and it is determined that the Company has fulfilled its
obligations resulting from the services contract.

During the fourth quarter of 2000, the Company adopted Staff Accounting
Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements. The
adoption of SAB No. 101 did not have a material effect on the Company's
consolidated statement of financial position or results of operation.

Advances from Customers. Amounts received in advance of revenue being
recognized are recorded as a liability on the accompanying financial statements.
The Company's license arrangements with some of its customers provide
contractually for a non-refundable fee payable by the customer in single or
multiple installment(s) at the initiation or over the term of the license
arrangement. If the Company fails to comply with certain contractual terms of a
specific license agreement, the Company could be required to refund the
amount(s) received to the customer.

Software Costs. The Company accounts for its software development expenses
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed. This statement requires that, once technological

F-13

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

feasibility of a developing product has been established, all subsequent costs
incurred in developing that product to a commercially acceptable level be
capitalized and amortized ratably over the revenue life of the product. The
Company uses a detail program design approach in determining technological
feasibility. Software costs also include amounts paid for purchased software and
outside development on products that have reached technological feasibility. All
software costs are amortized as a cost of software distribution either on a
straight-line basis, or on the basis of each product's projected revenues,
whichever results in greater amortization, over the remaining estimated economic
life of the product, which is generally estimated to be three to five years. The
Company recorded amortization of $14.5 million, $21.7 million and $21.3 million
of software costs in 2001, 2000 and 1999, respectively, in cost of software
distribution.

The Company accounts for the costs of computer software developed or
obtained for internal use in accordance with SOP 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, which was effective
for fiscal years beginning after December 15, 1998. This statement requires that
certain costs incurred during a software development project be capitalized.
During the years ended December 31, 2001, 2000 and 1999, the Company capitalized
approximately $5.9 million, $3.3 million and $2.8 million, respectively, under
SOP 98-1, which will be amortized over the estimated useful life of the software
developed, which is generally three years. During 2000, $2.4 million of software
costs previously capitalized under SOP 98-1 were written off to sales and
marketing expense when the Company determined that it was no longer probable
that the development of a project would be completed.

Property and Equipment. Property and equipment are stated at cost less
accumulated depreciation and amortization, which is calculated using the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives of 36 to 48 months are used on computer equipment, and an estimated
useful life of seven years is used for furniture and fixtures. Depreciation and
amortization of leasehold improvements is computed using the shorter of the
remaining lease term or seven years.

Businesses Acquired. The purchase price of businesses acquired, accounted
for as purchase business combinations, is allocated to the tangible and
identifiable intangible assets acquired based on their estimated fair values
with any amount in excess of such allocations designated as goodwill. Intangible
assets are amortized on a straight-line basis over their estimated useful lives,
which to date range from three to ten years. As of December 31, 2001, and 2000,
the Company had $91.9 million and $86.1 million of intangible assets,
respectively, with accumulated amortization of $16.5 million and $37.8 million,
respectively, as a result of purchase business combinations.

Impairment of Long-Lived Assets. The Company evaluates long-lived assets,
including goodwill and identifiable intangible assets, for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future expected
undiscounted cash flows attributable to that asset. The amount of any impairment
is measured as the difference between the carrying value and the fair value of
the impaired asset. Fair value is determined generally based on discounted cash
flows. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell. The Company does not have any long-lived
assets it considers to be impaired. Goodwill associated with assets acquired in
a purchase business combination is included in impairment evaluations when
events or circumstances indicate that the carrying amount of those assets may
not be recoverable.

Stock-Based Compensation. The Company accounts for stock-based awards to
employees in accordance with Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees. Under APB No. 25, the Company
generally recognizes no compensation expense with respect to such awards granted
under the terms of the Company's various stock option plans (See Note 7, below,
to these Notes to the Consolidated Financial Statements). Certain modifications
to existing stock-based awards result in compensation expense for the Company.

F-14

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Concentration of Credit Risk. The Company designs, develops, manufactures,
markets, and supports computer software systems to customers in diversified
industries and in diversified geographic locations. The Company performs ongoing
credit evaluations of its customers' financial condition and generally requires
no collateral. No single customer accounted for 10% or more of the consolidated
net revenues of the Company in 2001, 2000 or 1999.

Cash, Cash Equivalents, Short-Term Investments, and Long-Term
Investments. The Company considers liquid investments purchased with an
original remaining maturity of three months or less to be cash equivalents.
Investments with an original remaining maturity of more than three months but
less than twelve months that represent cash available for current operations are
considered to be short-term investments. All other investments are considered
long-term investments. Short-term and long-term investments are classified as
available-for-sale and are carried at fair value, with the unrealized gains and
losses, net of tax, reported as a component of other comprehensive income
(loss). The amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in other income (expense), net. The cost of securities
sold is based on the specific identification method. Interest on securities
classified as available-for-sale is included in interest income. The Company
realized gross gains of approximately $0.4 million, $2.9 million and $3.7
million on the sale of available-for-sale marketable securities during 2001,
2000 and 1999, respectively.

The Company invests its excess cash in accordance with its short-term and
long-term investments policy, which is approved by the board of directors. The
policy authorizes the investment of excess cash in government securities,
municipal bonds, time deposits, certificates of deposit with approved financial
institutions, commercial paper rated A-1/P-1, and other specific money market
instruments of similar liquidity and credit quality. The Company has not
experienced any significant losses related to these investments.

The Company invests in equity instruments of privately-held, information
technology companies for business and strategic purposes. These investments are
included in long-term investments and are accounted for under the cost method
when ownership is less than 20% and the Company does not otherwise have
significant influence over the investee. For these non-marketable investments,
the Company's policy is to regularly review the assumptions underlying the
operating performance and cash flow forecasts in assessing the carrying values.
When the Company determines that a decline in fair value below the cost basis is
other than temporary, the related investment is written down to fair value.
During 2001, the Company recorded impairment losses on strategic investments of
$10.2 million. No impairment losses occurred in 2000 or 1999. The impairment
losses relate to both publicly traded and non-marketable investments.

Fair Value of Financial Instruments. Fair values of cash, cash
equivalents, short and long term investments and foreign currency forward
contracts are based on quoted market prices.

Reclassifications. Certain prior period amounts have been reclassified to
conform to the current period presentation.

Supplemental Cash Flow Data. The Company paid income taxes in the net
amount of $67.6 million, $4.3 million and $10.3 million during 2001, 2000 and
1999, respectively. The Company paid interest in the amount of $0.2 million,
$0.5 million and $4.5 million during 2001, 2000 and 1999, respectively.

F-15

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes non-cash charges that the Company has
recorded during for the years ended December 31, 2001, 2000 and 1999:

New Accounting Pronouncements. In July 2001, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001, as well as all purchase method business combinations
completed after June 30, 2001. SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the guidance
set forth in SFAS No. 142. SFAS No. 142 also requires that intangible assets
with definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.

The Company adopted certain provisions of SFAS No. 141 and SFAS No. 142, as
required for goodwill and intangible assets acquired in business combinations
initiated after June 30, 2001. The Company is adopting the remaining provisions
of SFAS No. 141 and SFAS No. 142 effective January 1, 2002. Furthermore,
goodwill and intangible assets determined to have an indefinite useful life that
are acquired in a purchase business combination completed after June 30, 2001
will not be amortized, but will be evaluated for impairment in accordance with
SFAS No. 142. Goodwill and intangible assets acquired in business combinations
completed before June 30, 2001 will not continue to be amortized after the
adoption of SFAS No. 142.

As part of the adoption of SFAS No. 142, the Company is required to
reassess the useful lives and residual values of all intangible assets having
definite useful lives and make any necessary amortization period adjustments by
the end of the first interim period after January 1, 2002. In addition, to the
extent an intangible asset is identified as having an indefinite useful life,
the Company is required to test the intangible asset for impairment in
accordance with the provisions of SFAS No. 142 within the first interim period.
Any impairment loss will be measured as of the date of adoption and recognized
as the cumulative effect of a change in accounting principle in the first
interim period.

In connection with the transitional goodwill impairment evaluation, SFAS
No. 142 requires the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of January 1, 2002. Any transitional
impairment loss resulting from the goodwill impairment evaluation is to be
recognized as the cumulative effect of a change in accounting principle in the
Company's statement of operations.

As of January 1, 2002, the Company had unamortized goodwill in the amount
of $67.3 million, and unamortized identifiable intangible assets in the amount
of $8.1 million, both of which are being subjected to the transition provisions
of SFAS No. 142. Amortization expense related to goodwill and identifiable
intangible assets for the Company was $8.8 million and $16.3 million during 2001
and 2000, respectively. Included in these amounts is amortization expense
related to goodwill for the database business of $2.6 million and $9.2 million
during 2001 and 2000, respectively. As discussed in Note 13 in these Notes to
Consolidated Financial Statements, the Company sold its database business during
2001. As part of the transaction, the

F-16

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company eliminated $5.2 million of goodwill relating to the database business
when it recorded the transaction. The Company is currently evaluating SFAS No.
142, but does not expect that it will have a material impact on the Company's
financial statements.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The purpose of SFAS No. 143 is
to develop consistent accounting of asset retirement obligations and related
costs in the financial statements and provide more information about future cash
outflows, leverage and liquidity regarding retirement obligations and the gross
investment in long-lived assets. SFAS No. 143 is effective for financial
statements issued for fiscal years beginning after June 15, 2002. The Company
will implement SFAS No. 143 on January 1, 2003. The impact of such adoption is
not anticipated to have a material effect on the Company's financial statements.

In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 2001. SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, and the accounting and reporting
provisions of APB No. 30, Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business (as previously defined in APB No. 30). SFAS No. 144 also amends
Accounting Research Board No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for subsidiaries for which control is
likely to be temporary. The Company is adopting SFAS No. 144 effective January
1, 2002. The impact of such adoption is not anticipated to have a material
effect on the Company's financial statements.

In December 2001, the FASB issued Topic No. D-103, Income Statement
Characterization of Reimbursements Received for "Out-of-Pocket" Expenses
Incurred, which is effective for fiscal years beginning after December 15, 2001.
Topic No. D-103 requires that certain out-of-pocket expenses rebilled to
customers be recorded as revenue versus an offset to the related expense. Topic
No. D-103 also requires comparative financial statements for prior periods to be
conformed to this presentation. The impact of such adoption is not anticipated
to have a material effect on the Company's financial statements, as the Company
has historically recorded rebilled expenses as revenue.

F-17

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- BALANCE SHEET COMPONENTS

F-18

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- FINANCIAL INSTRUMENTS

The following is a summary of available-for-sale debt and marketable equity
securities:

Maturities of debt securities at market value at December 31, 2001 are as
follows (in thousands):

Mature in one year or less.................................. $139,767
Mature after one year through five years.................... 305,529
--------
$445,296
========

NOTE 4 -- DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into foreign currency forward exchange contracts
primarily to hedge the value of intercompany accounts receivable or accounts
payable denominated in foreign currencies against fluctuations

F-19

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in exchange rates until such receivables are collected or payables are
disbursed. The purpose of the Company's foreign exchange exposure management
policy and practices is to attempt to minimize the impact of exchange rate
fluctuations on the value of the foreign currency denominated assets and
liabilities being hedged. These transactions and other forward foreign exchange
contracts do not meet the accounting rules established under SFAS No. 133 of
recording the unrecognized after-tax gain or loss portion of the fair value of
the contracts in other comprehensive income (loss). Therefore, the related fair
value of the derivative hedge contract is recognized in earnings. The adoption
of SFAS No. 133 did not have a significant impact on the Company's financial
condition or results of operations.

The table below summarizes by currency the contractual amounts of the
Company's foreign currency forward exchange contracts at December 31, 2001 and
December 31, 2000. The information is provided in U.S. dollar equivalents and
presents the notional amount (contract amount) and the related fair value. As
the Company's foreign currency forward contracts are not accounted for as
hedges, they are carried at fair value. Fair value represents the prevailing
financial market information as of December 31, 2001 and 2000. All contracts
mature within 12 months.

FORWARD CONTRACTS

F-20

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

While the contract amounts provide one measure of the volume of these
transactions, they do not represent the amount of the Company's exposure to
credit risk. The amount of the Company's credit risk exposure (arising from the
possible inabilities of counter parties to meet the terms of their contracts) is
generally limited to the amounts, if any, by which the counter parties'
obligations exceed the obligations of the Company as these contracts can be
settled on a net basis at the option of the Company. The Company controls credit
risk through credit approvals, limits and monitoring procedures.

As of December 31, 2001 and 2000, other than foreign currency forward
exchange contracts discussed immediately above, the Company does not currently
invest in or hold any other derivative financial instruments.

NOTE 5 -- STOCKHOLDERS' EQUITY

PREFERRED STOCK

In November 1997, the Company sold 50,000 shares of newly authorized Series
B convertible preferred stock ("Series B Preferred"), face value $1,000 per
share, for aggregate proceeds of $50.0 million. Such shares are generally not
entitled to vote on corporate matters. In connection with this original
offering, the Company also agreed to issue a warrant upon conversion of such
Series B Preferred to purchase 20% of the shares of the Company's common stock,
$0.01 par value per share (the "Common Stock").

F-21

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 1999, holders of the Series B Preferred Stock converted a total of
16,300 shares of Series B Preferred into 2,223,156 shares of Common Stock. In
connection with such conversions, the Company also issued such holders of Series
B Preferred warrants to purchase up to 444,628 shares of Common Stock at a
purchase price of $7.84 per share and paid cash dividends in the amount of
$1,528,699 to such stockholders.

During 2000, the Company issued to one holder of Series B Preferred a
warrant to purchase up to 326,150 shares of Common Stock at a purchase price of
$7.84 per share and paid such holder cash dividends, which were previously
accrued, in the amount of $932,055. As of December 31, 2001 and 2000, no Series
B Preferred was outstanding and warrants to purchase approximately 2,303,000
shares of Common Stock were outstanding and exercisable through November 2002 at
a per share exercise price of $7.84. All warrants to purchase shares of Common
Stock issued in connection with the Series B Preferred are collectively referred
to as the "Series B Warrants".

The fair value of the Series B Warrants was deemed to be a discount to the
conversion price of the respective equity instruments available to the holders
of Series B Preferred. The discounts were recognized as a return to the holders
of Series B Preferred (similar to a dividend) over the minimum period during
which the holders of Series B Preferred could realize this return, which was six
months. The discount has been accreted to additional paid in capital
(accumulated deficit) in the Company's balance sheet and has been disclosed as a
decrease in the amount available to holders of Common Stock on the face of the
Company's statements of operations and for purposes of computing net income
(loss) per share. The fair value assigned to the Series B Warrants is based on
an independent appraisal performed by a nationally recognized investment-
banking firm.

COMMON STOCK

During 2001, the Company announced that its board of directors authorized a
$350 million stock repurchase program. The Company intends, barring unforeseen
circumstances, to repurchase its outstanding shares of Common Stock from time to
time in the open market and through privately negotiated transactions subject to
market conditions. During 2001, the Company repurchased approximately 34.0
million shares of Common Stock for an aggregate purchase price of approximately
$143.0 million.

NOTE 6 -- NET INCOME (LOSS) PER COMMON SHARE

The following table sets forth the computation of basic and diluted net
income (loss) per common share:

F-22

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As part of the Company's settlement in 1999 of various private securities
and related litigation arising out of the restatement of its financial
statements, the Company agreed to issue a minimum of 9.0 million shares
("settlement shares") of Common Stock at a guaranteed value of $91 million
("stock price guarantee"). The stock price guarantee is satisfied with respect
to any distribution of settlement shares if the closing price of the Common
Stock averages at least $10.11 per share for ten consecutive trading days during
the six-month period subsequent to the distribution. The first distribution of
settlement shares occurred in November and December 1999 when the Company issued
approximately 2.9 million settlement shares to the plaintiff's counsel. The
stock price guarantee was satisfied with respect to this first distribution of
settlement shares. In April 2001, the Company issued the remainder of the
settlement shares. The stock price guarantee was not satisfied with respect to
this final distribution of settlement shares, and the Company ultimately elected
to satisfy the stock price guarantee by making a payment of $26.2 million in
cash in November 2001. Until the fourth quarter of 2001, the Company presumed it
would satisfy the stock price guarantee by issuing the required amount of shares
("contingently issuable shares"). Accordingly, the contingently issuable shares
are included as dilutive securities above for the period from January 1, 2001 to
September 30, 2001.

The Company excluded potentially dilutive securities for each period
presented from its diluted net income (loss) per share computation because
either the exercise price of the securities exceeded the average fair value of
the Common Stock or the Company had net losses and, therefore, these securities
were anti-dilutive. A summary of the excluded potentially dilutive securities
and the related exercise/conversion features is as follows:

F-23

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The potentially dilutive stock options had per share exercise prices
ranging from $4.93 to $28.10, $0.05 to $28.10, and $0.05 to $33.25, at December
31, 2001, 2000 and 1999, respectively.

The Series B Warrants were issued in connection with the conversion of
certain shares of Series B Preferred into shares of Common Stock. Upon
conversion of the Series B Preferred, the holders received Series B Warrants to
purchase a number of shares of Common Stock equal to 20% of the shares of Common
Stock into which the Series B Preferred was converted. As of December 31, 2001,
approximately 2,303,000 Series B Warrants were outstanding and exercisable
through November 2002 at a per share exercise price of $7.84. As of December 31,
2001, there was no Series B Preferred outstanding as all remaining shares were
converted into shares of Common Stock in July 2000.

During 1996, Ardent issued warrants to existing stockholders to acquire
approximately 400,000 shares of its common stock at an exercise price of $2.45
(the "Ardent Warrants"). In February 2000, prior to the merger, all of the
Ardent Warrants were exercised.

Certain of the outstanding shares issued in exchange for Cloudscape common
stock and held by employees are subject to repurchase upon termination of
employment. The numbers of shares subject to this repurchase right decreases as
the shares vest over time, generally over four years. As of December 31, 2001,
no shares were subject to repurchase. As of December 31, 2000 and 1999, 36,000,
and 212,000, shares, respectively, were subject to repurchase at a
weighted-average exercise price of $0.23 and $0.24, respectively.

NOTE 7 -- EMPLOYEE BENEFIT PLANS

OPTION PLANS

In February 1989, the Company adopted the 1989 Outside Directors Stock
Option Plan (the "1989 Plan"), whereby non-employee directors are automatically
granted 15,000 non-qualified stock options upon election or re-election to the
board of directors. One-third of the options vest and become exercisable in each
full year of the outside director's continuous service as a director of the
Company. A total of 1,600,000 shares have been authorized for issuance under the
1989 Plan, of which 480,000 shares are reserved for future issuance as of
December 31, 2001.

In April 1994, the Company adopted the 1994 Stock Option and Award Plan
(the "1994 Plan"). Incentive stock options, nonqualified stock options,
performance shares, or a combination thereof, can be granted to employees, at
not less than the fair market value on the date of grant and generally vest in
annual installments over two to four years. The compensation committee may grant
awards, provided that during any fiscal year of the Company, no participant
shall receive stock options exercisable into more than 250,000 shares of Common
Stock or performance shares covering more than 100,000 shares of Common Stock.
However, the compensation committee may grant options exercisable into up to
500,000 shares of Common Stock during any fiscal year of the Company in which
the individual first becomes an employee and/or is promoted from a position as a
non-executive officer employee to a position as an executive officer. In April
2000, the Company's board of directors approved an amendment to the 1994 Plan
whereby the options are generally not exercisable until one year from the date
of grant. A total of 24,000,000 shares have been authorized for issuance under
the 1994 Plan, of which 3,853,000 shares are reserved for future issuance as of
December 31, 2001.

In July 1997, the Company adopted the 1997 Non-Statutory Stock Option Plan
(the "1997 Plan"), authorizing the grant of non-statutory stock options to
employees and consultants. Terms of each option are determined by the board or
committee delegated such duties by the board. A total of 1,015,000 shares have
been authorized for issuance under the 1997 Plan, of which 500,000 shares are
reserved for future issuance as of December 31, 2001.

F-24

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In July 1998, the Company adopted the 1998 Non-Statutory Stock Option Plan
(the "1998 Plan"). Options can be granted to employees and consultants with
terms designated by the board or committee delegated such duties by the board. A
total of 15,500,000 shares were authorized for issuance under the 1998 Plan, of
which 572,948 shares are reserved for future issuance as of December 31, 2001.
On March 8, 2002, the board of directors authorized an increase in the number of
shares available for issuance under the 1998 Plan to 20,500,000.

As a result of its acquisition of Cloudscape, Inc. ("Cloudscape") in
October 1999, the Company assumed all outstanding Cloudscape stock options. Each
Cloudscape stock option so assumed is subject to the same terms and conditions
as the original grant and generally vests over four years and expires ten years
from the date of grant. Each option was adjusted at a ratio of approximately
0.56 shares of Common Stock for each one share of Cloudscape common stock, and
the exercise price was adjusted by dividing the exercise price by approximately
0.56.

As a result of its acquisition of Ardent in March 2000, the Company assumed
all outstanding Ardent stock options. Each Ardent stock option so assumed is
subject to the same terms and conditions as the original grant and generally
vests over four years and expires ten years from the date of grant. Each option
was adjusted at a ratio of 3.5 shares of Common Stock for each one share of
Ardent common stock, and the exercise price was adjusted by dividing the
exercise price by 3.5.

Following is a summary of activity for all stock option plans for the three
years ended December 31, 2001:

F-25

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about options outstanding at
December 31, 2001:

At December 31, 2000 and 1999, respectively, 16,969,304 and 14,331,842
options were exercisable in connection with all stock option plans.

EMPLOYEE STOCK PURCHASE PLAN

In May 1997, the Company's stockholders approved the 1997 Employee Stock
Purchase Plan (the "1997 ESPP"). The Company has reserved 4,000,000 shares of
Common Stock for issuance under the 1997 ESPP. The 1997 ESPP permits eligible
employees to purchase Common Stock through payroll deductions of up to 15
percent of an employee's compensation, including commissions, overtime, bonuses
and other incentive compensation. The price of Common Stock purchased under the
1997 ESPP is equal to 85 percent of the lower of the fair market value of the
Common Stock at the beginning or at the end of each calendar quarter in which an
eligible employee participates. The 1997 ESPP qualifies as an employee stock
purchase plan under Section 423 of the Internal Revenue Code of 1986, as
amended. During 2001, 2000 and 1999, the Company issued approximately 1,426,000
shares, 2,043,000 shares and 1,187,000 shares, respectively, under the 1997
ESPP.

Ardent's Employee Stock Purchase Plan (the "Ardent ESPP") provided for the
purchase of common stock at six-month intervals at 85% of the lower of the fair
market value on the first day or the last day of each six-month period. Ardent
issued 432,000 shares in 1999 under the Ardent ESPP. The Ardent ESPP was
terminated in April 2000.

STOCK-BASED COMPENSATION

Pro forma information regarding the net income (loss) and net income (loss)
per share is required by SFAS No. 123, Accounting for Stock-Based Compensation,
as if the Company had accounted for its stock based awards to employees under
the fair value method of SFAS No. 123. The fair value of the Company's
stock-based awards to employees was estimated using a Black-Scholes
option-pricing model.

F-26

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of the Company's stock-based awards was estimated assuming
no expected dividends and the following weighted-average assumptions:

For pro forma purposes, the estimated fair value of the Company's
stock-based awards is amortized over the award's vesting period (for options)
and the three-month purchase period (for stock purchases under the ESPP). The
Company's pro forma information follows:

The weighted-average fair value of the options granted during 2001, 2000
and 1999 were $3.09, $4.70 and $5.24 per share, respectively. The
weighted-average fair value of employee stock purchase rights granted under the
1997 ESPP during 2001, 2000 and 1999 were $1.26, $1.97 and $2.27 per share,
respectively.

401(K) PLAN

The Company has a 401(k) plan covering substantially all of its U.S.
employees. Under this plan, participating employees may defer up to 15 percent
of their pre-tax earnings, subject to the Internal Revenue Service annual
contribution limits. The Company matches 50 percent of each employee's
contribution up to a maximum of $2,500. The Company's matching contributions to
this 401(k) plan for 2001, 2000 and 1999 were $3.8 million, $4.9 million and
$4.2 million, respectively.

NOTE 8 -- COMMITMENTS AND CONTINGENCIES

The Company leases certain of its office facilities and equipment under
non-cancelable operating leases and total rent expense was $23.5 million, $44.0
million and $42.4 million in 2001, 2000 and 1999, respectively.

In November 1996, the Company leased approximately 200,000 square feet of
office space in Santa Clara, California. The lease term extends through March
2013 and the remaining minimum lease payments amount to approximately $63.8
million. In the fourth quarter of 1997, the Company assigned the lease to an
unrelated third party. The Company remains contingently liable for minimum lease
payments under this assignment.

F-27

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum payments, by year and in the aggregate, under non-cancelable
operating leases (excluding the assigned lease mentioned above) as of December
31, 2001, are as follows (in thousands):

The total payments due as of December 31, 2001 under non-cancelable
operating leases include $15.2 million payable to IBM through 2008 for the
provision of office space in facilities where the underlying lease has been
assigned to IBM in connection with the IBM Transaction (See Note 13, below, to
these Notes to Consolidated Financial Statements).

As part of the IBM Transaction, the Company has agreed to indemnify IBM for
certain representations and warranties that have been made under the terms of
the IBM Transaction agreements. IBM has retained $100.0 million of the sale
proceeds as a holdback to satisfy any indemnification obligations that might
arise for any representations or warranties made by the Company as part of the
IBM Transaction. IBM will retain the holdback until December 31, 2002, except
for any funds necessary to provide for any claims made prior to that date.

NOTE 9 -- BUSINESS SEGMENTS

In recent years, the Company has operated under four reportable operating
segments that report to the Company's chief executive officer, (the "Chief
Operating Decision Maker"). These reportable operating segments, North America,
Europe, Asia/Pacific and Latin America, are organized, managed and analyzed
geographically and operate in one industry segment: the development and
marketing of information management software and related services. The Company
has evaluated operating segment performance based primarily on net revenues and
certain operating expenses. The Company's products are marketed internationally
through the Company's subsidiaries and through application resellers, OEMs and
distributors.

F-28

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Financial information for the Company's North America, Europe, Asia/Pacific
and Latin America operating segments is summarized below by year:

- ---------------

(1) The Company allocates revenue to operating segments depending on the
location of the country where the order is placed, the location of the
country where the license is installed or service is delivered, the type of
revenue (license or service) and whether the sale was through a reseller or
to an end user.

The accounting policies of the segments are the same as those described
above in Note 1 to these Notes to the Consolidated Financial Statements.

(2) Operating income (loss) excludes the effect of transfers between segments.

F-29

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) Represents consolidating adjustments such as elimination of intercompany
balances.

The reconciliation of the operating income (loss) of the Company's
reportable operating segments to the Company's income (loss) before income taxes
is as follows:

On September 19, 2000, the Company announced organizational changes as part
of its strategic realignment, which includes the establishment of two operating
businesses: Ascential Software and Informix Software. Ascential Software was a
newly established IAM business providing content management and data integration
infrastructure solutions to organizations worldwide. Informix Software focused
on providing database management systems for data warehousing, transaction
processing, and e-Business applications. As discussed below in Note 13 to these
Notes to Consolidated Financial Statements, the Company completed the sale of
its database business to IBM during the third quarter of 2001. Revenues from
external customers for each group of similar products and services offered by
Ascential Software and Informix Software are summarized below by year (in
millions):

F-30

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As discussed above, the Company undertook a strategic realignment to
transition from five former business units into the two operating businesses
during the second half of 2000. By December 31, 2000, the Company had defined
and allocated personnel among the management, selling, marketing, research and
development and service organizations for the two operating businesses. Prior to
this occurrence, the Company had not achieved sufficient separation of the
employees and infrastructure of the two operating businesses to properly measure
the results of the operations on a stand-alone basis. Accordingly, although
separate revenue information is disclosed for the two operating businesses on a
historical basis, there is no disclosure of separate historical operating
results for periods prior to December 31, 2000. Below is a summary of the
results of operations based on the two operating businesses for the year ended
December 31, 2001:

- ---------------

* Operating income (loss) includes amortization of goodwill and purchased
intangibles of $2.6 million for the year ended December 31, 2001 for Informix
Software. Operating income (loss) includes amortization of goodwill and
purchased intangibles of $8.1 million for the year ended December 31, 2001 for
Ascential Software.

F-31

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information as to the Company's operations in different geographical areas
is as follows:

F-32

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- INCOME TAXES

The provision for income taxes applicable to income (loss) before income
taxes consists of the following:

F-33

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income (loss) before income taxes consists of the following:

The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to income (loss) before income taxes. The
sources and tax effects of the differences are as follows:

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Deferred taxes are not
provided on the undistributed earnings of approximately $198.3 million of
subsidiaries operating outside the U.S. that have been or are intended to be
permanently reinvested. The amount of

F-34

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

unrecognized deferred tax liability on the undistributed earnings can not be
practicably determined at this time. Significant components of the Company's
deferred tax assets and liabilities are as follows:

At December 31, 2001, the Company had approximately $30.5 million and
$113.4 million of foreign and federal net operating loss carryforwards,
respectively. The foreign net operating loss carryforwards expire at various
dates beginning in 2002. The federal net operating loss carryforwards expire at
various dates beginning in 2004. At December 31, 2001, the Company had
approximately $31.9 million of various federal tax credit carryforwards that
will expire at various dates beginning in 2002.

The valuation allowance was decreased by $177.3 million in 2001 and was
increased by $73.7 million in 2000. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. The
Company expects the deferred tax assets, net of the valuation allowance, at
December 31, 2001 to be realized as a result of the reversal of existing taxable
temporary differences.

Subsequently recognizable tax benefits relating to the valuation allowance
for deferred tax assets at December 31, 2001 will be as follows:

Income tax benefit from continuing operations............... $50,986
Goodwill and other non-current intangible assets............ 20,305
Additional paid-in capital.................................. 1,889
-------
Total....................................................... $73,180
=======

F-35

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- BUSINESS COMBINATIONS

POOLING-OF-INTERESTS COMBINATIONS

On March 1, 2000, the Company completed its acquisition of Ardent, a
provider of data integration infrastructure software for data warehouse,
business intelligence, and e-business applications. In the acquisition, the
former shareholders of Ardent received 3.5 shares of Common Stock in exchange
for each outstanding share of Ardent common stock held by such shareholder (the
"Ardent Merger"). An aggregate of 70,437,000 shares of Common Stock were issued
pursuant to the Ardent Merger, and an aggregate of 17,174,000 options to
purchase Ardent common stock were assumed by the Company. The Ardent Merger was
accounted for as a pooling-of-interests combination and, accordingly, the
consolidated financial statements for periods prior to the combination have been
restated to include the accounts and results of operations of Ardent and all
intercompany transactions have been eliminated.

On October 8, 1999, the Company completed its acquisition of Cloudscape, a
privately held provider of synchronized database solutions for the remote and
occasionally connected workforce. In the acquisition, the former shareholders of
Cloudscape received 0.56 shares of the Common Stock in exchange for each
outstanding share of Cloudscape common stock held by such shareholder (the
"Cloudscape Merger"). An aggregate of 9,583,000 shares of Common Stock were
issued pursuant to the Cloudscape Merger, and an aggregate of 417,000 options
and warrants to purchase Cloudscape common stock were assumed by the Company.
The acquisition of Cloudscape was accounted for as a pooling-of-interests
combination and, accordingly, the consolidated financial statements for the
periods prior to the combination have been restated to include the accounts and
results of operations of Cloudscape.

The results of operations previously reported by the separate pooled
enterprises and the combined amounts presented in the accompanying consolidated
financial statements are summarized below for the year ended December 31, 1999
(in thousands):

Net revenues:
Ascential................................................. $ 868,708
Ardent.................................................... 169,186
Cloudscape(1)............................................. 1,217
----------
Combined.................................................. $1,039,111
==========
Net income (loss):
Ascential................................................. $ (5,256)
Ardent.................................................... 8,597
Cloudscape(1)............................................. (6,329)
----------
Combined.................................................. $ (2,988)
==========

- ---------------

(1) The amounts reported for Cloudscape for 1999 are for the nine months ended
September 30, 1999 as the merger was completed on October 8, 1999.

No adjustments were necessary to conform accounting policies of the
combined entities.

PURCHASE COMBINATIONS

On November 28, 2001, the Company acquired Torrent Systems, Inc.
("Torrent"), a provider of highly scalable parallel processing infrastructure
software for the development and execution of data warehousing, business
intelligence and analytical applications. Under terms of the acquisition, the
Company will pay $44.1 million to acquire all outstanding common and preferred
shares of Torrent. In addition, the Company

F-36

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

issued options to purchase 216,000 shares of Common Stock in exchange for
outstanding options to purchase Torrent common stock. The acquisition was
accounted for using the purchase method of accounting, and a summary of the
purchase price for the acquisition is as follows (in thousands):

Cash........................................................ $37,768
Accrued amount payable to former stockholders............... 6,300
Net liabilities assumed..................................... 4,133
Accrued merger and integration costs........................ 1,800
Fair value of stock options exchanged....................... 651
-------
Total....................................................... $50,652
=======

The purchase price was allocated as follows:

Tangible assets acquired.................................... $ 895
Intangible assets:
Existing technology....................................... 4,100
Customer list............................................. 1,100
Deferred compensation from exchanged stock options........ 565
Goodwill.................................................. 38,492
-------
Total intangible assets................................... 44,257
In-process research and development....................... 5,500
-------
Total..................................................... $50,652
=======

The portion of the purchase price allocated to in-process research and
development costs in the Torrent acquisition was $5.5 million, or approximately
11% of the total purchase price. The value allocated to the project identified
as IPRD was charged to operations in the fourth quarter of 2001.

The remaining identified intangible assets acquired were assigned fair
values based upon an independent appraisal and amounted to $5.2 million. The
excess of the purchase price over the identified tangible and intangible assets
was recorded as goodwill and amounted to approximately $38.5 million. Total
intangible assets acquired of approximately $44.3 million are included in
"Intangible assets" in the accompanying consolidated balance sheets. The
existing technology and customer list are being amortized over three years. The
goodwill is not being amortized in accordance with current accounting standards
and will be tested for impairment on a periodic basis.

On April 26, 1999, Ardent acquired Prism Solutions, Inc. ("Prism"), a
provider of data warehouse management software that assists customers in
developing, managing and maintaining data warehouses. Under terms of the
acquisition, Ardent issued 2,492,000 shares of its common stock in exchange for
all outstanding shares of Prism common stock. In addition, Ardent issued options
to purchase 632,000 shares of Ardent's common stock in exchange for outstanding
options to purchase Prism common stock. The acquisition was accounted for using
the purchase method of accounting, and a summary of the purchase price for the
acquisition is as follows (in thousands):

Stock and stock options, net of issuance costs.............. $48,184
Liabilities assumed......................................... 16,332
Accrued merger and integration costs........................ 9,724
-------
Total....................................................... $74,240
=======

F-37

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The purchase price was allocated as follows:

Tangible assets acquired.................................... $11,972
Intangible assets:
Existing technology....................................... 10,296
Workforce................................................. 4,274
Customer list............................................. 1,645
Goodwill.................................................. 41,001
-------
Total intangible assets..................................... 57,216
In-process research and development......................... 5,052
-------
Total....................................................... $74,240
=======

Ardent determined the amount of the purchase price to be allocated to
in-process research and development based on an independent appraisal of Prism,
which indicated that approximately $5.1 million of the acquired intangibles
consisted of in-process research and development that had not yet reached
technological feasibility and had no alternative future uses. Accordingly,
Ardent expensed this amount to operations upon the closing of the acquisition.
The remaining identified intangible assets acquired were assigned fair values
based upon an independent appraisal and amounted to $16.2 million. The excess of
the purchase price over the identified tangible and intangible assets was
recorded as goodwill and amounted to approximately $41.0 million. Total
intangible assets acquired of approximately $57.2 million are included in
"Intangible assets" in the accompanying consolidated balance sheets, and are
being amortized over three to ten years.

The following pro forma financial information presents the combined results
of operations of Ascential, Torrent, and Prism as if the acquisitions had
occurred as of the beginning of 2001, 2000 and 1999, after giving effect to
certain adjustments, including amortization of goodwill and excluding the
write-off of acquired in-process research and development. The pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had these three companies constituted a single entity
during such periods.

NOTE 12 -- LITIGATION

Commencing in April 1997, a series of class action lawsuits purported to be
by or on behalf of stockholders and a separate but related stockholder action
were filed in the United States District Court for the Northern District of
California. These actions named as defendants the Company, certain of its
present and former officers and directors and, in some cases, its former
independent auditors. The complaints alleged various violations of the federal
securities laws and sought unspecified but potentially significant damages.
Similar actions were also filed in California state court and in Newfoundland,
Canada.

Stockholder derivative actions, purported on behalf of the Company and
naming virtually the same individual defendants and the Company's former
independent auditors, were also filed, commencing in August 1997, in California
state court.

F-38

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In October and November 1999, state and federal courts granted final
approval of a settlement agreed to by the Company and the other parties to the
various private securities and related litigation against the Company (the
"Settlement"). The Settlement resolved all material litigation arising out of
the restatement of the Company's financial statements that was publicly
announced in November 1997. In accordance with the terms of the Settlement, the
Company paid approximately $3.2 million in cash during the second quarter of
1999 and an additional amount of approximately $13.8 million of insurance
proceeds was contributed directly by certain insurance carriers on behalf of
certain of the Company's current and former officers and directors. The Company
agreed to contribute a minimum of 9.0 million shares of the Common Stock, which
was required to provide a guaranteed value of $91.0 million for a maximum term
of one year from the date of the final approval of the Settlement by the courts.
The first distribution of shares of the Common Stock occurred in November and
December 1999 when the Company issued approximately 2.9 million shares to the
plaintiff's counsel. The stock price guarantee was satisfied with respect to the
first distributions of settlement shares. In April 2001, the Company issued the
remaining 6.1 million of the minimum 9.0 million shares to be issued under the
Settlement. Pursuant to the terms of the Settlement, the Company paid an
additional amount of $26.2 million in cash in November 2001 to satisfy the stock
price guarantee with respect to the remaining 6.1 million shares issued under
the Settlement. The $26.2 million cash settlement resulted in a reduction to
additional paid-in capital as of December 31, 2001. The Company's former
independent auditors, Ernst & Young LLP, paid $34.0 million in cash. The total
amount of the Settlement was $142.0 million.

EXPO 2000 filed an action against Ascential Software GmbH (the Company's
German subsidiary) in the Hanover (Germany) district court in September 1998
seeking recovery of approximately $6.0 million, plus interest, for breach of a
sponsorship contract signed in 1997. Ascential Software GmbH filed a
counterclaim for breach of contract, seeking recovery of approximately $3.1
million. In August 1999, the court entered a judgment against Ascential Software
GmbH in the amount of approximately $6.0 million, although approximately $2.1
million of the judgment is conditioned upon the return of certain software by
EXPO 2000. The Company filed an appeal and reserved approximately $3.1 million
for the expected outcome of the appeal. In April 2001, the German appellate
court set aside the lower court's judgment and issued a judgment in favor of
Ascential Software GmbH in the amount of approximately $2.5 million. During the
quarter ended September 2001, EXPO 2000 filed an appeal against the decision
with the German appellate court. Consideration of this final appeal has been
deferred until at least March 2002. Accordingly, the Company continues to have a
reserve of approximately $3.1 million for the estimated outcome.

The Company is a defendant in two actions filed against Unidata prior to
its merger with Ardent (prior to its merger with the Company). One action was
filed in May 1996 in the U.S. District Court for the Western District of
Washington, and the other action was filed in September 1996 in the U.S.
District Court for the District of Colorado. The plaintiff, a company controlled
by a former stockholder of Unidata and a distributor of its products in certain
parts of Asia, alleges in both actions the improper distribution of certain
Unidata products in the plaintiff's exclusive territory and asserts damages of
approximately $30.0 million (among other relief) under claims for fraud, breach
of contract, unfair competition, racketeering and corruption, and trademark and
copyright infringement. Unidata denied the allegations against it in its answers
to the complaints. In the Colorado action, Unidata moved that the matter be
resolved by arbitration in accordance with its distribution agreement with the
plaintiff. In May 1999, the U.S. District Court for the District of Colorado
issued an order compelling arbitration and in September 2000, the arbitrator
issued an award against Ardent for $3.5 million plus attorneys' fees and
expenses estimated to be approximately $0.8 million.

The Company, as successor-in-interest to Unidata, has been joined as a
party in an action in China filed against Unidata, its former distributor and a
customer by the same plaintiff who filed the U.S actions against Unidata and a
related company. This action in China arises out of the same facts at issue in
the U.S actions. The Company and the plaintiff have agreed in principle to a
settlement pursuant to which, among other things, the Company would pay the
plaintiff approximately $16.0 million to settle all claims in all pending
litigation, with the exception of potential claims for indemnity between the
Company and other co-defendants relating to

F-39

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

attorneys fees and any amounts paid in settlement, which are not estimable at
December 31, 2001. The Company has reserved $16.0 million for this settlement as
of December 31, 2001. The settlement, however, has not yet been finalized.

From time to time, in the ordinary course of business, the Company is
involved in various legal proceedings and claims. The Company does not believe
that any of these proceedings and claims will have a material adverse effect on
the Company's business or financial condition.

NOTE 13 -- SALE OF THE DATABASE BUSINESS

On July 1, 2001, the Company completed the initial closing of the IBM
Transaction, which consisted of the sale to IBM of substantially all of the
assets and certain liabilities of the database business for approximately $1.0
billion in cash. The IBM Transaction was completed on August 1, 2001, upon the
closing of the sale of the database business in the nine remaining countries
that were not closed on July 1, 2001 (the "Phase 2 countries"). IBM has retained
$100.0 million of the sale proceeds as a holdback to satisfy any indemnification
obligations that might arise for any representations or warranties made by the
Company as part of the IBM Transaction agreement (the "Agreement"). IBM will
retain the holdback until December 31, 2002, except for any funds necessary to
provide for any claims made prior to that date. Beginning July 1, 2001, interest
will accrue at 6% per annum on the amount of the holdback ultimately released to
the Company. Accrued interest on the holdback was $3.0 million at December 31,
2001. The holdback and accrued interest are included in "Receivable from sale of
database business" on the accompanying consolidated balance sheets. In
connection with the IBM Transaction, the Company paid IBM $11.6 million, which
is equal to 18% of certain deferred revenues of the database business for which
the Company had received payment. In addition, the Company will pay IBM $13.2
million to fund the transfer of certain employee-related accruals during the
quarter ending March 31, 2002.

As a result of the sale of database assets, the Company recorded a gain,
after transaction costs and related charges, but excluding taxes, of $865.7
million for the year ended December 31, 2001. The following table sets forth the
components of the gain (in millions):

F-40

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the components of the transaction costs and
related charges incurred during the year ended December 31, 2001 (in millions):

Professional fees primarily consist of fees for investment bankers,
attorneys and accountants for services provided related to the IBM Transaction.
Severance and employment-related charges primarily consist of severance payments
and related taxes for approximately 30 sales and marketing employees and 70
general and administrative employees of the database business who did not join
IBM after the IBM Transaction and also a $4.7 million charge that related to the
modification of vesting and exercise terms of stock options for certain
terminated executives and for database employees that joined IBM. As of December
31, 2001, severance payments and related taxes had been paid to terminate
approximately 50 employees. The remaining accrual balance of $10.3 million will
be paid to approximately 50 employees on various dates extending through March
2002. Under the terms of the Agreement, IBM will reimburse the Company $21.3
million for severance related costs. Other charges consist primarily of
non-recoverable transfer and sales taxes arising from the transaction and
various other items.

Under the terms of the Agreement, the Company was obligated to transfer
$124.0 million of net working capital, as defined in the Agreement, to IBM. If
the net working capital transferred to IBM exceeded $124.0 million, IBM would
pay the Company 50% of the excess over $124.0 million. If the net working
capital transferred to IBM were less than $124.0 million, the Company would pay
IBM an amount equal to the difference. As of December 31, 2001, the Company
expects to be reimbursed $3.7 million by IBM, which it estimates to be the
minimum net working capital adjustment. Accordingly, the Company has recognized
the minimum net working capital adjustment of $3.7 million in the gain resulting
from the IBM Transaction. The Company expects the net working capital adjustment
will be finalized with IBM by April 2002, at which time any subsequent
adjustment is not expected to be material to the financial position of the
Company.

The Company and IBM are providing certain transition services to each other
for a limited period of time following the closing of the IBM Transaction. These
services mainly consist of the performance of certain administrative functions
and the provision of office space in shared facilities where one of the parties
is the primary leaseholder. To facilitate the provision of these services, the
Company and IBM had entered into reciprocal transitional service agreements,
under which both parties will provide and utilize transitional services at
agreed upon rates that the Company believes represents the fair value of such
services. During the six months ended December 31, 2001, we provided to IBM and
purchased from IBM transitional services amounting to $2.6 million and $4.1
million, respectively. The provision of shared administrative functions and
office space in shared facilities is expected to continue through the middle of
2002.

The Company has a net receivable due from IBM of $10.2 million included in
Other current assets as of December 31, 2001. This balance primarily consists of
a $21.3 million receivable from IBM for the reimbursement of severance-related
costs incurred by the Company and amounts due to and from both parties for
transitional services that have been provided during the second half of 2001. A
$13.2 million payable to IBM for certain employee-related accruals that were
transferred to IBM offsets these receivables.

F-41

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The database business and the Company's ongoing operations are both
businesses that consist of providing information management software to
medium-size to large businesses and organizations. As such, the sale of the
database business to IBM does not constitute a disposal of a business segment.
Accordingly, the results and net assets of the database business are not
classified as discontinued operations.

Effective on the closing of the IBM Transaction, IBM and the Company
entered into an agreement to settle existing outstanding patent infringement
litigation between the parties for no consideration.

NOTE 14 -- ACCRUED MERGER, REALIGNMENT AND OTHER CHARGES

The following table summarizes the components of the accrued merger,
realignment and other charges at December 31, 2001 and 2000, respectively (in
millions):

THIRD QUARTER 2001 REALIGNMENT

During the quarter ended September 30, 2001, the Company approved plans to
reduce its worldwide headcount. The worldwide workforce reduction started in the
third quarter of 2001 and has included a reduction of approximately 180 sales
and marketing employees, 20 general and administrative employees, 10 research
and development employees and 50 professional services and manufacturing
employees. Accordingly, the Company recorded realignment and other charges of
$12.0 million. The following analysis sets forth the significant components of
the charge recognized during the year ended December 31, 2001 and the accrual
activity for the year ended December 31, 2001 (in millions):

Severance and employment-related costs primarily consisted of termination
compensation and related benefits for employees. As of December 31, 2001,
termination compensation and related benefits had been paid to terminate
approximately 190 employees. The remaining accrual balance of $3.8 million to
terminate approximately 70 employees will be paid on various dates extending
through March 2002.

The write-off of abandoned technology of $1.9 million relates to the
iDecide product, which was abandoned as a result of the sale of the database
business.

FACILITY AND EQUIPMENT CHARGES RESULTING FROM IBM TRANSACTION

In connection with the IBM Transaction (See Note 13, above, in these Notes
to Consolidated Financial Statements), the Company recorded a $35.3 million
charge during 2001 for facilities and equipment costs related to facilities that
the Company no longer occupied at December 31, 2001. This charge is comprised of
a

F-42

ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reserve for residual lease obligations and restoration costs and write-offs
related to leasehold improvements and other fixed assets at these abandoned
facilities. The following table summarizes the components of the charge recorded
during 2001 and the subsequent accrual activity (in millions):

The $33.0 million charge for residual lease obligations is based upon lease
obligations that the Company estimates it will incur from the date of the
Company's exit from the facility to the end of the corresponding lease term, net
of rental payments from IBM or other sub-lessees. This charge also includes
estimated restoration costs for facilities that the Company has either exited or
finalized plans to exit as of December 31, 2001. The leases relating to
facilities that the Company has exited or plans to exit at December 31, 2001
begin to expire in 2002 through 2008. Included in the $33.0 million charge for
residual lease obligations and restoration costs is $1.7 million of lease
payments made in 2001 that relate to vacant space in facilities that the Company
plans to exit permanently, but had not completely exited by December 31, 2001.
The Company expects to complete the permanent exiting of these facilities at
various dates during 2002. Lease payments to be made prior to the permanent exit
date have not been accrued.

2000 STRATEGIC REALIGNMENT

During the quarter ended September 30, 2000, the Company approved plans to
realign its operations by establishing two operating businesses. The strategic
realignment included a refinement of the Company's product strategy,
consolidation of facilities and operations to improve efficiency and a reduction
in worldwide headcount of approximately 310 sales and marketing employees, 120
general and administrative employees, 260 research and development employees and
100 professional services and manufacturing employees. To date, the Company has
recorded realignment and other charges of $93.5 million relating to its plans to
realign its operations by establishing two operating businesses, of which $6.6
million was recorded during 2001. The following analysis sets forth both the
significant components of the charge recognized during the year ended December
31, 2001 and the accrual activity for the year ended December 31, 2001 (in
millions):

Severance and employment-related costs of $3.5 million included $5.1
million of retention and incentive bonuses for employees who management believed
were critical to the successful outcome of the realignment and $0.8 million for
payments to qualified employees related to the Company's decision to terminate
its

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ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

sabbatical plan, offset by reversing adjustments of $2.4 million to revise
estimates for termination compensation and related benefits. As of December 31,
2001, termination compensation and related benefits had been paid to terminate
approximately 790 employees. The remaining accrual balance of $0.1 million will
be paid on various dates extending through March 2002.

Included in the $1.9 million charge for facilities and equipment costs was
$0.5 million for the write-off of leasehold improvements, as these assets are no
longer being used, and $1.4 million for lease obligations for redundant
facilities. The remaining accrual balance at December 31, 2001 of $2.0 million
is for lease obligations that extend through 2005 for redundant facilities.

Included in the $1.2 million charge for costs to exit various commitments
and programs was an adjustment of $1.0 to revise estimates for the termination
of contracted service commitments. The remaining accrual of $3.1 million for
costs to exit various commitments and programs should be settled by March 2002.

ARDENT MERGER

In connection with the merger with Ardent, the Company recorded a charge of
$50.0 million for merger, integration and restructuring costs, of which $39.9
million was for accrued merger and restructuring costs. This amount included
$14.5 million for financial advisor, legal and accounting fees related to the
merger, $13.0 million for severance and employment related costs associated with
the termination of approximately 210 employees from various organizations
throughout the Company who held overlapping positions, $8.9 million for the
closure of facilities and equipment costs associated with combining the
operations of the two companies and $3.5 million for the write-off of redundant
technology and other duplicate costs. The remaining $10.1 million was for
integration and transition costs incurred during the quarter ended March 31,
2000. Subsequent to the quarter ended March 31, 2000, the Company recorded
adjustments of $8.9 million to the merger and restructuring charge. The major
components of the adjustments were a $4.7 million adjustment to accrued facility
and equipment costs and a $2.6 million adjustment to accrued severance and
employment costs. The adjustment to the accrued facility and equipment costs
resulted from the Company's ability to exit or sub-lease certain facility leases
in advance of original estimates, and the adjustment to accrued severance costs
resulted from the 2000 Strategic Realignment, which allowed for the Company's
retention of certain former Ardent executives, who therefore did not receive
severance. The following analysis sets forth the significant components of the
accrual activity for the year ended December 31, 2001 (in millions):

It is anticipated that the remaining $0.2 million for professional services
related to the merger will be paid in 2002. The remaining facilities costs of
approximately $0.5 million remains unpaid and relates to future rental
obligations on idle facilities that expire at various dates through 2003.

PRISM AND OTHER

On April 26, 1999, Ardent acquired Prism, a provider of data warehouse
management software that assists customers in developing, managing and
maintaining data warehouses. In connection with the merger with Prism, Ardent
recorded a charge of $9.7 million for accrued merger and restructuring costs.
The accrual included approximately $2.9 million for professional fees and other
acquisition-related costs, $3.5 million for

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ASCENTIAL SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

severance and related benefits to terminate 52 employees who held overlapping
positions and $3.3 million for costs associated with the shutdown and
consolidation of Prism facilities. As of December 31, 2001, approximately $0.3
million remained unpaid in respect of future rental obligations on idle
facilities that expire at various dates through 2004.

As part of the Company's acquisition of Cloudscape, the Company recorded a
charge of $2.8 million during the quarter ended December 31, 1999, for accrued
merger and restructuring costs. This amount included $1.2 million for financial
advisor, legal and accounting fees related to the merger and $1.6 million for
costs associated with combining the operations of the two companies including
expenditures of $0.7 million for severance and related costs, $0.4 million for
closure of facilities and $0.5 million for the write-off of redundant assets and
other costs. As of December 31, 2001, all obligations related to the Cloudscape
merger had been paid.

In May 1999, Ardent adopted a formal plan to exit the operations of O2
Technologies, Inc. ("O2"), which had been acquired by Ardent in December 1997,
and recorded a charge of $9.9 million for accrued restructuring charges. The
charge was comprised of $5.9 million for asset impairment, $3.6 million for
severance and related costs and $0.4 million for facility closings and other
obligations. As of December 31, 2001, all obligations related to the O2
restructuring had been paid.

As a result of other merger and realignment activities that took place
prior to 1999, the Company recorded charges arising from decisions to exit
certain facilities. As of December 31, 2001, approximately $0.1 million remained
for future rental obligations on idle facilities that expire at various dates
through 2002.

F-45

ASCENTIAL SOFTWARE CORPORATION

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

- ---------------

(1) Uncollectible accounts written off, net of recoveries

(2) Allowance for doubtful accounts acquired from Prism in 1999 and transferred
to IBM in 2001

S-1