Please refer to Note 1 to the accompanying consolidated financial statements and the section entitled "Application of Critical Accounting Policies and Use of Estimates" in the following pages for a description of our accounting policies and our use of estimates.

Our total revenues decreased from $1,635.3 million and $1,354.2 million in 2002 and 2003, respectively, to $1,339.8 million in 2004, representing year-over-year declines of 17% and 1% during 2003 and 2004, respectively. Our total revenues decreased during 2003 primarily due to a $218.1 million decrease in our software license revenues and an $89.9 million decrease in our professional services revenues, partially offset by an increase of $26.9 million in our maintenance revenues. We believe the declines in our software license and professional services revenues during 2003 were primarily due to weakness in the global economy.

Our total revenues decreased during 2004 primarily due to a $39.7 million decrease in our professional services revenues, partially offset by an increase of $25.3 million in our software license and maintenance revenues. Because our professional services revenues typically lag our software license revenues by three to nine months, we believe the decrease in our professional services revenues and the resulting decline in our total revenues during 2004 were primarily due to the declines in our software license revenues in 2003.

Despite the declines in our total revenues, we continue to improve one of our key revenue metrics, our annualized total revenue per employee metric (calculated as total revenue for the year divided by the average number of employees for the year). Annualized total revenue per employee increased from $241,000 and $248,000 per employee during 2002 and 2003, respectively, to $273,000 per employee during 2004. This increase was primarily the result of reductions in employees in connection with our cost control initiatives (e.g., the Restructurings and our on-going attention to our cost structure). With the year-over-year growth of our software license and maintenance revenues during 2004, coupled with three consecutive quarters of sequential quarterly growth of our professional services revenues, we are cautiously optimistic that we may achieve further improvement in this key metric in 2005, primarily in the second half of 2005.

In order to provide a better understanding of the year-over-year changes and underlying trends in our revenues, we have provided the following discussion of each of the individual components of our total revenues:

The following table sets forth our software license revenues, both in absolute dollars and as a percentage of total revenues, for 2002, 2003 and 2004 (in thousands, except percentages):

                                            Year Ended December 31,              Year-Over-Year Change
                                     -----------------------------------  ----------------------------------
                                        2002        2003        2004        2002 to 2003      2003 to 2004
                                     ----------  ----------  -----------  ----------------  ----------------
Software license revenues..........  $700,344    $482,274    $487,127     $(218,070) (31)%  $  4,853     1%
Percentage of total revenues.......        43%         36%         36%

Our software license revenues declined from 2002 to 2003 by 31%, primarily due to a weak global economy. Specifically, beginning in early 2001 and continuing through the first half of 2003, our prospects' and customers' purchasing decisions were impacted by, among other factors, (i) the overall weakness of the global economy and the resulting reductions in corporate capital expenditures, (ii) geopolitical uncertainties and the resulting impact on the global economy, (iii) uncertainties in the application software industry and (iv) increased competitive dynamics in the front-office application market. Accordingly, many of our customers (i) delayed the initiation of the purchasing process, (ii) increased the evaluation time to complete a software purchase and/or (iii) reduced their capital budgets, thereby restricting their software procurement to well-defined current needs.

While many of our prospects and customers remained cautious in setting and executing on their capital spending budgets, we returned our software license revenues to modest year-over-year growth during 2004, primarily due to our execution against the Improvement Plan discussed above. The impact of the Improvement Plan is best illustrated by a comparison of our results prior to and subsequent to the Improvement Plan. During the first half of 2004, our software license revenues were effectively flat with 2003 (software license revenues of $222.0 million in the first half of 2003 compared to $221.6 million in the first half of 2004). Subsequent to the implementation of and execution against the Improvement Plan, our software license revenues increased in the second half of 2004 on a year-over-year basis by $5.2 million (i.e., growth from $260.3 million during the second half of 2003 to $265.5 million during the second half of 2004). Accordingly, due in part to our execution against the Improvement Plan, we finished 2004 with two consecutive quarters of sequential quarterly growth and the first year-over-year annual growth since 2000.

Because our software license revenues are recognized in close proximity to the license of our software and because our professional services and maintenance revenues are recognized as the services are performed (typically three to nine months after the licensing of our software), the above factors impacted our software license revenues sooner and to a greater extent than our professional services and other revenues. Accordingly, our software license revenues as a percentage of total revenues declined from 43% in 2002 to 36% in both 2003 and 2004.

To more fully describe the trends within our software license revenues, we have provided the following summary of the key financial metrics that we use to track the progress of our software license revenues:

                                                                  Year Ended December 31,
                                                         --------------------------------------
Other key software license metrics:                          2002         2003         2004
- -------------------------------------------------------- ------------ ------------ ------------
Transactions equal to or greater than $5 million........         23           12           11
Transactions between $1 million and $5 million..........        140          110          102
Total number of transactions............................      1,873        1,439        1,324
Average transaction size (in thousands)................. $      374   $      335   $      368
Percentage revenue from new customers (1)...............         53%          55%          56%

1. We measure revenues from new customer projects as software license transactions from new customers, new divisions of existing customers and/or new projects at existing customers.

As the above table indicates, many of these key metrics declined from 2002 to 2003, which we believe was primarily due to the weakness in the global economy. For example, we believe the weak economic conditions during 2003 resulted in a reduction in the number of customer evaluations, and consequently in the total number of transactions. More significantly to us, we experienced declines in the number of transactions equal to or greater than $1 million and the overall average transaction size, both of which we believe occurred due to our customers restricting their software procurement in order to reduce expenses and conserve cash in a weak global economy.

During 2004, many of these same metrics stabilized, primarily due to our Improvement Plan. For example, we experienced year-over-year improvement in our average transaction size from $335,000 in 2003 to $368,000 in 2004. In addition, while the number of transactions greater than or equal to $1 million decreased modestly from 122 transactions in 2003 to 113 transactions in 2004, a greater proportion of these transactions were in excess of $2 million in 2004 compared to 2003. We are also focused on driving revenue across customers of all sizes and intend to continue to work to increase both the total number of transactions and further increase our average transaction size. For example, while the total number of transactions decreased from 1,439 in 2003 to 1,324 in 2004, we are beginning to see the results from our Improvement Plan, with year-over-year growth from 406 transactions in the fourth quarter of 2003 to 423 transactions in the fourth quarter of 2004.

We are cautiously optimistic that the actions we have taken thus far, coupled with our continued execution against our Improvement Plan, may result in continued improvement in our software license revenues in 2005, primarily in the second half of 2005. One of the primary reasons for this optimism is the growth in our newest product lines, analytics and customer data integration applications. Specifically, analytics and customer data applications (primarily UCM) increased by 44% and 30% respectively, from 2003 to 2004. The growth within these product lines partially offset declines in our sales, marketing and service automation product line, which declined from 2003 to 2004 by 9%. The declines in our sales, marketing and service automation product line were primarily attributable to declines within certain of our geographic regions (primarily Asia Pacific) and industries (e.g., telecom and financial services). Despite this decline, we are cautiously optimistic that our continued execution against the Improvement Plan will allow us to return our sales, marketing and service automation product line to sequential quarterly and year-over-year growth.

The following is a summary of our software license revenues, by front-office product, for the years ended December 31, 2003 and 2004 (in thousands):

                                           Year Ended December 31,
                                           -----------------------
                                              2003        2004
                                           ----------  -----------
Sales, marketing and service automation... $ 384,222    $ 348,550
Customer and business analytics...........    77,291      111,626
Customer data integration.................    20,761       26,951
                                           ----------  -----------
        Total............................. $ 482,274    $ 487,127
                                           ==========  ===========

In addition to the growth within these key product lines, we continue to see improvement in several non-financial metrics that we believe provide a solid foundation to grow our revenues. For example, our customers continue to increase the deployment of previous purchases of our software, with an increase in the number of estimated deployed users from 2.2 million as of December 31, 2003 to 2.9 million as of December 31, 2004. In addition, we believe our leadership position in the CRM application market and our corresponding customer base provides us with a solid foundation to improve our performance. We continue to build on this customer base, with software license revenues from new customers remaining at a healthy 56% of total software license revenues during 2004, compared to 53% and 55% during 2002 and 2003, respectively. We believe increases in our customer base provide us with increased professional services and maintenance revenue opportunities, and may also provide us with future license revenue opportunities.

We market our products through our direct sales force, and to a limited extent through distributors primarily in Europe, Asia Pacific, Japan and Latin America. International license revenues as a percentage of software license revenues increased from 42% in 2002 to 50% in 2003, primarily due to our international license revenues declining at a slower rate than our software license revenues in the United States during 2003. International software license revenues decreased as a percentage of software license revenues from 50% in 2003 to 46% in 2004 primarily due to declines within Asia Pacific, which declined on a year-over-year basis by $34.3 million during 2004. We expect international software license revenues will continue to account for a significant portion of our overall software license revenues in the foreseeable future. Because the majority of our software license arrangements and related operating activities are denominated in U.S. dollars, foreign currency exchange rates did not have a significant impact on software license revenues, total revenues or net income for any period presented.

Professional services, maintenance and other revenues are primarily composed of implementation services and training services (i.e., professional services) and technical support and product updates (i.e., maintenance). Our professional services are typically initiated and provided over a period of three to nine months subsequent to the licensing of our software and depend in large part upon our software license revenues in the immediate preceding periods. Substantially all of our professional services arrangements are billed on a time and materials basis and, accordingly, are recognized as the services are performed.

Our maintenance revenues depend upon both our software license revenues and renewals of maintenance agreements by our existing customer base. Our customers typically prepay maintenance for the first year in connection with a new software license and may renew on an annual basis thereafter. We reflect the prepayment of the maintenance contract in deferred revenue and recognize the revenue ratably over the term of the maintenance contract based on the number of days the contract is outstanding during each period.

Also included in professional services, maintenance and other revenues for 2003 and 2004 is revenue from our newest service offerings, Siebel CRM OnDemand and Siebel Contact OnDemand, which we introduced in the fourth quarter of 2003 and first quarter of 2004, respectively. Our customers typically prepay for these subscription services, which we defer and recognize ratably over the term of the customer contract based on the number of days the contract is outstanding during each period. While the revenues derived from our OnDemand offerings were not significant for 2003 and 2004, we believe that these OnDemand offerings represent a significant growth opportunity for us. Accordingly, we intend to continue to devote an increasing amount of our resources to these service offerings.

Our professional services, maintenance and other revenues declined on a year-over-year basis by 7% during 2003 and 2% during 2004, primarily due to a decrease in our professional services revenues (i.e., implementation services and training services), partially offset by an increase in the installed base of customers receiving maintenance.

In order to better understand the changes within our professional services, maintenance and other revenues, we have provided the following table, which sets forth the individual components of these revenues in terms of absolute dollars and as a percentage of total revenues (in thousands, except percentages):

                                           Year Ended December 31,              Year-Over-Year Change
                                     -----------------------------------  ----------------------------------
                                        2002        2003        2004        2002 to 2003      2003 to 2004
                                     ----------  ----------  -----------  ----------------  ----------------
Maintenance:                                                                                                
   Absolute dollars................  $422,502    $449,345    $469,751     $  26,843    6%   $ 20,406     5%
   Percentage of total revenues....        26%         33%         35%
                                                                                                            
Professional services and other:                                                                            
   Absolute dollars................  $512,461    $422,609    $382,915     $ (89,852) (18)%  $(39,694)   (9)%
   Percentage of total revenues....        31%         31%         29%

Our maintenance revenues, in absolute dollars and as a percentage of total revenues, increased during 2003 and 2004 due to new maintenance agreements entered into in connection with the license of our software to new and existing customers. In addition to expanding our customer base receiving maintenance, we continue to maintain strong renewal rates within our existing customer base, with renewal rates of approximately 90% in both 2003 and 2004.

While maintenance revenues increased during 2003 and 2004, professional services and other revenues, both in absolute dollars and as a percentage of total revenues, decreased during 2003 and 2004, primarily due to a lag effect related to our software license revenues. Specifically, our implementation and training services revenues are initiated and performed over a period of three to nine months subsequent to the initial software license and, as a result, our implementation and training services typically vary with the amount of software license revenues generated in the preceding three- to nine-month period. Accordingly, we believe a majority of the year-over-year declines in our professional services and other revenues is due to previous declines in our software license revenues.

We have taken and will continue to take steps to improve the performance of our professional services organization, including the introduction of new leadership and the expansion of our services offerings as discussed further above under the section entitled "Focus on Future Improvement in Our Operating Performance." We are beginning to realize the benefit of these efforts with three consecutive quarters of sequential quarterly growth and an improved pipeline of professional services contracts as we begin 2005. We are also committed to increasing our professional services' margins, including taking further cost control measures, if necessary, in order to achieve our overall gross margin goals.

The following table sets forth our cost of revenues, both in absolute dollars and as a percentage of total revenues, for 2002, 2003 and 2004 (in thousands, except percentages):

                                           Year Ended December 31,              Year-Over-Year Change
                                     -----------------------------------  ----------------------------------
                                        2002        2003        2004        2002 to 2003      2003 to 2004
                                     ----------  ----------  -----------  ----------------  ----------------
Cost of revenues...................  $564,550    $508,363    $456,901     $ (56,187) (10)%  $(51,462)  (10)%
Percentage of total revenues.......        35%         38%         34%
Gross margin.......................        65%         62%         66%

Cost of revenues decreased during both 2003 and 2004 primarily due to our cost control initiatives. Our cost control initiatives included the Restructurings, reductions in our professional services staff commensurate with the decline in our professional services revenues, and reductions in discretionary spending such as travel and entertainment ("T&E") expenses. Cost of revenues as a percentage of total revenues increased during 2003 primarily due to a decrease in the percentage of our revenues derived from software license revenues, which are at higher margins than our professional services, maintenance and other revenues. During 2004, our higher margin software license and maintenance revenues increased as a percentage of total revenues from 69% in 2003 to 71% in 2004, resulting in an improvement in our gross margin and corresponding decrease in our cost of revenues as a percentage of total revenues.

In order to better understand the changes within our cost of revenues and resulting gross margins, we have provided the following discussion of the individual components of our cost of revenues:

Cost of software license revenues includes amortization of acquired technology, third-party software royalties and product packaging, production and documentation. All costs incurred in the research and development of software products and enhancements to existing products have been expensed as incurred. The following table sets forth our cost of software license revenues in terms of absolute dollars and as a percentage of software license revenues for 2002, 2003 and 2004 (in thousands, except percentages):

                                           Year Ended December 31,              Year-Over-Year Change
                                     -----------------------------------  ----------------------------------
                                       2002        2003        2004         2002 to 2003      2003 to 2004
                                     ----------  ----------  -----------  ----------------  ----------------
Cost of software license revenues..  $ 21,612    $ 18,357    $ 13,316     $  (3,255) (15)%  $ (5,041)  (27)%
Percentage of software
  license revenues.................         3%          4%          3%

Cost of software license revenues decreased from 2002 to 2003 by 15% primarily due to (i) a reduction in amortization expense of $2.2 million and (ii) the commensurate decrease associated with the decline in software license revenues. Partially offsetting these declines in 2003 was a charge of $2.4 million related to the abandonment of certain acquired technology obtained in the acquisition of Sales.com, Inc. ("Sales.com"). Please refer to Note 3 to the accompanying consolidated financial statements for a further discussion of this abandonment. As a percentage of software license revenues this abandonment charge represented 1% of software license revenues during 2003, thus accounting for the increase in cost of software license revenues as a percentage of software license revenues from 2002 to 2003.

Cost of software license revenues decreased from 2003 to 2004 by 27% primarily due to (i) a reduction in amortization expense of $3.1 million associated with the Sales.com acquired technology, (ii) reductions in third-party royalties and other costs of $1.0 million resulting from a shift to products with lower royalties and (iii) cost of revenues being unusually high in 2003 as a result of the $2.4 million abandonment charge discussed above. Partially offsetting the declines in 2004 were increases in amortization expense of $1.5 million in 2004 associated with technology acquired in connection with our acquisition of Eontec on April 20, 2004.

Cost of professional services, maintenance and other revenues consist primarily of personnel, facilities and systems costs incurred to provide training, consulting, technical support and other professional services. The following table sets forth our cost of professional services, maintenance and other revenues in terms of absolute dollars and as a percentage of these revenues for 2002, 2003 and 2004 (in thousands, except percentages):

                                            Year Ended December 31,              Year-Over-Year Change
                                      -----------------------------------  ----------------------------------
                                         2002        2003        2004        2002 to 2003      2003 to 2004
                                      ----------  ----------  -----------  ----------------  ----------------
Cost of professional services,
   maintenance, and other revenues..  $542,938    $490,006    $443,585     $ (52,932) (10)%  $(46,421)   (9)%
Percentage of professional services,
   maintenance, and other revenues..        58%         56%         52%

The following is a summary of the year-over-year changes of our cost of professional services, maintenance and other revenues during 2003 and 2004 (in thousands):

                                                          Year-Over-Year Change
                                                         ------------------------
                                                          From 2002    From 2003
Cost component:                                            to 2003      to 2004
- -------------------------------------------------------- -----------  ----------- 
Compensation related to the Option Repurchase........... $  (14,119)  $       --
Personnel-related costs (compensation, benefits, etc.)..    (10,577)     (11,180)
Facility-related costs (rent, utilities, etc.)..........     (9,658)     (13,318)
Depreciation expense....................................       (645)     (19,614)
Rebillable T&E expenses.................................     (1,429)      (3,009)
Non-billable T&E expenses...............................     (5,971)      (6,084)
Outside consulting costs................................     (5,610)       1,200
Cost of training and other costs, net...................     (5,436)       1,012
Amortization of intangibles.............................        513        4,572
                                                         -----------  -----------
          Total year-over-year change................... $  (52,932)  $  (46,421)
                                                         ===========  ===========

As discussed further in Note 8 to the accompanying consolidated financial statements, we completed a tender offer for certain of our stock options during the third quarter of 2002 (the "Option Repurchase"). Included in total cost of professional services, maintenance and other revenues for 2002 is a compensation charge of $14.1 million related to the repurchase of stock options held by our professional services and technical support personnel. Because we did not complete a similar repurchase of stock options in 2003, our cost of professional services, maintenance and other revenues declined by $14.1 million from 2002 to 2003.

We were able to further reduce our cost of professional services, maintenance and other revenues on a year-over-year basis during both 2003 and 2004 primarily through our cost control initiatives (e.g., the Restructurings and our continued attention to expense reduction). For example, personnel-related costs have declined as a result of our reduction of the average headcount in our professional services organization from 2,725 and 2,250 in 2002 and 2003, respectively, to 1,945 in 2004. Our professional services headcount declined in 2003 and 2004 primarily due to (i) reductions in personnel in connection with the Restructurings and (ii) reductions in our professional services staff commensurate with the decline in our professional services revenues. These savings related to personnel-related costs include the offsetting impact of increases in compensation costs from the renewal of merit increases and certain other incentive compensation.

As a result of these reductions in personnel, we were able to consolidate several of our facilities, primarily in connection with the Restructurings, resulting in reductions in the facility-related component of our cost of professional services, maintenance and other revenues during both 2003 and 2004. As part of our cost controls, we reduced our discretionary spending during 2003 and 2004 in areas such as (i) capital expenditures, resulting in declines in depreciation expense and (ii) non-billable T&E and rebillable T&E, both of which declined primarily due to reductions in professional services personnel.

During 2003, we also reduced (i) our use of third-party consultants commensurate with the decline in our implementation revenues and declines in the utilization rates of our personnel and (ii) cost of training and other costs (i.e., third-party training centers, printing costs of training materials, etc.). These costs increased slightly in 2004, primarily in the second half, due to continued improvement in our professional services revenues throughout 2004. Partially offsetting the above cost savings in 2003 and 2004 were increases of $0.5 million and $4.6 million, respectively, associated with additional amortization expense of intangible assets obtained in our acquisitions of Eontec and UpShot.

Cost of professional services, maintenance and other revenues as a percentage of the corresponding revenues decreased from 58% in 2002 to 56% in 2003 primarily due to the inclusion of a $14.1 million charge related to the Option Repurchase in 2002. Specifically, this charge represented 2% of professional services, maintenance and other revenues during 2002 and, accordingly, the remaining components of costs of professional services, maintenance and other revenues as a percentage of total revenues were 56% in both 2002 and 2003.

Cost of professional services, maintenance and other revenues as a percentage of the corresponding revenues decreased from 56% during 2003 to 52% during 2004 primarily due to (i) a higher percentage of our professional services, maintenance and other revenues being derived from our higher-margin maintenance revenues in 2004 compared to 2003 and (ii) our reduction of personnel, facility-related and other costs as discussed above. Primarily as a result of these factors, our gross margin related to our professional services, maintenance and other revenues improved from 44% during 2003 to 48% during 2004. Partially offsetting this improvement in our gross margin during 2004 was an increase in amortization expense associated with intangible assets obtained in our acquisitions of Eontec and UpShot of $4.6 million, or 1% of our professional services, maintenance and other revenues.

Product development expense includes costs associated with the development of new products, enhancements of existing products, quality assurance activities and vertical engineering. These costs consist primarily of employee salaries and benefits, occupancy costs, consulting costs and the cost of software development tools and equipment. The following table sets forth our product development expense in terms of absolute dollars and as a percentage of total revenues for 2002, 2003 and 2004 (in thousands, except percentages):

                                           Year Ended December 31,              Year-Over-Year Change
                                     -----------------------------------  ----------------------------------
                                       2002        2003        2004         2002 to 2003      2003 to 2004
                                     ----------  ----------  -----------  ----------------  ----------------
Product development expense........  $368,387    $310,686    $299,051     $ (57,701) (16)%  $(11,635)   (4)%
Percentage of total revenues.......        23%         23%         22%

The following is a summary of the year-over-year changes of our product development expenses during 2003 and 2004 (in thousands):

                                                          Year-Over-Year Change
                                                         ------------------------
                                                          From 2002    From 2003
Cost component:                                            to 2003      to 2004
- -------------------------------------------------------- -----------  ----------- 
Compensation related to the Option Repurchase........... $  (18,733)  $       --
Personnel-related costs (compensation, benefits, etc.)..    (27,503)      (8,779)
Facility-related costs (rent, utilities, etc.)..........     (8,240)      (7,581)
Depreciation expense....................................     (1,681)      (9,792)
T&E expenses............................................     (4,141)        (885)
Outside consulting and other cost, net..................      2,597       15,402
                                                         -----------  -----------
          Total year-over-year change................... $  (57,701)  $  (11,635)
                                                         ===========  ===========

Included in product development expense for 2002 is a compensation charge of $18.7 million related to the repurchase of stock options held by our product development personnel. Please refer to Note 8 to the accompanying consolidated financial statements for a further discussion of the Option Repurchase. Because we did not complete a similar repurchase of stock options in 2003, our product development expense declined by $18.7 million during 2003.

We were able to further reduce product development expense on a year-over-year basis during 2003 and 2004 primarily through our cost control initiatives (e.g., the Restructurings and our continued attention to expense reduction). For example, in connection with the Restructurings, we (i) discontinued certain development projects, (ii) initiated a transition of a portion of our quality assurance and testing activities to labor markets with lower cost structures and (iii) consolidated our product development management structure and eliminated non-essential development positions in order to better align our cost structure with expected revenues. Accordingly, personnel-related costs decreased on a year-over-year basis during 2003 and 2004 primarily due to these reductions of product development personnel. Specifically, the average headcount in our product development organization decreased from 1,865 and 1,495 in 2002 and 2003, respectively, to 1,340 in 2004. These savings related to personnel-related costs include the offsetting impact of increases in compensation costs from the renewal of merit increases and certain other incentive compensation.

In addition to the reductions in our personnel costs, we have reduced the facility-related cost component of product development expense, primarily as a result of the consolidation of facilities in connection with the Restructurings. Through our cost control initiatives, we have reduced our discretionary spending in areas such as (i) capital expenditures, resulting in declines in depreciation expense, and (ii) T&E expenses, which declined due to reductions in product development personnel and more stringent travel restrictions.

While we have reduced the personnel, facility and depreciation components of our product development expense, we recognize that our continued development of new products and new versions of and additional modules for our existing products is critical to our revenue growth initiatives. Accordingly, we have reinvested a portion of the above cost savings in outside consultants (i) assisting with the further development of our latest products, analytics, customer data integration and Siebel CRM OnDemand and (ii) performing a portion of our quality assurance and testing activities in labor markets with lower cost structures.

Primarily due to our continued focus on developing new products, product development expense as a percentage of total revenues remained comparable in 2002, 2003 and 2004, despite declines in our total revenues. We expect to continue to devote substantial resources to our product development efforts, including the increased investment in product development—primarily quality assurance, testing and certain development efforts—in labor markets with lower cost structures. As a result, we have increased and expect that in the future we will be able to increase the number of external and third-party personnel (i.e., consultants in labor markets with lower cost structures) devoted to our product development efforts, while at the same time improving our cost structure.

We continue to place significant emphasis, both domestically and internationally, on direct sales through our sales force. Sales and marketing expense is composed primarily of costs associated with our sales and marketing personnel and includes (i) salaries, commissions and bonuses, (ii) facility-related (i.e., rent) and equipment-related (i.e., depreciation) expenses, (iii) T&E expenses and (iv) promotional and advertising expenses. The following table sets forth our sales and marketing expense in terms of absolute dollars and as a percentage of total revenues for 2002, 2003 and 2004 (in thousands, except percentages):

                                           Year Ended December 31,              Year-Over-Year Change
                                     -----------------------------------  ----------------------------------
                                       2002        2003        2004         2002 to 2003      2003 to 2004
                                     ----------  ----------  -----------  ----------------  ----------------
Sales and marketing expense........  $478,816    $358,318    $337,690     $(120,498) (25)%  $(20,628)   (6)%
Percentage of total revenues.......        29%         26%         25%

The following is a summary of the year-over-year changes of our sales and marketing expenses during 2003 and 2004 (in thousands):

                                                          Year-Over-Year Change
                                                         ------------------------
                                                          From 2002    From 2003
Cost component:                                            to 2003      to 2004
- -------------------------------------------------------- -----------  ----------- 
Compensation related to the Option Repurchase........... $  (12,232)  $       --
Personnel-related costs (compensation, benefits, etc.)..    (42,239)      (8,133)
Facility-related costs (rent, utilities, etc.)..........    (16,391)      (4,553)
Depreciation expense....................................     (6,306)      (7,595)
Marketing and advertising...............................    (16,252)      (7,688)
T&E expenses............................................     (9,180)      (3,305)
Sales commissions.......................................    (17,297)       9,889
Other, net..............................................       (601)         757
                                                         -----------  -----------
          Total year-over-year change................... $ (120,498)  $  (20,628)
                                                         ===========  ===========

Included in sales and marketing expense for 2002 is a compensation charge of $12.2 million related to the repurchase of stock options held by our sales and marketing personnel. Please refer to Note 8 to the accompanying consolidated financial statements for a further discussion of the Option Repurchase. Because we did not complete a similar repurchase of stock options in 2003, our sales and marketing expense declined by $12.2 million during 2003.

We were able to further reduce sales and marketing expense on a year-over- year basis during both 2003 and 2004 primarily through our cost control initiatives (e.g., the Restructurings and our continued attention to expense reduction). Specifically, we reduced our personnel-related costs on a year-over-year basis during both 2003 and 2004 primarily as a result of reductions of sales and marketing personnel in connection with the Restructurings. For example, the average headcount in our sales and marketing organizations decreased from 1,525 and 1,155 in 2002 and 2003, respectively, to 1,060 in 2004. These savings related to personnel-related costs include the offsetting impact of increases in compensation costs from the renewal of merit increases and certain other incentive compensation.

In addition to the reductions in our personnel costs, we have reduced the facility-related cost component of sales and marketing expense, primarily as a result of the consolidation of facilities in connection with the Restructurings. We have also achieved aggregate year-over-year decreases during 2003 and 2004 of $31.7 million and $18.6 million, respectively, related to depreciation expense, marketing and advertising expenses, and T&E expenses, primarily due to the further realization of savings from our cost control initiatives. Our sales commission expense declined on a year-over-year basis during 2003 by $17.3 million, primarily due to a corresponding decrease in our software license revenues. Our sales commission expense increased on a year-over-year basis during 2004 by $9.9 million, primarily due to an increase in our commission rate structure (i.e., representing $9.5 million of the increase in commissions) and, to a lesser extent, the year-over-year increase in our software license revenues (i.e., representing $0.4 million of the increase in commissions).

Sales and marketing expense decreased as a percentage of total revenues from 29% and 26% during 2002 and 2003, respectively, to 25% during 2004, primarily due to our cost control initiatives. In addition, as discussed above, during 2002 we incurred a charge of $12.2 million associated with the Option Repurchase, which represented 1% of total revenues during 2002.

General and administrative expense is composed primarily of costs associated with our executive and administrative personnel (e.g., the CEO and legal, finance, information technology, human resources and facilities personnel) and consists primarily of (i) salaries and occupancy costs, (ii) provision for doubtful accounts (i.e., bad debt expense), (iii) professional services expenses (e.g., audit fees and costs associated with compliance with the Sarbanes-Oxley Act of 2002, or SOX) and (iv) legal expenses. The following table sets forth our general and administrative expense in terms of absolute dollars and as a percentage of total revenues for 2002, 2003 and 2004 (in thousands, except percentages):

                                           Year Ended December 31,              Year-Over-Year Change
                                     -----------------------------------  ----------------------------------
                                       2002        2003        2004         2002 to 2003      2003 to 2004
                                     ----------  ----------  -----------  ----------------  ----------------
General and adminstrative expense..  $119,783    $106,594    $104,541     $ (13,189) (11)%  $ (2,053)   (2)%
Percentage of total revenues.......         7%          8%          8%

The following is a summary of the year-over-year changes of our general and administrative expenses during 2003 and 2004 (in thousands):

                                                          Year-Over-Year Change
                                                         ------------------------
                                                          From 2002    From 2003
Cost component:                                            to 2003      to 2004
- -------------------------------------------------------- -----------  ----------- 
Compensation related to the Option Repurchase........... $   (9,795)  $       --
Facility-related costs (rent, utilities, etc.)..........       (141)      (2,362)
Personnel-related costs (compensation, benefits, etc.)..     (1,700)       1,809
Depreciation expense....................................      7,781       (8,374)
Bad debt expense........................................    (13,546)      (8,689)
Legal and tax-related expense...........................      4,660        8,709
Professional services and other costs, net..............       (448)       4,542
Compensation related to restricted stock units ("RSUs").         --        2,312
                                                         -----------  -----------
          Total year-over-year change................... $  (13,189)  $   (2,053)
                                                         ===========  ===========

Included in general and administrative expense for 2002 is a compensation charge of $9.8 million related to the repurchase of stock options held by our general and administrative personnel. Please refer to Note 8 to the accompanying consolidated financial statements for a further discussion of the Option Repurchase. Because we did not complete a similar repurchase of stock options in 2003, our general and administrative expense declined by $9.8 million during 2003.

As the above table indicates, we were able to further reduce general and administrative expense on a year-over-year basis during 2003 and 2004 through our cost control initiatives (e.g., the Restructurings and our continued attention to expense reduction). For example, we reduced the facilities-related component of our general and administrative expenses on a year-over-year basis during both 2003 and 2004, primarily due to the consolidation of facilities in connection with the Restructurings.

We also reduced our personnel-related costs included in general and administrative expense on a year-over-year basis during 2003, primarily as a result of reductions of personnel in connection with the Restructurings (e.g., average headcount in our general and administrative organization decreased from 685 in 2002 to 565 in 2003). These personnel-related savings during 2003 include the offsetting impact of increases in compensation costs from the renewal of merit increases and certain other incentive compensation.

Personnel-related costs increased modestly on a year-over-year basis during 2004 primarily due to an increase in the compensation paid to the office of our CEO of $1.0 million. This $1.0 million increase is due to the reinstatement of our previous CEO's annual compensation from one dollar in 2003 to $1.0 million effective January 1, 2004 through May 4, 2004, and the hiring of our new CEO at the same base salary of $1.0 million effective May 4, 2004. In addition, personnel-related costs increased modestly in 2004 from 2003 due to (i) our continued investment in additional executive personnel as outlined above under the section entitled "Focus on Future Improvement in Our Operating Performance," and (ii) merit increases and certain incentive compensation. Partially offsetting the increase in personnel-related costs during 2004 were further realization of savings from reductions in personnel in connection with the Restructurings, the majority of which occurred in mid 2003 (e.g., average headcount in our administrative organization decreased from 565 in 2003 to 555 in 2004).

During both 2003 and 2004 we continued to reduce our discretionary spending in areas such as capital expenditures, with the anticipation that the benefits of these reductions would be realized in future periods as previous capital expenditures become fully depreciated (e.g., expenditures made in 2001 and 2002). While the Company did not realize a significant benefit in the reduction in depreciation expense in 2003, depreciation expense declined in 2004, primarily due to reductions in capital expenditure levels in 2003 and 2004. The depreciation component of general and administrative expense increased during 2003 despite the reduction in capital expenditure levels in 2003 primarily due to the inclusion of a full year of depreciation expense associated with our investment in our backup information technology infrastructure site in Salt Lake City, Utah, which we placed into service in late 2002.

In addition to savings from our cost control initiatives, bad debt expense decreased on a year-over-year basis by $13.5 million and $8.7 million during 2003 and 2004, respectively, due to the continued improvement in our collection efforts, including further reductions in accounts receivable levels, an improved accounts receivable aging and the recovery of amounts previously written-off.

Partially offsetting the above cost savings were increases in (i) legal and tax-related expenses of $4.7 million and $8.7 million during 2003 and 2004, respectively (please refer to Notes 6 and 11 to the accompanying consolidated financial statements for further discussion of legal and tax proceedings) and (ii) professional services and other costs, a significant portion of which was associated with our compliance with SOX. Further reducing the above cost savings during 2004 were increases in compensation costs of $2.3 million associated with the issuance of restricted stock units, or RSUs, to our CEO in connection with his commencement of employment with us.

As previously discussed, certain of our key operating metrics declined during 2002 and 2003 from their historical levels. In response to this decline, we initiated a series of steps that we believe will (i) strengthen our competitive position; (ii) reduce our cost structure thereby improving our revenue per employee, operating margin and overall operating performance; and (iii) better align our management structure in order to return to consistent sequential quarterly revenue growth. Specifically, we have taken the following actions:

• We reduced the discretionary portion of our operating costs through various cost control initiatives discussed above.

• In order to better align our operating structure with anticipated revenue levels, we initiated the first of a series of restructurings during 2002 (the "2002 Restructuring"), which we completed in December 2002.

• Due in part to the continued weakening in the global economy and reduced revenue expectations, we initiated and completed a further restructuring of our operations in the second quarter of 2003 (the "2003 Restructuring"), which was completed in September 2003.

The 2002 Restructuring and 2003 Restructuring included the following key measures: (i) the reduction of our workforce across all functional areas; (ii) the consolidation of our excess facilities; (iii) the abandonment of certain long-lived assets, including leasehold improvements, furniture and fixtures; and (iv) the transfer of certain technical support, quality assurance and other product development positions to labor markets with lower cost structures.

In order to continue to reduce expense levels and to further improve our operating margins, we initiated an additional restructuring of our operations during the third quarter of 2004 (the "2004 Restructuring," and collectively with the 2002 Restructuring and 2003 Restructuring, the "Restructurings"). The 2004 Restructuring consisted primarily of the consolidation of additional facilities (located primarily in North America and Asia Pacific) and the abandonment of the related leasehold improvements and furniture and fixtures. We estimate that the 2004 Restructuring will reduce our on-going costs by $2.6 million per year, or $650,000 per quarter.

In addition to reducing our cost structure, we believe the Restructurings will result in (i) a more simple, responsive and efficient management reporting structure; (ii) a more focused sales organization providing greater responsiveness to customers and faster decision- making; and (iii) a continued focus of our resources on key growth areas, such as our newest product offerings, analytics, customer data integration and Siebel CRM OnDemand.

The following table summarizes the restructuring and related expenses incurred in connection with the Restructurings and the remaining obligations as of and for the years ended December 31, 2002, 2003 and 2004 (in thousands):

                                                               Employee       Facility-       Asset
                                                              Termination      Related     Abandonment
                                                               Costs (1)      Costs (2)      Costs (3)      Total
                                                             -------------  -------------  ------------  -----------
Restructuring obligations, July 1, 2002..................... $         --   $         --   $        --   $       --
Restructuring and related expenses recognized in 2002 (4)...       23,649        152,794        25,955      202,398
Cash payments...............................................      (19,714)        (5,088)           --      (24,802)
Reclass of deferred rent obligations (5)....................           --          4,135            --        4,135
Non-cash charges............................................           --             --       (25,955)     (25,955)
                                                             -------------  -------------  ------------  -----------
Restructuring obligations, December 31, 2002................        3,935        151,841            --      155,776
                                                             -------------  -------------  ------------  -----------
Restructuring and related expenses recognized in 2003:
  Recognized related to changes in estimates (6)............       (1,199)        15,524           566       14,891
  Recognized related to the 2003 Restructuring (7)..........       15,585         54,185        16,940       86,710
  Accretion related to the Restructurings (8)...............           --            709            --          709
                                                             -------------  -------------  ------------  -----------
     Total recognized in 2003...............................       14,386         70,418        17,506      102,310
Cash payments...............................................      (14,516)       (75,322)           --      (89,838)
Reclass of deferred rent obligations (5)....................           --          2,184            --        2,184
Non-cash charges............................................           --             --       (17,506)     (17,506)
                                                             -------------  -------------  ------------  -----------
Restructuring obligations, December 31, 2003................        3,805        149,121            --      152,926
                                                             -------------  -------------  ------------  -----------
Restructuring and related expenses recognized in 2004:
  Recognized related to changes in estimates (6)............       (1,465)           836           205         (424)
  Recognized related to the 2004 Restructuring (7)..........           --          3,397         1,703        5,100
  Accretion related to the Restructurings (8)...............           --          2,113            --        2,113
                                                             -------------  -------------  ------------  -----------
     Total recognized in 2004...............................       (1,465)         6,346         1,908        6,789
Cash payments...............................................       (2,075)       (49,866)           --      (51,941)
Non-cash charges............................................           --             --        (1,908)      (1,908)
                                                             -------------  -------------  ------------  -----------
Restructuring obligations, December 31, 2004................ $        265   $    105,601   $        --      105,866
                                                             =============  =============  ============
     Less: Restructuring obligations, short-term............                                                 30,639
                                                                                                         -----------
     Restructuring obligations, long-term...................                                             $   75,227
                                                                                                         ===========

1. In connection with the 2002 Restructuring, we reduced our workforce by approximately 1,150 employees, or 16% of our then-current workforce. In connection with the 2003 Restructuring, we reduced our workforce by approximately 580 employees, or 10% of our then-current workforce. The workforce reductions affected substantially all of our organizations and geographical regions. The costs associated with these workforce reductions consist primarily of severance payments, COBRA benefits, payroll taxes and other associated termination costs. The remaining obligations as of December 31, 2004 relate to less than five terminations that have yet to be completed, primarily due to regulatory requirements in certain countries outside the United States. We expect to complete these terminations in 2005.

2. As a result of the workforce reductions and employee attrition, certain of our facilities were under-utilized. Accordingly, we consolidated our remaining workforce into the under-utilized facilities and ceased to utilize the then-vacated facilities. The facilities permanently removed from our operations during 2002, 2003 and 2004 were located primarily in Emeryville and San Mateo, California; Atlanta, Georgia; Europe; and several smaller offices in North America. The costs associated with the facilities consolidation primarily relate to lease termination costs, costs associated with satisfying remaining lease commitments, and expected brokerage and other re-letting costs, partially offset by estimated sublease income.

3. As part of the consolidation of our facilities, certain leasehold improvements, furniture and fixtures were abandoned. As a result, we recorded a non-cash charge equal to the net book value of these abandoned assets in restructuring and related expenses.

4. We recorded the 2002 Restructuring and related expenses in an amount equal to the gross value of the related obligations without consideration to the net present value of such obligations. In addition, in determining the 2002 Restructuring obligations, we assessed the time period over which reasonable estimates could be made.

5. Represents the balance of the deferred rent liability associated with a property included in the Restructurings. As the related facility is no longer being utilized in our operations, we reclassed the related deferred rent liability to restructuring obligations at the time of the Restructurings.

6. We revised our estimated obligations with respect to the 2003 Restructuring and 2004 Restructuring as follows:

• Employee termination costs—Due primarily to higher than expected voluntary terminations, we reduced our remaining obligations for employee termination costs.

• Facility-related costs—Due primarily to the real estate markets in which we operate remaining at depressed levels longer than originally anticipated, we extended the estimated sublease commencement dates and/or reduced the estimated sublease rates on certain restructured properties. Partially offsetting these reductions in estimated sublease income were favorable changes in estimates that resulted from entering into subleases sooner and/or at higher sublease rates than originally anticipated on certain other restructured properties.

We believe that our estimates with respect to the remaining restructuring obligations are appropriate as of December 31, 2004.

7. In accordance with SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), we recorded the facility-related expenses incurred in the 2003 Restructuring and 2004 Restructuring after giving effect to the net present value of the related obligations.

8. Represents the accretion of the 2003 Restructuring and 2004 Restructuring obligations. We will continue to accrete our obligations related to the 2003 Restructuring and 2004 Restructuring to the then-present value and, accordingly, will recognize additional accretion expense as a restructuring and related expense in future periods.

The total restructuring charge and related cash outlay are based on management's current estimates, which may change materially if further consolidations are required or if actual lease-related expenditures or sublease income differ from amounts currently expected. We will review the status of our restructuring obligations quarterly and, if appropriate, record changes to our restructuring obligations in current operations based on management's most current estimates. Please refer to Note 2 to the accompanying consolidated financial statements for a further discussion of the Restructurings.

On April 20, 2004, we acquired Eontec Limited, a global provider of multichannel retail banking solutions. We believe that Eontec's technology and certain products and functionality under development by Eontec at the time of acquisition will enhance our current offerings in the retail banking market. The technology being developed by Eontec at the time of our acquisition, which is commonly referred to as IPR&D, primarily related to Eontec's Internet banking and teller products. We estimated the fair value of the IPR&D acquired in our acquisition of Eontec to be $6.0 million. Because the IPR&D had not yet reached technological feasibility and had no alternative future use, we reflected a $6.0 million expense under the heading "purchased in-process product development" in the accompanying statements of operations for 2004.

At the date of our acquisition of Eontec, we estimated that the IPR&D relating to the Internet banking and teller products were approximately 25% and 75% complete, respectively, and we expected to incur up to an additional $2.5 million to complete this development. We completed the teller product in late 2004 and expect to complete the Internet banking product in early 2005. We estimated the fair value of the IPR&D using the "income" valuation approach and a discount rate of 25%. The discount rate was selected based in part on our weighted average cost of capital and determined after consideration of our rate of return on debt capital and equity, the weighted average return on invested capital and the risk associated with achieving forecasted cash flows.

During 2003 we made selective acquisitions of certain assets (primarily object and source code and other intellectual property) in order to accelerate the development of selected projects in our product pipeline. As described further below, because this technology had not yet reached technological feasibility and had no alternative future use, we considered the technology to be IPR&D. We have reflected an aggregate charge of $5.3 million under the heading "purchased in-process product development" in the accompanying statement of operations for 2003.

Specifically, in order to further expand our entrance into the analytics market, we entered into a worldwide, royalty-free perpetual license to certain technologies and intellectual property rights owned by a third-party provider of analytic software solutions. The license fee for this technology was approximately $3.5 million. Because the technology obtained in this license had no alternative future use, we have reflected a charge of $3.5 million related to this IPR&D in purchased in-process product development expense during 2003. We completed the development of the IPR&D during the second half of 2004 with the introduction of new enterprise analytic applications organized into four main application areas—customer analytics, financial analytics, workforce/employee performance management analytics and supply chain and supplier analytics. These customer and business intelligence solutions enable organizations to gain new levels of actionable intelligence across multiple business functions. We estimate that we incurred an additional $2.6 million in development of this IPR&D.

In October 2003, we acquired certain assets (primarily intellectual property) of Motiva, Inc. ("Motiva"), a provider of enterprise incentive management ("EIM") software. We believe that Motiva's technology and the next generation of Motiva's technology (under development by Motiva at the time of acquisition) will enable users of our Siebel Incentive Compensation product to handle a broader variety of compensation plans with greater flexibility and increased performance. The technology under development by Motiva was approximately 25% complete at the time of our acquisition. Because a portion of the technology acquired from Motiva had not yet reached technological feasibility and had no alternative future uses, we have reflected a charge of $1.5 million related to this IPR&D in purchased in-process product development expense during 2003. We determined the fair value of the IPR&D based on the anticipated net cash flows from the anticipated future products, discounted using a risk adjusted discount rate of 30%. During the second half of 2004, we completed the development of the IPR&D with the introduction of the latest version of Siebel Incentive Compensation. We estimate that we incurred an additional $2.1 million to complete the development of this IPR&D.

In calculating the value of amounts assigned to IPR&D for all of our completed acquisitions during 2003 and 2004, we also considered the relevant market sizes and growth factors of the technologies, our intended use of the products, expected industry trends, the anticipated nature and timing of new product introductions by us and our competitors, individual product sales cycles, and the estimated lives of each of the products' underlying technology. We also gave consideration to the technologies' stage of completion, the complexity of the work completed to date, the difficulty of completing the remaining development, costs already incurred, and the expected cost to complete the project. The value assigned reflects the relative value and contribution of the IPR&D.

                                           Year Ended December 31,              Year-Over-Year Change
                                     -----------------------------------  ----------------------------------
                                       2002        2003        2004         2002 to 2003      2003 to 2004
                                     ----------  ----------  -----------  ----------------  ----------------
Operating income (loss)............  $(98,627)   $(37,355)   $128,821     $  61,272   62%   $166,176   445%
Operating margin...................        (6)%        (3)%        10%

                                                                                      Year Ended December 31,
                                                                              ---------------------------------------
                                                                                 2002          2003          2004
                                                                              -----------   -----------   -----------
   Restructurings...........................................................  $  202,398    $  102,310    $    6,789
   Purchased in-process product development.................................          --         5,312         6,000
   Option Repurchase........................................................      54,879            --            --
   Write-off of acquired technology.........................................          --         2,449            --
                                                                              -----------   -----------   -----------
        Impact on operating income (loss)...................................  $  257,277    $  110,071    $   12,789
                                                                              ===========   ===========   ===========

                                                                  Year Ended December 31,
                                                            ----------------------------------
                                                               2002        2003        2004
                                                            ----------  ----------  ----------  
Interest income............................................ $  58,348   $  52,052   $  48,601
Interest expense...........................................   (20,016)    (14,927)     (1,019)
Loss on early extinguishment of debt.......................        --     (10,711)         --
Net gains on marketable investments........................    12,420       6,737       2,686
Write-down of cost-method investments......................    (9,990)     (3,350)     (2,819)
Other, net.................................................    (2,287)     (1,368)       (703)
                                                            ----------  ----------  ----------
                                                            $  38,475   $  28,433   $  46,746
                                                            ==========  ==========  ==========

We derive our liquidity and capital resources primarily from our cash flows from operations and from our working capital. Our working capital increased from $1,659.1 million as of December 31, 2003 to $1,866.9 million as of December 31, 2004, primarily due to our positive earnings during 2004. With virtually no debt and a strong working capital position, we believe that we have the flexibility to continue to invest in further development of our technology and, when necessary or appropriate, make selective acquisitions to continue to strengthen our product portfolio.

                                                                                   Payments Due by Year
                                                                ------------------------------------------------------
                                                                             2006 to    2008 to   2010 and
Contractual Obligations                                             2005       2007      2009      Beyond     Total
- --------------------------------------------------------------- ----------- --------- ---------- --------- -----------
Operating lease obligations (1)................................ $   67,526  $121,747  $ 120,515  $294,048  $  603,836
Capital lease obligations (2)..................................      6,500        --         --        --       6,500
Restructuring obligations (3)..................................     50,204    75,953     65,979   133,451     325,587
Other long-term liabilities reflected on the balance sheet (4).        256       114        243     1,572       2,185
Current liabilities reflected on the balance sheet (5).........    707,399        --         --        --     707,399
Other purchase obligations (6).................................     40,823    10,800        278        --      51,901
Acquisition-related obligations (7)............................    159,229    37,500         --        --     196,729
                                                                ----------- ---------  --------- --------- -----------
      Total fixed commitments.................................. $1,031,937  $246,114  $ 187,015  $429,071  $1,894,137
                                                                =========== ========= ========== ========= ===========

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and the application of GAAP requires management to make estimates that affect our reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In many instances, we could have reasonably used different accounting estimates. In other instances, changes in the accounting estimates from period to period are reasonably likely to occur. Accordingly, actual results could differ significantly from the estimates made by management. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation of our financial condition or results of operations may be affected.

                                                                 Shares                    Wtd. Avg.
                                                               Available    Number of      Exercise
                                                               for Grant     Options    Price per Share
                                                              ------------ ------------ --------------- 
   Balances as of December 31, 2003.......................... 192,295,796  143,902,815   $       13.20
     Issuances of restricted stock units, net................    (425,000)          --
     Options granted to employees............................  (8,507,550)   8,507,550   $        9.85
     Options granted to officers and directors...............  (3,487,000)   3,487,000   $       10.86
     Options exercised.......................................          --   (7,042,637)  $        5.19
     Options canceled upon termination.......................  16,066,099  (16,142,596)  $       17.80
                                                              ------------ ------------ ---------------
   Balances as of December 31, 2004.......................... 195,942,345  132,712,132   $       12.78
                                                              ============ ============

                                       Options Outstanding                    Options Exercisable
                         ------------------------------------------------  --------------------------
                                            Wtd. Avg.        Wtd. Avg.                     Wtd. Avg.
                            Number          Remaining         Exercise        Number       Exercise
  Options                  of Shares      Life (Years)         Price        of Shares       Price
- -----------------------  -------------    -------------  ----------------  ------------ -------------
In-the-money               74,181,203              3.3    $         5.56    54,632,084   $      4.45
Out-of-the-money           58,530,929              6.0    $        21.93    39,634,781   $     23.04
                         -------------    -------------  ----------------  ------------ -------------
                          132,712,132              4.5    $        12.78    94,266,865   $     12.27
                         =============                                     ============

                                                                                          Year Ended December 31,
                                                                                  -------------------------------------
                                                                                     2002         2003         2004
                                                                                  -----------  ---------- -------------
Net options granted:                                                          
Stock options granted.........................................................         5,887      22,787       11,995
Stock options forfeited upon termination......................................       (28,910)    (27,660)     (16,143)
                                                                                  ------------ ----------- ------------
      Net granted (forfeited).................................................       (23,023)     (4,873)      (4,148)
                                                                                  ============ =========== ============
Dilution percentage (1).......................................................            (5)%        (1)%         (1)%
                                                                                  ============ =========== ============
Option overhang (2)...........................................................            38 %        29 %         26 %
                                                                                  ============ =========== ============

                                                                                          Year Ended December 31,
                                                                                   ------------------------------------
                                                                                      2002        2003         2004
                                                                                   ----------- ----------- ------------
Grants during the period as a percentage of total granted:
  Named Executive Officers....................................................           3.4 %       4.6 %       23.3 %
  All other officers and directors as a group.................................           0.3         3.3          5.7
                                                                                   ----------- ----------- ------------
    Total for all officers and directors......................................           3.7         7.9         29.0
  All other employees as a group..............................................          96.3        92.1         71.0
                                                                                   ----------- ----------- ------------
    Total all grants..........................................................         100.0 %     100.0 %      100.0 %
                                                                                   =========== =========== ============

                                                                                         Year Ended December 31,
                                                                                  -------------------------------------
                                                                                      2002         2003        2004
                                                                                  ------------ ----------- ------------
Net income (loss):                                                                                                       
As reported...................................................................    $   (38,807) $   (5,191) $   110,668
                                                                                  ------------ ----------- ------------  
Compensation expense related to:
  Stock options dilutive to stockholders:                                                                                
   Stock-based compensation accounted for under APB 25........................          4,126       1,640        2,902
   In-the-money stock options and restricted stock units......................        (27,197)    (31,552)     (23,067)
   Stock purchase rights under the Purchase Plan..............................        (23,087)     (5,591)     (10,422)
                                                                                  ------------ ----------- ------------
      Subtotal................................................................        (46,158)    (35,503)     (30,587)
                                                                                  ------------ ----------- ------------
  Stock options not dilutive to stockholders:                                                                            
   Out-of-the-money stock options.............................................       (170,007)   (125,412)    (135,195)
   Stock options cancelled for no consideration...............................       (110,553)   (251,821)          --
   Stock options forfeited in connection with terminations....................       (124,155)    (36,328)      (3,562)
   Stock options repurchased on September 30, 2002............................       (595,297)         --           --
                                                                                  ------------ ----------- ------------
      Subtotal................................................................     (1,000,012)   (413,561)    (138,757)
                                                                                  ------------ ----------- ------------
      Total pro forma expense giving effect to SFAS 123.......................     (1,046,170)   (449,064)    (169,344)
                                                                                  ------------ ----------- ------------  
  Tax benefit related to SFAS 123 expense.....................................             --          --        7,519
                                                                                  ------------ ----------- ------------ 
  Pro forma net loss giving effect to SFAS 123................................    $(1,084,977) $ (454,255) $   (51,157)
                                                                                  ============ =========== ============

                                                                                         Potential Realizable Value
                           Number of       Percent of                                    at Assumed Annual Rates of
                          Securities      Total Options                                   Stock Price Appreciation      Aggregate
                          Underlying       Granted to       Exercise or                   for the Option Term (5)     Black-Scholes
                            Options         Employees        Base Price     Expiration  ----------------------------  Value on Date
Officer Name                Granted        in 2004 (3)     ($/Share) (4)       Date           5%             10%      of Grant (6)
- -----------------------  -------------    -------------- ----------------  ------------ -------------  ------------- --------------
Thomas M. Siebel                   --               -- %  $           --            --   $        --    $        --   $        --
J. Michael Lawrie (7)       2,000,000 (1)        16.67 %  $        10.38    05/04/2010   $ 7,060,385    $16,017,606   $ 7,503,600
R. David Schmaier             100,000 (1)         0.83 %  $        10.38    05/04/2010   $   353,019    $   800,880   $   361,500
Kenneth A. Goldman            100,000 (1)         0.83 %  $        10.38    05/04/2010   $   353,019    $   800,880   $   361,500
Edward Y. Abbo                100,000 (1)         0.83 %  $        10.38    05/04/2010   $   353,019    $   800,880   $   361,500
Neil M. Weston                500,000 (2)         4.17 %  $        13.95    02/08/2010   $ 2,372,167    $ 5,381,638   $ 2,406,050

                                                                                           Year Ended December 31,
                                                                                   -------------------------------------
                                                                                       2002        2003         2004
                                                                                   ------------ ----------- ------------
Stock options held by Named Executive Officers as a percentage of:                                                       
  Total options outstanding...................................................           29.3 %      18.7 %       20.9 %
                                                                                   ============ =========== ============
  Outstanding shares of common stock..........................................           11.2 %       5.4 %        5.5 %
                                                                                   ============ =========== ============

                                                                    Number of
                                                               Securities Underlying          Value of Unexercised
                                                               Unexercised Options at        In-the-Money Options at
                            Shares                             December 31, 2004 (2)          December 31, 2004 (3)
                          Acquired on        Value         -----------------------------  -----------------------------
Officer Name               Exercise       Realized (1)      Exercisable   Unexercisable    Exercisable   Unexercisable
- -----------------------  -------------   --------------    -------------  -------------   -------------  -------------- 
Thomas M. Siebel                   --    $          --        18,686,134            --    $142,061,158    $        --
J. Michael Lawrie (4)              --    $          --                --     2,000,000    $         --    $    80,000
R. David Schmaier             292,856    $   2,585,732         1,855,718       874,286    $  3,306,298    $   519,871
Kenneth A. Goldman                 --    $          --         2,075,000       895,000    $    132,000    $   312,000
Edward Y. Abbo                146,200    $   1,405,919           535,000       375,000    $  1,620,713    $   312,000
Neil M. Weston                     --    $          --            75,000       425,000    $         --    $        --

                                                                     Number of Shares
                                        Number of      Weighted    Remaining Available
                                      Shares to Be     Average          for Future
                                       Issued Upon     Exercise       Issuance Under
                                       Exercise of     Price of    Equity Compensation
                                       Outstanding   Outstanding     Plans (Excluding
           Plan Category                 Options       Options     Options Outstanding)
- ------------------------------------  -------------  ------------  --------------------
 Equity compensation plans:
   Approved by stockholders (1).....    51,510,393   $      7.47            78,875,628
   Not approved by stockholders (2).    80,351,479   $     16.22           128,391,710
   Acquired companies' plans (3)....       850,260   $      9.15                    --
                                      -------------  ------------  --------------------
                                       132,712,132   $     12.78           207,267,338
                                      =============                ====================

                                             Contract Amount   Contract        Fair
                                             (Local Currency)   Amount     Value (US$)
                                             ----------------  ---------  -------------
Australian dollars ("AUD") (contracts
  to pay AUD/receive US$)...................      (AUD) 8,283   US$6,148  $       (283)

Brazilian real ("BRL") (contracts to
  pay BRL/receive US$)......................     (BRL) 29,712  US$10,004  $       (654)

British pounds ("GBP") (contracts to
  pay GBP/receive EUR)......................      (GBP) 4,247  EUR 6,437  $        649

Canadian dollars ("CAD") (contracts to
  pay CAD/receive US$)......................      (CAD) 2,665   US$2,110  $         26

Japanese yen ("JPY") (contracts to
  pay JPY/receive US$)......................  (JPY) 1,366,116  US$13,065  $       (253)

Korea won ("KRW") (contracts to
  pay KRW/receive US$)......................    (KRW) 736,389     US$687  $         19

Mexican pesos ("MXN") (contracts
  to pay MXN/receive US$)...................     (MXN) 11,877   US$1,010  $        (22)

Singapore dollars ("SGD") (contracts
  to pay SGD/receive US$)...................      (SGD) 4,272   US$2,612  $          8

Czech Republic koruna ("CZK") (contracts
  to receive CZK/pay EUR)...................     (CZK) 14,345    EUR 417  $         54

Euros ("EUR") (contracts to receive
  EUR/pay US$)..............................    (EUR) 222,504 US$286,523  $     16,544

Swedish krona ("SEK") (contracts to
  receive SEK/pay EUR)......................     (SEK) 15,375  EUR 1,704  $         13

Swiss francs ("CHF") (contracts to
  receive CHF/pay EUR)......................      (CHF) 7,253  EUR 4,733  $        (35)

                                                                 Expected Maturity Date
                                           -----------------------------------------------------------------------------
                                             2005       2006       2007       2008       2009    Thereafter     Total
                                           ---------  ---------  ---------  ---------  --------  ----------  -----------
U.S. Treasury and Agency securities....... $162,014   $172,763    $55,681     $5,887    $5,982     $    --     $402,327
  Weighted average yield..................     2.74%      3.07%      3.19%      3.21%     3.74%

Corporate bonds...........................  159,679    244,982    225,545     65,063    82,168      36,895      814,332
  Weighted average yield..................     2.95%      3.13%      3.40%      3.64%     4.02%       2.36%

Asset-backed securities...................  120,672    218,141     96,985     29,069     4,585          --      469,452
  Weighted average yield..................     3.01%      3.28%      3.49%      3.87%     4.07%
                                           ---------  ---------  ---------  ---------  --------  ----------  -----------
Total short-term investments.............. $442,365   $635,886   $378,211   $100,019   $92,735     $36,895   $1,686,111
                                           =========  =========  =========  =========  ========  ==========  ===========

                                                                             December 31,
                                                                      ---------------------------
                                                                          2003          2004
                                                                      ------------- -------------
Assets

Current assets:
   Cash and cash equivalents......................................... $    546,542  $    560,377
   Short-term investments............................................    1,476,664     1,686,111
                                                                      ------------- -------------
          Total cash, cash equivalents and short-term investments....    2,023,206     2,246,488

   Accounts receivable, net..........................................      259,834       293,527
   Deferred income taxes.............................................       11,973        17,542
   Prepaids and other................................................       52,186        53,894
                                                                      ------------- -------------
          Total current assets.......................................    2,347,199     2,611,451

Property and equipment, net..........................................      157,391        83,908
Goodwill.............................................................      140,957       208,306
Intangible assets, net...............................................       10,786        23,004
Other assets.........................................................       42,406        36,937
Deferred income taxes................................................      151,788       123,828
                                                                      ------------- -------------
          Total assets............................................... $  2,850,527  $  3,087,434
                                                                      ============= =============

Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable.................................................. $     18,907  $     10,048
   Accrued expenses..................................................      333,270       346,672
   Restructuring obligations.........................................       53,676        30,639
   Deferred revenue..................................................      282,217       357,223
                                                                      ------------- -------------
          Total current liabilities..................................      688,070       744,582

Restructuring obligations, less current portion......................       99,250        75,227
Other long-term liabilities..........................................       22,437        20,981
                                                                      ------------- -------------
          Total liabilities..........................................      809,757       840,790
                                                                      ------------- -------------

Commitments and contingencies

Stockholders' equity:
  Common stock; $0.001 par value; 2,000,000 shares authorized;
     498,305 and 508,953 shares issued and outstanding, respectively.          498           509
  Additional paid-in capital.........................................    1,550,834     1,635,652
  Deferred compensation..............................................       (1,479)       (2,993)
  Accumulated other comprehensive income.............................       58,650        70,541
  Retained earnings..................................................      432,267       542,935
                                                                      ------------- -------------
          Total stockholders' equity.................................    2,040,770     2,246,644
                                                                      ------------- -------------
          Total liabilities and stockholders' equity................. $  2,850,527  $  3,087,434
                                                                      ============= =============

                                                                      Year Ended December 31,
                                                             --------------------------------------
                                                                 2002         2003         2004
                                                             ------------ ------------ ------------
Revenues:                                                                                          
    Software license........................................ $   700,344  $   482,274  $   487,127
    Professional services, maintenance and other............     934,963      871,954      852,666
                                                             ------------ ------------ ------------
        Total revenues......................................   1,635,307    1,354,228    1,339,793
                                                             ------------ ------------ ------------
Cost of revenues:
    Software license........................................      21,612       18,357       13,316
    Professional services, maintenance and other............     542,938      490,006      443,585
                                                             ------------  -----------  -----------
        Total cost of revenues..............................     564,550      508,363      456,901
                                                             ------------ ------------ ------------
        Gross margin........................................   1,070,757      845,865      882,892
                                                             ------------ ------------ ------------
Operating expenses:
    Product development.....................................     368,387      310,686      299,051
    Sales and marketing.....................................     478,816      358,318      337,690
    General and administrative..............................     119,783      106,594      104,541
    Restructuring and related expenses......................     202,398      102,310        6,789
    Purchased in-process product development................          --        5,312        6,000
                                                             ------------ ------------ ------------
        Total operating expenses............................   1,169,384      883,220      754,071
                                                             ------------ ------------ ------------
        Operating income (loss).............................     (98,627)     (37,355)     128,821
                                                             ------------ ------------ ------------

Other income, net:
    Interest and other income, net..........................      58,491       54,071       47,765
    Loss on early extinguishment of debt....................          --      (10,711)          --
    Interest expense........................................     (20,016)     (14,927)      (1,019)
                                                             ------------ ------------ ------------
        Total other income, net.............................      38,475       28,433       46,746
                                                             ------------ ------------ ------------
        Income (loss) before income taxes...................     (60,152)      (8,922)     175,567
Income tax provision (benefit)..............................     (21,345)      (3,731)      64,899
                                                             ------------ ------------ ------------
        Net income (loss)................................... $   (38,807) $    (5,191) $   110,668
                                                             ============ ============ ============

Diluted net income (loss) per share......................... $     (0.08) $     (0.01) $      0.20
                                                             ============ ============ ============
Basic net income (loss) per share........................... $     (0.08) $     (0.01) $      0.22
                                                             ============ ============ ============

Shares used in diluted share computation....................     475,617      491,961      540,530
                                                             ============ ============ ============
Shares used in basic share computation......................     475,617      491,961      505,044
                                                             ============ ============ ============
Comprehensive income (loss): 
      Net income (loss)..................................... $   (38,807) $    (5,191) $   110,668
      Other comprehensive income (loss), net of taxes:
        Foreign currency translation adjustments............      18,500       35,331       23,328
        Realized gain on marketable investments previously
          recognized in other comprehensive income..........      (7,452)      (4,042)      (1,612)
        Unrealized gain on investments......................      11,459       (1,320)      (9,825)
                                                             ------------ ------------ ------------
      Other comprehensive income (loss).....................      22,507       29,969       11,891
                                                             ------------ ------------ ------------
      Total comprehensive income (loss)..................... $   (16,300) $    24,778  $   122,559
                                                             ============ ============ ============

                                                                                                          Accumulated
                                                          Common Stock        Additional     Deferred       Other                       Total
                                                      ---------------------    Paid-in     Compensation  Comprehensive   Retained   Stockholders'
                                                       Shares      Amount      Capital      and Other    Income (Loss)   Earnings      Equity
                                                      ---------  ----------  ------------  ------------  -------------  ----------  -------------
Balances, December 31, 2001..........................  466,950   $     467   $ 1,357,422   $    (8,784)  $      6,174   $ 476,265   $  1,831,544
Stock option exercises...............................   10,651          11        63,547            --             --          --         63,558
Employee stock purchase plan issuances...............    3,109           3        29,363            --             --          --         29,366
Common stock issuance in connection with
  Option Repurchase..................................    5,473           5        31,466            --             --          --         31,471
Restricted stock issuances...........................      200          --         1,447        (1,447)            --          --             --
Repurchase of common stock subject to vesting........     (217)         --          (392)           --             --          --           (392)
Forfeiture of stock options issued below fair value..       --          --        (1,424)        1,424             --          --             --
Amortization of stock-based compensation, net........       --          --        (1,048)        5,174             --          --          4,126
Change in unrealized gain on marketable
  investments, net of taxes of  $2,671...............       --          --            --            --          4,007          --          4,007
Currency translation adjustment......................       --          --            --            --         18,500          --         18,500
Issuance of common stock in connection with
  acquisition earnouts...............................      262          --         6,231          (227)            --          --          6,004
Repayments of stockholder notes......................       --          --            --           422             --          --            422
Net loss.............................................       --          --            --            --             --     (38,807)       (38,807)
                                                      ---------  ----------  ------------  ------------  -------------  ----------  -------------
Balances, December 31, 2002..........................  486,428         486     1,486,612        (3,438)        28,681     437,458      1,949,799
Stock option exercises...............................   10,747          11        56,800            --             --          --         56,811
Employee stock purchase plan issuances...............      927           1         5,834            --             --          --          5,835
Contribution of leased facilities and other..........       --          --           246            --             --          --            246
Repurchase of common stock subject to vesting........       (4)         --            (9)           --             --          --             (9)
Forfeiture of stock options issued below fair value..       --          --          (282)          282             --          --             --
Amortization of stock-based compensation, net........       --          --           (37)        1,677             --          --          1,640
Change in unrealized gain on marketable
  investments, net of taxes of  ($3,574).............       --          --            --            --         (5,362)         --         (5,362)
Currency translation adjustment......................       --          --            --            --         35,331          --         35,331
Issuance of common stock in connection with
  acquisition earnouts...............................      207          --         1,670            --             --          --          1,670
Net loss.............................................       --          --            --            --             --      (5,191)        (5,191)
                                                      ---------  ----------  ------------  ------------  -------------  ----------  -------------
Balances, December 31, 2003..........................  498,305         498     1,550,834        (1,479)        58,650     432,267      2,040,770
Stock option exercises...............................    7,043           7        36,568            --             --          --         36,575
Employee stock purchase plan issuances...............    3,675           4        26,987            --             --          --         26,991
Contribution of leased facilities and other..........       --          --           261            --             --          --            261
Tax benefit from stock-based compensation............       --          --        16,586            --             --          --         16,586
Repurchase of common stock subject to vesting........      (70)         --            --            --             --          --             --
Issuance of stock-based compensation, net............       --          --         4,913        (4,913)            --          --             --
Forfeiture of stock options issued below fair value..       --          --          (497)          497             --          --             --
Amortization of stock-based compensation, net........       --          --            --         2,902             --          --          2,902
Change in unrealized gain on marketable
  investments, net of taxes of  ($7,349).............       --          --            --            --        (11,437)         --        (11,437)
Currency translation adjustment......................       --          --            --            --         23,328          --         23,328
Net income...........................................       --          --            --            --             --     110,668        110,668
                                                      ---------  ----------  ------------  ------------  -------------  ----------  -------------
Balances, December 31, 2004..........................  508,953   $     509   $ 1,635,652   $    (2,993)  $     70,541   $ 542,935   $  2,246,644
                                                      =========  ==========  ============  ============  =============  ==========  =============

                                                                                             Year Ended December 31,
                                                                                     ---------------------------------------
                                                                                         2002         2003         2004
                                                                                     ------------ ------------ -------------
Cash flows from operating activities:                                                                                        
   Net income (loss)...............................................................  $   (38,807) $    (5,191) $    110,668
   Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Write-off of property and equipment abandoned in the Restructurings..........       25,955       17,506         1,908
      Write-off of purchased in-process product development........................           --        5,312         6,000
      Write-off of acquired technology.............................................           --        2,449            --
      Loss on early extinguishment of debt.........................................           --       10,711            --
      Depreciation and other amortization..........................................      145,238      150,938       102,208
      Amortization of identifiable intangible assets...............................        8,646        6,295         9,921
      Stock-based compensation, net................................................        4,126        1,640         2,902
      Compensation expense related to common shares issued in Option Repurchase....       31,471           --            --
      Provision for (recovery of) doubtful accounts and sales returns..............       21,376        5,184        (3,509)
      Tax benefit from exercise of stock options...................................           --           --        16,586
      Deferred income taxes........................................................      (51,693)     (17,270)       32,252
      Write-down of cost-method investments to fair value..........................        9,990        3,350         2,819
      Net realized gains on marketable investments.................................      (12,420)      (6,737)       (2,686)
      Changes in operating assets and liabilities:
         Accounts receivable.......................................................       99,157       12,775       (27,713)
         Prepaids and other........................................................       20,865      (20,425)        2,876
         Accounts payable and accrued expenses.....................................      (16,035)      10,847         3,591
         Restructuring obligations.................................................      155,776        2,927       (49,175)
         Deferred revenue..........................................................       29,558        7,723        73,156
                                                                                     ------------ ------------ -------------
           Net cash provided by operating activities...............................      433,203      188,034       281,804
                                                                                     ------------ ------------ -------------
Cash flows from investing activities:
   Purchases of short-term investments.............................................   (2,352,660)  (2,033,036)   (1,847,545)
   Sales and maturities of short-term investments..................................    1,718,362    2,037,334     1,604,183
   Purchase of marketable equity securities........................................       (1,000)          --            --
   Proceeds from sale of marketable equity securities..............................        1,189        5,593           505
   Purchases of property and equipment, net........................................      (70,809)     (14,958)       (8,725)
   Purchase consideration paid for acquired businesses, net of cash received.......         (500)     (62,574)      (77,306)
   Other non-operating assets and non-marketable securities........................        7,991         (519)           --
                                                                                     ------------ ------------ -------------
           Net cash used in investing activities...................................     (697,427)     (68,160)     (328,888)
                                                                                     ------------ ------------ -------------
Cash flows from financing activities:
   Proceeds from issuance of common stock, net of repurchases......................       92,532       62,636        63,566
   Repurchase of convertible subordinated debentures...............................           --     (307,080)           --
   Repayments of capital lease obligations.........................................       (8,714)     (12,766)      (11,887)
   Proceeds from equipment financing...............................................       24,873           --            --
   Repayments of stockholder notes.................................................          422           --            --
                                                                                     ------------ ------------ -------------
           Net cash provided by (used in) financing activities.....................      109,113     (257,210)       51,679
                                                                                     ------------ ------------ -------------
Effect of exchange rate fluctuations...............................................       18,532       26,367         9,240
                                                                                     ------------ ------------ -------------
Change in cash and cash equivalents................................................     (136,579)    (110,969)       13,835
Cash and cash equivalents, beginning of period.....................................      794,090      657,511       546,542
                                                                                     ------------ ------------ -------------
Cash and cash equivalents, end of period...........................................  $   657,511  $   546,542  $    560,377
                                                                                     ============ ============ =============

Supplemental disclosures of cash flows information:
   Cash paid for interest..........................................................  $    18,455  $    18,807  $      1,039
                                                                                     ============ ============ =============

   Cash paid for income taxes......................................................  $    36,692  $    12,912  $     10,795
                                                                                     ============ ============ =============
Supplemental disclosures of non-cash activities:
   Purchase price payable to acquired companies....................................  $     1,607  $        --  $         --
                                                                                     ============ ============ =============
   Common stock and stock options issued for acquisitions..........................  $     6,004  $        --  $         --
                                                                                     ============ ============ =============

                                                                                         Year Ended December 31,
                                                                                  -------------------------------------
                                                                                     2002         2003        2004
                                                                                  ------------ ----------- ------------
Net income (loss):                                                                                                       
As reported...................................................................    $   (38,807) $   (5,191) $   110,668
                                                                                  ------------ ----------- ------------  
Compensation expense related to:
  Stock options dilutive to stockholders:                                                                                
   Stock-based compensation accounted for under APB 25........................          4,126       1,640        2,902
   In-the-money stock options and restricted stock units......................        (27,197)    (31,552)     (23,067)
   Stock purchase rights under the Purchase Plan..............................        (23,087)     (5,591)     (10,422)
                                                                                  ------------ ----------- ------------
      Subtotal................................................................        (46,158)    (35,503)     (30,587)
                                                                                  ------------ ----------- ------------
  Stock options not dilutive to stockholders:                                                                            
   Out-of-the-money stock options.............................................       (170,007)   (125,412)    (135,195)
   Stock options cancelled for no consideration...............................       (110,553)   (251,821)          --
   Stock options forfeited in connection with terminations....................       (124,155)    (36,328)      (3,562)
   Stock options repurchased on September 30, 2002............................       (595,297)         --           --
                                                                                  ------------ ----------- ------------
      Subtotal................................................................     (1,000,012)   (413,561)    (138,757)
                                                                                  ------------ ----------- ------------
      Total pro forma expense giving effect to SFAS 123.......................     (1,046,170)   (449,064)    (169,344)
                                                                                  ------------ ----------- ------------  
  Tax benefit related to SFAS 123 expense.....................................             --          --        7,519
                                                                                  ------------ ----------- ------------
  Pro forma net loss giving effect to SFAS 123................................    $(1,084,977) $ (454,255) $   (51,157)
                                                                                  ============ =========== ============

Diluted net income (loss) per share:                                                                                     
  As reported.................................................................    $     (0.08) $    (0.01) $      0.20
                                                                                  ============ =========== ============
  Pro forma giving effect to SFAS 123.........................................    $     (2.28) $    (0.92) $     (0.10)
                                                                                  ============ =========== ============

Basic net income (loss) per share:                                                                                       
  As reported.................................................................    $     (0.08) $    (0.01) $      0.22
                                                                                  ============ =========== ============
  Pro forma giving effect to SFAS 123.........................................    $     (2.28) $    (0.92) $     (0.10)
                                                                                  ============ =========== ============

                                                                                           Year Ended December 31,
                                                                                   -------------------------------------
                                                                                      2002         2003        2004
                                                                                   ------------ ----------- ------------
 Risk-free interest rate......................................................           1.99 %      1.78 %       3.00 %
 Expected life (in years).....................................................            3.4         3.1          3.4
 Expected volatility..........................................................             65 %        46 %         41 %

                                                                                           Year Ended December 31,
                                                                                   -------------------------------------
                                                                                      2002         2003        2004
                                                                                   ------------ ----------- ------------
 Risk-free interest rate..........................................................       1.23 %      1.05 %       1.40 %
 Expected life (in years).........................................................        0.5         0.6          0.5
 Expected volatility..............................................................         83 %        47 %         46 %

                                                               Employee       Facility-       Asset
                                                              Termination      Related     Abandonment
                                                               Costs (1)      Costs (2)      Costs (3)      Total
                                                             -------------  -------------  ------------  -----------
Restructuring obligations, July 1, 2002..................... $         --   $         --   $        --   $       --
Restructuring and related expenses recognized in 2002 (4)...       23,649        152,794        25,955      202,398
Cash payments...............................................      (19,714)        (5,088)           --      (24,802)
Reclass of deferred rent obligations (5)....................           --          4,135            --        4,135
Non-cash charges............................................           --             --       (25,955)     (25,955)
                                                             -------------  -------------  ------------  -----------
Restructuring obligations, December 31, 2002................        3,935        151,841            --      155,776
                                                             -------------  -------------  ------------  -----------
Restructuring and related expenses recognized in 2003:
  Recognized related to changes in estimates (6)............       (1,199)        15,524           566       14,891
  Recognized related to the 2003 Restructuring (7)..........       15,585         54,185        16,940       86,710
  Accretion related to the Restructurings (8)...............           --            709            --          709
                                                             -------------  -------------  ------------  -----------
     Total recognized in 2003...............................       14,386         70,418        17,506      102,310
Cash payments...............................................      (14,516)       (75,322)           --      (89,838)
Reclass of deferred rent obligations (5)....................           --          2,184            --        2,184
Non-cash charges............................................           --             --       (17,506)     (17,506)
                                                             -------------  -------------  ------------  -----------
Restructuring obligations, December 31, 2003................        3,805        149,121            --      152,926
                                                             -------------  -------------  ------------  -----------
Restructuring and related expenses recognized in 2004:
  Recognized related to changes in estimates (6)............       (1,465)           836           205         (424)
  Recognized related to the 2004 Restructuring (7)..........           --          3,397         1,703        5,100
  Accretion related to the Restructurings (8)...............           --          2,113            --        2,113
                                                             -------------  -------------  ------------  -----------
     Total recognized in 2004...............................       (1,465)         6,346         1,908        6,789
Cash payments...............................................       (2,075)       (49,866)           --      (51,941)
Non-cash charges............................................           --             --        (1,908)      (1,908)
                                                             -------------  -------------  ------------  -----------
Restructuring obligations, December 31, 2004................ $        265   $    105,601   $        --      105,866
                                                             =============  =============  ============
     Less: Restructuring obligations, short-term............                                                 30,639
                                                                                                         -----------
     Restructuring obligations, long-term...................                                             $   75,227
                                                                                                         ===========

                                                           Leases              Other         Estimated       Total
                                                           in the         Restructuring-     Sublease     Restructuring
              Year Ending December 31,                Restructuring (1)  Related Costs (2)   Income (3)   Obligations
- ----------------------------------------------------  -----------------  ----------------- ------------- --------------
2005................................................  $         37,855   $         12,349  $    (18,226) $      31,978
2006................................................            32,511              9,493       (19,603)        22,401
2007................................................            28,023              5,926       (20,287)        13,662
2008................................................            27,292              7,435       (18,771)        15,956
2009................................................            24,702              6,550       (17,655)        13,597
2010 and thereafter.................................           101,537             31,914      (116,923)        16,528
                                                      -----------------  ----------------- ------------- --------------
     Total restructuring obligations, gross.........  $        251,920   $         73,667  $   (211,465)       114,122
                                                      =================  ================= =============
     Future accretion (4)...........................                                                            (8,256)
                                                                                                         --------------
     Present value of minimum lease payments........                                                           105,866
     Less: restructuring obligations, short-term....                                                            30,639
                                                                                                         --------------
     Restructuring obligations, long-term portion...                                                     $      75,227
                                                                                                         ==============

Tangible assets:                                                             
   Cash and cash equivalents..............................  $          2,507
   Accounts receivable and other current assets...........             3,169
   Property and equipment.................................               473
   Other assets, long-term................................                88
                                                            -----------------
        Total tangible assets.............................             6,237
                                                            -----------------
Intangible assets:                                                           
   Identified intangibles.................................            17,300
   Acquired in-process research and development ("IPR&D").             6,000
   Goodwill...............................................            53,686
                                                            -----------------
        Total intangible assets...........................            76,986
                                                            -----------------
Liabilities assumed:                                                         
   Accounts payable and accrued liabilities...............            (5,648)
   Deferred revenue.......................................            (1,827)
   Deferred tax liability.................................            (2,162)
                                                            -----------------
        Total liabilities assumed.........................            (9,637)
                                                            -----------------
        Net assets acquired...............................  $         73,586
                                                            =================

                                                                                    Wtd. Avg.        Range of
                                                                                      Life            Lives
Intangible assets:                                               Amount            (in Years)       (in Years)
- ----------------------------------------------------------  -----------------    ---------------    ----------
Acquired technology.......................................  $         10,700          5.0               5
Customer relationships....................................             4,100          4.5            3 to 6
Customer contracts........................................             2,500          3.6            1 to 5
                                                            -----------------
        Total intangible assets...........................  $         17,300
                                                            =================

                                                                        December 31,
                                                            ------------------------------------
                                                                   2003               2004
                                                            -----------------  -----------------
Total revenues............................................  $      1,366,258   $      1,342,294
Net income (loss).........................................  $        (17,735)  $        103,337
Diluted net income (loss) per share.......................  $          (0.04)  $           0.19

Tangible assets:                                                             
   Cash and cash equivalents..............................  $             20
   Accounts receivable and other current assets...........               507
   Property and equipment.................................                40
   Other assets, long-term................................                 5
                                                            -----------------
        Total tangible assets.............................               572
                                                            -----------------
Intangible assets:                                                           
   Acquired technology....................................               500
   Customer relationships.................................             1,250
   Non-compete agreements.................................               750
   Goodwill...............................................             3,842
                                                            -----------------
        Total intangible assets...........................             6,342
                                                            -----------------
Liabilities assumed:                                                         
   Accounts payable and accrued liabilities...............            (1,006)
   Deferred revenue.......................................               (23)
   Deferred tax liability.................................            (1,000)
   Other liabilities, long-term...........................               (44)
                                                            -----------------
        Total liabilities assumed.........................            (2,073)
                                                            -----------------
        Net assets acquired...............................  $          4,841
                                                            =================

Tangible assets:                                                             
   Cash and cash equivalents..............................  $            578
   Accounts receivable and other current assets...........             2,094
   Property and equipment.................................               260
   Other assets, long-term................................               267
                                                            -----------------
        Total tangible assets.............................             3,199
                                                            -----------------
Intangible assets:                                                           
   Customer relationships.................................             6,700
   Acquired technology....................................             1,200
   Goodwill...............................................            58,387
                                                            -----------------
        Total intangible assets...........................            66,287
                                                            -----------------
Liabilities assumed:                                                         
   Accounts payable and other accrued liabilities.........            (9,707)
   Deferred revenue.......................................            (3,769)
   Other liabilities, long-term...........................               (26)
                                                            -----------------
        Total liabilities assumed.........................           (13,502)
                                                            -----------------
        Net assets acquired...............................  $         55,984
                                                            =================

                                                                          December 31,
                                                            ------------------------------------
                                                                    2002               2003
                                                            -----------------  -----------------
Total revenues............................................  $      1,639,836   $      1,359,145
Net loss..................................................  $        (50,334)  $        (14,015)
Diluted net loss per share................................  $          (0.11)  $          (0.03)

                                                                  December 31,
                                                             ----------------------
                                                                2003        2004
                                                             ----------  ----------
Balance as of beginning of the year......................... $  80,949   $ 140,957
Earnout payments to the stockholders of
   acquired companies.......................................       962       1,406
Goodwill obtained in acquisitions of businesses.............    59,034      57,528
Tax benefit related to acquistion related NOL carryforwards.        --      (1,261)
Foreign currency fluctuation and other......................        12       9,676
                                                             ----------  ----------
Balance as of the end of the year........................... $ 140,957   $ 208,306
                                                             ==========  ==========

                                                                                                    Wtd. Avg.
                                                              December 31,       December 31,          Life
                                                                 2003               2004            (in Years)
                                                            -----------------  -----------------    ----------
Gross assets:                                                                                                 
   Acquired technology....................................  $          9,977   $         14,103           4.6
   Customer relationships.................................             6,700             12,673           5.5
   Customer contracts.....................................                --              2,880           3.6
   Non-compete agreements.................................                --                750           2.0
                                                            -----------------  -----------------    ----------
      Intangible assets, gross............................            16,677             30,406           4.8
                                                            -----------------  -----------------              

Accumulated amortization:                                                                                     
   Acquired technology....................................            (5,549)            (2,696)
   Customer relationships.................................              (342)            (3,425)
   Customer contracts.....................................                --               (937)
   Non-compete agreements.................................                --               (344)
                                                            -----------------  -----------------
      Total accumulated amortization......................            (5,891)            (7,402)
                                                            -----------------  -----------------
        Intangible assets, net............................  $         10,786   $         23,004
                                                            =================  =================

Year Ending December 31,
- -----------------------------------------------------------           
2005....................................................... $   6,834
2006.......................................................     5,450
2007.......................................................     4,379
2008.......................................................     4,107
2009.......................................................     2,094
2010 and thereafter........................................       140
                                                            ----------
     Total................................................. $  23,004
                                                            ==========

   December 31, 2003:                                                         Unrealized
                                                                         ----------------------
                                                                Cost        Loss        Gain      Market
                                                             ----------- ----------- ---------- -----------
   Cash and cash equivalents:                                                                              
     Cash...............................................     $   39,911  $       --  $      --  $   39,911
     Certificates of deposit............................         16,505          --         --      16,505
     Money market funds.................................        432,050          --         --     432,050
     U.S. treasury and agency securities................         36,990          --         --      36,990
     Corporate notes....................................         15,132         (53)        --      15,079
     Asset-backed securities............................          6,002          --          5       6,007
                                                             ----------- ----------- ---------- -----------
                                                             $  546,590  $      (53) $       5  $  546,542
                                                             =========== =========== ========== ===========
   Short-term investments:                                                                                 
     U.S. treasury and agency securities................     $  384,085  $     (237) $   2,117  $  385,965
     Corporate notes....................................        696,271        (671)     7,405     703,005
     Asset-backed securities............................        386,409        (497)     1,782     387,694
                                                             ----------- ----------- ---------- -----------
                                                             $1,466,765  $   (1,405) $  11,304  $1,476,664
                                                             =========== =========== ========== ===========
                                                                                                           
   Marketable equity securities (in prepaids and other).     $       80  $       --  $      38  $      118
                                                             =========== =========== ========== ===========

   December 31, 2004:                                                         Unrealized
                                                                         ----------------------
                                                                Cost        Loss        Gain      Market
                                                             ----------- ----------- ---------- -----------
   Cash and cash equivalents:                                                                              
     Cash...............................................     $   36,996  $       --  $      --  $   36,996
     Certificates of deposit............................         20,610          --         --      20,610
     Money market funds.................................        474,980          --         --     474,980
     U.S. treasury and agency securities................          5,343          --          7       5,350
     Corporate notes....................................         18,499          (3)         2      18,498
     Asset-backed securities............................          3,941          --          2       3,943
                                                             ----------- ----------- ---------- -----------
                                                             $  560,369  $       (3) $      11  $  560,377
                                                             =========== =========== ========== ===========
   Short-term investments:                                                                                 
     U.S. treasury and agency securities................     $  404,747  $   (2,436) $      16  $  402,327
     Corporate notes....................................        818,583      (4,597)       346     814,332
     Asset-backed securities............................        472,005      (2,835)       282     469,452
                                                             ----------- ----------- ---------- -----------
                                                             $1,695,335  $   (9,868) $     644  $1,686,111
                                                             =========== =========== ========== ===========
                                                                                                           
   Marketable equity securities (in prepaids and other).     $      623  $       --  $     319  $      942
                                                             =========== =========== ========== ===========

                                                   Less than 12 Months   Greater than 12 Months           Total
                                                 ----------------------- -----------------------  ----------------------
                                                             Unrealized              Unrealized               Unrealized
                                                 Fair Value     Loss     Fair Value     Loss      Fair Value     Loss
                                                 ----------- ----------- ---------- ------------  ----------- ----------
U.S. treasury and agency securities............. $  371,971  $   (2,057) $  22,652  $      (379)  $  394,623  $  (2,436)
Corporate notes.................................    595,462      (4,187)    27,718         (413)     623,180     (4,600)
Asset-backed securities.........................    398,539      (2,728)    14,751         (107)     413,290     (2,835)
                                                 ----------- ----------- ---------- ------------  ----------- ----------
      Total..................................... $1,365,972  $   (8,972) $  65,121  $      (899)  $1,431,093  $  (9,871)
                                                 =========== =========== ========== ============  =========== ==========
Number of securities with an unrealized loss....                    397                      22                     419
                                                             ===========            ============              ==========

                                                                 Expected Maturity Date
                                           -----------------------------------------------------------------------------
                                             2005       2006       2007       2008       2009    Thereafter     Total
                                           ---------  ---------  ---------  ---------  --------  ----------  -----------
U.S. Treasury and Agency securities....... $162,014   $172,763    $55,681     $5,887    $5,982     $    --     $402,327
  Weighted average yield..................     2.74%      3.07%      3.19%      3.21%     3.74%

Corporate bonds...........................  159,679    244,982    225,545     65,063    82,168      36,895      814,332
  Weighted average yield..................     2.95%      3.13%      3.40%      3.64%     4.02%       2.36%

Asset-backed securities...................  120,672    218,141     96,985     29,069     4,585          --      469,452
  Weighted average yield..................     3.01%      3.28%      3.49%      3.87%     4.07%
                                           ---------  ---------  ---------  ---------  --------  ----------  -----------
Total short-term investments.............. $442,365   $635,886   $378,211   $100,019   $92,735     $36,895   $1,686,111
                                           =========  =========  =========  =========  ========  ==========  ===========

                                                                 December 31,
                                                            ----------------------
                                                               2003        2004
                                                            ----------  ----------   
Trade accounts receivable.................................. $ 300,501   $ 319,459
Less: allowance for doubtful accounts and sales returns....    40,667      25,932
                                                            ----------  ----------
                                                            $ 259,834   $ 293,527
                                                            ==========  ==========

                                                          Provision for
                                          Balance at      (Recovery of)                   Balance at
                                          Beginning     Doubtful Accounts                   End of
                                           of Year         and Returns       Deductions      Year
                                          -----------  -------------------  ------------  ----------
Year ended December 31, 2002............. $   46,671   $           21,376   $    21,934   $  46,113
Year ended December 31, 2003.............     46,113                5,184        10,630      40,667
Year ended December 31, 2004.............     40,667               (3,509)       11,226      25,932

                                                                 December 31,
                                                            ----------------------
                                                               2003        2004
                                                            ----------  ----------   
Computers and equipment.................................... $ 212,588   $ 210,388
Furniture and fixtures.....................................    68,492      61,996
Computer software..........................................    66,886      68,934
Computer equipment under capital lease.....................    40,192      40,192
Corporate aircraft.........................................     6,820       6,797
Leasehold improvements.....................................   125,557     129,569
Buildings and land.........................................       479          --
                                                            ----------  ----------
                                                              521,014     517,876
  Less: accumulated depreciation and amortization..........   363,623     433,968
                                                            ----------  ----------
                                                            $ 157,391   $  83,908
                                                            ==========  ==========

                                                                 December 31,
                                                            ----------------------
                                                               2003        2004
                                                            ----------  ----------   
Accrued compensation....................................... $ 119,758   $ 120,067
Taxes......................................................   109,657     125,310
Other......................................................   103,855     101,295
                                                            ----------  ----------
                                                            $ 333,270   $ 346,672
                                                            ==========  ==========

                                                                 December 31,
                                                            ----------------------
                                                               2003        2004
                                                            ----------  ----------  
Foreign currency translation adjustments................... $  52,550   $  75,878
Net unrealized gains (losses) on securities, net
   of taxes of $3,789 and ($3,560), respectively...........     6,100      (5,337)
                                                            ----------  ----------
                                                            $  58,650   $  70,541
                                                            ==========  ==========

                                                                 Year Ended December 31,
                                                            ----------------------------------
                                                               2002        2003        2004
                                                            ----------  ----------  ----------  
Interest income............................................ $  58,348   $  52,052   $  48,601
Interest expense...........................................   (20,016)    (14,927)     (1,019)
Loss on early extinguishment of debt.......................        --     (10,711)         --
Net gains on marketable investments........................    12,420       6,737       2,686
Write-down of cost-method investments......................    (9,990)     (3,350)     (2,819)
Other, net.................................................    (2,287)     (1,368)       (703)
                                                            ----------  ----------  ----------
                                                            $  38,475   $  28,433   $  46,746
                                                            ==========  ==========  ==========

                                                              Capital   Operating
Year Ending December 31,                                      Leases     Leases
- ----------------------------------------------------------- ----------  ----------
2005....................................................... $   6,500   $  67,526
2006.......................................................        --      61,498
2007.......................................................        --      60,249
2008.......................................................        --      60,285
2009.......................................................        --      60,230
2010 and thereafter........................................        --     294,048
                                                            ----------  ----------
     Total minimum lease payments..........................     6,500   $ 603,836
                                                                        ==========
     Amounts representing interest.........................      (212)
                                                            ----------
     Present value of minimum lease payments...............     6,288
     Less: capital lease obligations, short-term
        portion (included in accrued expenses).............     6,288
                                                            ----------
     Capital lease obligations, long-term portion
        (included in other long-term liabilities).......... $      --
                                                            ==========

                                                                 Shares                    Wtd. Avg.
                                                               Available    Number of      Exercise
                                                               for Grant     Options    Price per Share
                                                              ------------ ------------ --------------- 
   Balances as of December 31, 2001.......................... 117,178,547  247,203,762   $       23.81
     Options granted to employees............................  (5,667,300)   5,667,300   $       20.62
     Options granted to officers and directors...............    (220,000)     220,000   $        6.20
     Options exercised.......................................          --  (10,650,943)  $        5.97
     Options cancelled upon termination......................  28,012,567  (28,910,626)  $       32.84
     Options repurchased.....................................  22,203,279  (28,056,712)  $       62.81
                                                              ------------ ------------ ---------------
   Balances as of December 31, 2002.......................... 161,507,093  185,472,781   $       17.42
     Options granted to employees............................ (20,987,275)  20,987,275   $        9.20
     Options granted to officers and directors...............  (1,800,000)   1,800,000   $        8.63
     Options exercised.......................................          --  (10,746,800)  $        5.29
     Options cancelled upon termination......................  27,625,978  (27,660,441)  $       20.95
     Options cancelled by the Company's then-CEO.............  25,950,000  (25,950,000)  $       34.63
                                                              ------------ ------------ ---------------
   Balances as of December 31, 2003.......................... 192,295,796  143,902,815   $       13.20
     Issuances of restricted stock units, net................    (425,000)          --
     Options granted to employees............................  (8,507,550)   8,507,550   $        9.85
     Options granted to officers and directors...............  (3,487,000)   3,487,000   $       10.86
     Options exercised.......................................          --   (7,042,637)  $        5.19
     Options cancelled upon termination......................  16,066,099  (16,142,596)  $       17.80
                                                              ------------ ------------ ---------------
   Balances as of December 31, 2004.......................... 195,942,345  132,712,132   $       12.78
                                                              ============ ============

                                        Options Outstanding                   Options Exercisable
                         ------------------------------------------------  ---------------------------
                                            Wtd. Avg.        Wtd. Avg.                     Wtd. Avg.
       Range of             Number          Remaining        Exercise         Number       Exercise
    Exercise Prices        of Shares       Life (Years)        Price        of Shares       Price
- -----------------------  -------------    -------------  ----------------  ------------ --------------
      $0.01  -    2.50     13,429,080              1.2    $         0.36    12,951,844   $       0.37
      $2.51  -    5.00     18,054,429              2.6    $         3.70    17,928,857   $       3.69
      $5.01  -   10.48     42,697,694              4.2    $         7.98    23,751,383   $       7.25
     $10.49  -   15.00      6,686,098              4.5    $        13.01     3,574,680   $      12.89
     $15.01  -   20.00     32,773,030              6.4    $        17.53    20,462,637   $      17.48
     $20.01  -   25.00      7,555,005              5.9    $        23.38     6,548,616   $      23.61
     $25.01  -   40.00      8,872,723              5.6    $        32.99     6,760,393   $      33.25
     $40.01  -   60.00      1,544,800              5.3    $        46.32     1,382,082   $      46.01
     $60.01  -   80.00      1,032,655              5.4    $        72.37       855,775   $      72.20
     $80.01  -  109.05         66,618              4.9    $        91.95        50,598   $      91.35
- -----------------------  -------------    -------------  ----------------  ------------ --------------
      $0.01  -  109.05    132,712,132              4.5    $        12.78    94,266,865   $      12.27
                         =============                                     ============

                                                                                           Year Ended December 31,
                                                                                   ------------------------------------
                                                                                      2002         2003        2004
                                                                                   -----------  ----------  -----------  
Shares used in basic net income (loss) per share computation..................        475,617     491,961      505,044
Effect of dilutive potential common shares resulting from
   stock options .............................................................             --          --       35,440
Effect of dilutive potential common shares resulting from restricted
   stock units and common stock subject to repurchase.........................             --          --           46
                                                                                   -----------  ----------  -----------
Shares used in diluted net income (loss) per share computation................        475,617     491,961      540,530
                                                                                   ===========  ==========  ===========

                                                                                           Year Ended December 31,
                                                                                   ------------------------------------
                                                                                      2002         2003        2004
                                                                                   -----------  ----------  -----------  
Stock options excluded due to the exercise price exceeding the average
  fair value of the Company's common stock during the period..................         99,537      68,466       58,531
Weighted average stock options and restricted stock, calculated using
  the treasury stock method, that were excluded due to the Company
  reporting a net loss during the period......................................         40,397      36,484           --
Weighted average shares issuable upon conversion of the convertible
  subordinated debentures.....................................................         12,867          --           --
                                                                                   -----------  ----------  -----------
Total common stock equivalents excluded from diluted net income
  (loss) per share computation................................................        152,801     104,950       58,531
                                                                                   ===========  ==========  ===========

                                                                      December 31,
                                                            --------------------------------
                                                               2002       2003       2004
                                                            ---------- ---------- ----------
 Current:                                                                                   
   Federal................................................. $   9,322  $   5,297  $  14,068
   State...................................................     1,772      1,198      6,113
   Foreign.................................................    19,254      7,044     12,466
                                                            ---------- ---------- ----------
     Total current.........................................    30,348     13,539     32,647
                                                            ---------- ---------- ----------
 Deferred:                                                                                  
   Federal.................................................   (33,695)    (7,791)    30,256
   State...................................................   (12,859)    (9,376)     3,776
   Foreign.................................................    (5,139)      (103)    (1,780)
                                                            ---------- ---------- ----------
     Total deferred........................................   (51,693)   (17,270)    32,252
                                                            ---------- ---------- ----------
     Total income tax expense (benefit).................... $ (21,345) $  (3,731) $  64,899
                                                            ========== ========== ==========

                                                                        December 31,
                                                             --------------------------------
                                                               2002       2003       2004
                                                             ---------- ---------- ----------
  Expected income tax expense (benefit)....................     (35.0)%    (35.0)%     35.0 %
  State income taxes (benefit), net of federal tax benefit.     (11.3)%    (45.2)%      4.9 %
  Research and development credit..........................      (3.4)%    (24.0)%     (1.1)%
  Deferred compensation....................................       1.9 %      4.4 %       -- %
  Non-deductible expenses..................................       0.4 %      0.9 %      2.0 %
  Meals and entertainment..................................       3.2 %     12.2 %      0.8 %
  Foreign rate differential................................       7.6 %     45.2 %     (7.3)%
  Purchased in-process product development.................        -- %       -- %      1.2 %
  Other, net...............................................       1.1 %     (0.3)%      1.5 %
                                                             ---------- ---------- ----------
    Total income tax expense (benefit).....................     (35.5)%    (41.8)%     37.0 %
                                                             ========== ========== ==========

                                                                 December 31,
                                                            ---------------------
                                                               2003       2004
                                                            ---------- ----------
 Deferred tax assets:                                                            
   Allowance for doubtful accounts and returns............. $  12,633  $   6,681
   Accruals and reserves, not currently deducted
     for tax purposes......................................    87,241     66,497
   Tax credit carryforwards................................   109,591    114,705
   Net operating loss carryforwards........................   602,101    592,821
   Depreciation and amortization...........................    41,462     48,007
   Unrealized loss on investments..........................        --      3,559
   Other...................................................     5,036     10,256
                                                            ---------- ----------
     Deferred tax assets...................................   858,064    842,526
                                                            ---------- ---------- 
 Deferred tax liabilities:                                                        
   Unrealized gain on investments..........................    (2,306)        --
                                                            ---------- ----------
     Deferred tax liabilities..............................    (2,306)        --
                                                            ---------- ----------
 Valuation allowance.......................................  (691,997)  (701,156)
                                                            ---------- ----------

       Net deferred tax assets............................. $ 163,761  $ 141,370
                                                            ========== ==========

                                         Year Ended December 31,
                                   -----------------------------------
                                      2002        2003        2004
                                   ----------- ----------- -----------
         United States............ $1,016,109  $  787,704  $  785,844
         Europe...................    459,985     418,129     444,315
         Asia Pacific.............     89,429     104,126      77,209
         Canada and Latin America.     69,784      44,269      32,425
                                   ----------- ----------- -----------
                                   $1,635,307  $1,354,228  $1,339,793
                                   =========== =========== ===========

                                           Year Ended December 31,
                                           -----------------------
                                              2003        2004
                                           ----------  -----------
Sales, marketing and service automation... $ 384,222    $ 348,550
Customer and business analytics...........    77,291      111,626
Customer data integration.................    20,761       26,951
                                           ----------  -----------
        Total............................. $ 482,274    $ 487,127
                                           ==========  ===========

                                                                       Year Ended December 31,
                                                                ------------------------------------
                                                                   2002         2003        2004
                                                                -----------  ----------  -----------
Professional services, maintenance and other revenues:                                              
  Maintenance.................................................. $  422,502   $ 449,345   $  469,751
  Professional services and other..............................    512,461     422,609      382,915
                                                                -----------  ----------  -----------
      Total.................................................... $  934,963   $ 871,954   $  852,666
                                                                ===========  ==========  ===========

                                                       First    Second     Third    Fourth
                                                      Quarter   Quarter   Quarter   Quarter
                                                     --------- --------- --------- ---------
  2003:                                                                                      
  Total revenues.................................... $332,755  $333,299  $321,432  $366,742
  Gross margin .....................................  201,962   202,359   194,407   247,137
  Net income (loss) (1).............................    3,768     9,009   (58,701)   40,733
  Diluted net income (loss) per share (2)...........     0.01      0.02     (0.12)     0.07
  Basic net income (loss) per share (2).............     0.01      0.02     (0.12)     0.08


  2004:                                                                                      
  Total revenues.................................... $329,287  $301,059  $317,086  $392,361
  Gross margin (3)..................................  217,866   190,172   204,930   269,924
  Net income (3) (4)................................   30,980     7,521    18,330    53,837
  Diluted net income per share (3) (5)..............     0.06      0.01      0.03      0.10
  Basic net income per share (3) (5)................     0.06      0.01      0.04      0.11