VIGNETTE CORP - 10-Q Quarterly Report

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

As of April 30, 2003, there were 253,241,724 shares of the registrant’s common stock outstanding.

The accompanying notes are an integral part of these condensed consolidated financial statements.

The unaudited interim condensed consolidated financial statements include the accounts of Vignette Corporation and its wholly-owned subsidiaries (collectively, the “Company” or “Vignette”). All material intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and are presented in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial information. Accordingly, certain footnote disclosures have been condensed or omitted. In the Company’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed with the United States Securities and Exchange Commission in the Company’s annual report on Form 10-K for the year ended December 31, 2002. The results of operations for the three-month periods ended March 31, 2003 and 2002 are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.

The balance sheet at December 31, 2002 has been derived from audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2002.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and such differences could be material to the financial statements. In particular, actual sublease income attributable to the consolidation of excess facilities might deviate from the assumptions used to calculate the Company’s accruals for facility lease commitments, vacated as a result of both its business restructuring and acquisition of Epicentric, Inc. (“Epicentric”). It is reasonably possible that such sublease assumptions could change in the near term, requiring adjustments to future income.

At March 31, 2003, the Company has five stock-based compensation plans. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“Statement 123”), prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options. As allowed by Statement 123, the Company has elected to continue to account for its employee stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. When the Company issues options or its stock to its employees at an exercise price equal to the market value of the underlying common stock on the date of grant, no stock-based compensation costs are recorded. In the event that options are granted or restricted shares are issued at an exercise price that is less than the market value of the underlying common stock on the date of grant or issuance, the Company records deferred compensation expense in an amount equivalent to the difference between the market value and the exercise price of the respective option or restricted stock. Deferred stock compensation is amortized on an accelerated basis over the options’ and restricted stock respective vesting periods, and is recorded as “Amortization of deferred stock compensation” in the Condensed Consolidated Statements of Operations.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123 (“Statement 148”). This amendment provides two additional methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Additionally, more prominent disclosures in both annual and interim financial statements are required for stock-based employee compensation. The Company has adopted the additional disclosure provisions required by Statement 148. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of Statement 123 to stock-based employee compensation (in thousands, except per share data):

Equity instruments issued to non-employees are accounted for in accordance with Statement 123 and Emerging Issues Task Force Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.”

On December 3, 2002, the Company acquired all issued and outstanding shares of Epicentric for $29.1 million in cash, including $3.1 million in transaction costs related to banking, legal and accounting activities. Epicentric provided business portal solutions. By adding advanced portal and delivery management capabilities to its existing and future product suites, the Company has the capability to deliver real-time enterprise Web applications. The results of Epicentric’s operations have been included with those of the Company for the period subsequent to the acquisition date.

The total purchase consideration has been allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the date of acquisition. Due to changes of assets acquired and liabilities assumed, the purchase price allocation is subject to revision. These revisions are not expected to be material. During the three months ended March 31, 2003, the Company recorded a $0.9 million increase in net assets acquired, thereby reducing goodwill by the same amount. As of March 31, 2003, the Company recorded $32.1 million in goodwill associated with the Epicentric acquisition. Goodwill is assigned at the enterprise level and is not expected to be deductible for income tax purposes.

As a result of the Epicentric acquisition, the Company accrued exit costs of $9.8 million. These costs relate to lease obligations for excess office space that the Company vacated under the approved facilities exit plan. The total lease commitments include the remaining lease liabilities and brokerage commissions, offset by estimated sublease income. The estimated costs of vacating these leased facilities, including estimated costs to sublease and sublease income, were based on market information and trend analysis as estimated by the Company. It is reasonably possible that actual results could differ from these estimates in the near term, and such differences would result in adjustments to the purchase price allocation and

ultimately, the amount allocated to goodwill. Impacted sites include office space located in San Francisco, California; New York, New York; Chicago, Illinois; and Austin, Texas. The maximum lease commitment of such vacated properties was four years from the acquisition date.

Additionally, the Company accrued severance and relocation costs of $1.9 million. These costs relate to severance, payroll taxes, outplacement and relocation benefits for certain Epicentric employees impacted by the approved plan of termination and relocation. Approximately 85 Epicentric employees were severed in the sales, marketing, professional services, engineering and general and administrative departments.

The following table summarizes activity for exit costs, employee severance and relocation costs (in thousands):

The Company estimates that the severance and relocation costs will be substantially paid within three months of March 31, 2003.

Acquisition-related and other charges include costs incurred for employees and consultants related to (i) product integration and cross-training, (ii) other employee-related charges and (iii) Epicentric contingent compensation arrangements. The following table presents acquisition-related and other charges for the three months ended March 31, 2003 and 2002 (in thousands):

As part of the Epicentric acquisition, contingent compensation in the form of cash totaling $0.8 million was recorded during the three months ended March 31, 2003. The Company expects to pay an additional $2.7 million in cash to certain Epicentric employees over the next two years. Because contingent consideration is based on defined future employment requirements, it is compensatory in nature and is not included in the total purchase price, but is expensed as employment requirements are satisfied.

The Company adopted Statement 142 on January 1, 2002. Statement 142 requires that ratable amortization of intangible assets with indefinite lives, including goodwill, be replaced with periodic review and analysis for possible impairment. Intangible assets with definite lives must be amortized over their estimated useful lives.

The changes in the carrying amount of goodwill, net of accumulated amortization and impairment charges, for the three months ended March 31, 2003, is as follows (in thousands):

Remaining goodwill pertains to the Epicentric business combination, completed in December 2002.

In accordance with Statement 142, the Company assesses its goodwill on October 1 of each year or more frequently if events or changes in circumstances indicate that goodwill might be impaired.

Following is a summary of the Company’s intangible assets that are subject to amortization (in thousands):

The net carrying amount of the capitalized research and development intangible asset relates to a purchase of intellectual property in 2002. The net carrying amount of intangible assets acquired in business combinations relates to the Epicentric purchase.

The Company’s intangible assets with definite lives are being amortized over the assets’ estimated useful lives using the straight-line method. Estimated useful lives range from two to three years. Total amortization expense for the three months ended March 31, 2003 was $1.5 million, of which $0.6 million was recorded as “Amortization of intangible assets” in operating expenses and the remaining $0.9 million was recorded as a cost of revenue. Total amortization expense for the three months ended March 31, 2002 was $7.6 million and was recorded as “Amortization of intangible assets” in operating expenses. Estimated annual amortization expense for fiscal years 2003, 2004 and 2005 is $5.6 million, $4.8 million and $1.3 million, respectively, and $0, thereafter.

The Company periodically reviews the estimated useful lives of its identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value or revised useful life. In 2002, the Company reduced the estimated useful life of technology acquired from OnDisplay from four years to two years. Such revision resulted from changes in the Company’s product architecture and anticipated future product offerings. This technology was fully amortized at June 30, 2002. For the quarters ended March 31, 2003 and 2002, this change decreased net loss by $1.3 million or $0.01 per share and increased net loss by $(5.3) million or $(0.02) per share, respectively.

Long-term investments are classified as available-for-sale and are presented at estimated fair market value with any unrealized gains or losses included in other comprehensive income (loss). The Company holds a less than 20% interest in, and does not exert significant influence over any of the respective equity investees. The Company therefore applies the cost method. Long-term investments consisted of the following (in thousands):

Fair market values are based on quoted market prices where available. If quoted market prices are not available, management estimates fair value by using a composite of quoted market prices of companies that are comparable in size and industry classification to the Company’s non-public investments.

The Company held restricted investments in the form of a certificate of deposit and investment grade securities placed with a high credit quality financial institution. Such restricted investments collateralize letters of credit related to certain leased office space security deposits. These investments will remain restricted to the extent that the security requirements exist.

The Company periodically analyzes its long-term investments for impairments considered other than temporary. In performing this analysis, the Company evaluates whether general market conditions which reflect prospects for the economy as a whole or information pertaining to the specific investment’s industry, or that individual company, indicates that an other than temporary decline in value has occurred. If so, the Company considers specific factors, including the financial condition and near-term prospect of each investment, any specific events that may affect the investee company, and the intent and ability of the Company to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value. As a result of such review, the Company recognized impairment charges of $0.1 million and $0 during the three months ended March 31, 2003 and 2002, respectively. Such impairments are recorded in “Other income (expenses), net” on the Condensed Consolidated Statements of Operations.

During fiscal year 2001, the Company’s management approved a restructuring plan to reduce headcount and infrastructure and to consolidate operations. The Company expanded the restructuring plan during 2002. Components of business restructuring charges and the remaining restructuring accruals as of March 31, 2003 are as follows (in thousands):

At March 31, 2003, remaining cash expenditures resulting from the restructuring are estimated to be $37.3 million and relate primarily to facility lease commitments. Excluding facilities lease commitments, the Company estimates that these costs will be substantially incurred within one year. The Company has substantially implemented its restructuring efforts initiated in conjunction with its restructuring plan; however, there can be no assurance that the estimated costs of the Company’s restructuring efforts will not change.

Facility lease commitments relate to lease obligations for excess office space that the Company has vacated as a result of the restructuring plan. Total lease commitments include the remaining lease liabilities and brokerage commissions, offset by estimated sublease income. The estimated costs of vacating these leased facilities, including estimated costs to sublease and any resulting sublease income, were based on market information and trend analysis as estimated by the Company. It is reasonably possible that actual results could differ from these estimates in the near term, and such differences could be material to the financial statements. In particular, actual sublease income attributable to the consolidation of excess facilities might deviate from the assumptions used to calculate the Company’s accrual for facility lease commitments. Facility lease commitments relate to the Company’s departure from certain office space in Austin and Houston, Texas; Redwood City, Los Angeles and San Ramon, California; Boston, Waltham, Reading and Cambridge, Massachusetts; New York, New York; Reston, Virginia; Maidenhead, United Kingdom; Paris, France; Hamburg, Germany; Madrid, Spain; Sydney and Melbourne, Australia; Bangalore and Guragon, India; Hong Kong, China; and Singapore. The maximum lease commitment of such vacated properties is nine years from March 31, 2003.

Asset impairments relate to the impairment of certain leasehold improvements and office and computer equipment. These fixed assets were impaired as a result of the Company’s decision to vacate certain office space and to align its infrastructure with current and projected headcount.

Employee separation and other costs include severance, related taxes, outplacement and other restructuring charges. As a result of the restructuring activities, the Company severed approximately 1,525 employees. Employee groups impacted by the restructuring efforts include personnel in positions throughout the sales, marketing, professional services, engineering and general and administrative functions in all geographies.

On October 26, 2001, a class action lawsuit was filed against the Company and certain of its current and former officers and directors in the United States District Court for the Southern District of New York in an action captioned Leon Leybovich v. Vignette Corporation, et al., seeking unspecified damages on behalf of a purported class that purchased Vignette common stock between February 18, 1999 and December 6, 2000. Also named as defendants were four underwriters involved in the Company’s initial public offering of Vignette stock in February 1999 and the Company’s secondary public offering of Vignette stock in December 1999 – Morgan Stanley Dean Witter, Inc., Hambrecht & Quist, LLC, Dain Rauscher Wessels and U.S. Bancorp Piper Jaffray, Inc. The complaint alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, based on, among other things, claims that the four underwriters awarded material portions of the shares in the Company’s initial and secondary public offerings to certain customers in exchange for excessive commissions. The plaintiff also asserts that the underwriters engaged in “tie-in arrangements” whereby certain customers were allocated shares of Company stock sold in its initial and secondary public offerings in exchange for an agreement to purchase additional shares in the aftermarket at pre-determined prices. With respect to the Company, the complaint alleges that the Company and its officers and directors failed to disclose the existence of these purported excessive commissions and tie-in arrangements in the prospectus and registration statement for the Company’s initial public offering and the prospectus and registration statement for the Company’s secondary public offering. The Company believes that this lawsuit is without merit and intends to continue to defend itself vigorously.

The Company is also subject to various legal proceedings and claims arising in the ordinary course of business. The Company’s management does not expect that the outcome in any of these legal proceedings, individually or collectively, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

At March 31, 2003, future minimum lease payments under noncancelable leases, including $33.5 million accrued as restructuring charges and $9.0 million accrued as exit costs in connection with the 2002 Epicentric acquisition, are as follows (in thousands):

The Company offers warranties to its customers, requiring that the Company replace defective products within a specified time period from the date of sale. The Company records warranty costs as incurred and historically, such costs have not been material.

Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“Interpretation 45”), requires that the Company recognize the fair value for certain guarantee and indemnification arrangements issued or modified by the Company after December 31, 2002. When the Company determines that a loss is probable, the estimable loss must be recognized as it relates to applicable guarantees and indemnifications. Some of the software licenses granted by the Company contain provisions that indemnify customers of the Company’s software from damages and costs resulting from claims alleging that the Company’s software infringes the intellectual property rights of a third party. The Company records resulting costs as incurred and historically, such costs have not been material. Accordingly, the Company has not recorded a liability related to these indemnification provisions.

The Company’s comprehensive loss is included as a component of stockholders’ equity and is composed of (i) net loss, (ii) foreign currency translation adjustments and (iii) unrealized gains and losses on investments designated as available-for-sale. The following table presents the calculation of comprehensive loss (in thousands):

Basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period, excluding shares subject to repurchase or forfeiture. Pursuant to Statement of Financial Accounting Standards No. 128, Earnings Per Share, diluted net loss per share has not been presented, as the effect of the assumed exercise of stock options and contingently issued shares is antidilutive.

Accounts payable and accrued expenses consisted of the following (in thousands):

The statements contained in this Report on Form 10-Q that are not purely historical statements are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, including statements regarding our expectations, beliefs, hopes, intentions or strategies regarding the future. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this Report on Form 10-Q to conform these statements to actual results. Factors that might cause or contribute to such a difference include, but are not limited to, those discussed elsewhere in this Report in the section entitled “Risk Factors That May Affect Future Results” and the risks discussed in our other historical Securities and Exchange Commission filings.

Our content management and portal solutions enable organizations to build, manage and deploy Web applications for the real-time enterprise. We give organizations the capability to manage electronic assets across their enterprise, to associate meaning and value to that information, and to deliver it to the right audience at the right time through portals and Web applications. We provide a broad set of software products to manage both information and the portals through which information is delivered.

Our integrated products can reduce Web deployment time, costs and risks by eliminating the need to combine products from multiple vendors. Our products also offer an integrated system for measuring the effectiveness of Web applications and online interactions. This allows organizations to measure the success of their Web initiatives, and to adapt their initiatives to enhance their efficiency and productivity. Competitive, performance-based organizations that strive to operate in real-time can use this insight to help improve their business processes and customer service levels.

To meet the information technology needs of enterprises of all sizes, our products were developed on open standards and support the major technology platforms. We package our products in convenient suites to enable seamless deployments, regardless of the size of the business or the scope of the project. The suites are designed to work together, and are packaged in two distinct categories:

Content Management allows organizations to streamline the creation and management of information, regardless of where it is stored in the organization. Our products provide out-of-the-box features for managing content and integrate with most enterprise software applications such as ERP, CRM, and databases.

Portal Management enables organizations to configure, deploy and manage multiple portals for various audiences. These portals are managed through a single console to consolidate administration responsibilities.

Our products are supported by Vignette Professional Services (“VPS”). VPS offers pre-packaged and custom services, along with documented best practices, to help organizations define their online business objectives and deploy their content management and portal applications. Our education, consulting and customer care teams give customers the benefit of our experience with thousands of customer implementations. We partner with a number of leading system integrators such as Accenture, EDS and Deloitte Consulting to implement our content and portal management software for their clients. In many cases, we work in blended teams to implement solutions. To ensure that we provide support to our customers on their chosen platform and infrastructure, we have long-standing relationships with key technology providers such as BEA Systems, IBM and Sun Microsystems.

We are headquartered in Austin, Texas, and operate satellite offices in other U.S. cities. In addition, we are located throughout the Americas, Europe, Asia and Australia. We had 844 full-time employees at March 31, 2003. Due in large part to the restructuring plan we implemented in 2001, and subsequently expanded during 2002, headcount decreased 30% from 1,207 at March 31, 2002.

Since our inception in December 1995, we have incurred substantial costs to develop our technology and products; market, sell and service these products; recruit and train personnel; and build a corporate infrastructure. As a result, we have incurred significant losses since our inception and, as of December 31, 2002, we had an accumulated deficit of approximately $2.4 billion. We believe our success depends on the continued development and acceptance of our products and services, the growth of our customer base as well as the overall growth in the Web applications market. Accordingly, we intend to invest in research and development, sales, marketing, professional services and to a lesser extent our operational and financial systems, as necessary. We expect to continue to incur operating losses in the near future, and we will require increases in revenues before we achieve and sustain profitability; however, we cannot assure that such increases in revenue will result in profitability.

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions or conditions.

Management has discussed with and agreed upon the development and selection of the following critical accounting policies with the Audit Committee of the Board of Directors:

Revenue recognition Revenue consists of product and service fees. Product fee income is earned through the licensing or right to use our software and from the sale of specific software products. Service fee income is earned through the sale of maintenance and technical support, consulting services and training services.

We do not recognize revenue for agreements with rights of return, refundable fees, cancellation rights or acceptance clauses until such rights to return, refund or cancel have expired or acceptance has occurred.

We recognize revenue in accordance with Statement of Position (“SOP”) 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, and Securities and Exchange Commission Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements.

Where software licenses are sold with maintenance or other services, we allocate the total fee to the various elements based on the fair values of the elements specific to us. We determine the fair value of each element in the arrangement based on vendor-specific objective evidence (“VSOE”) of fair value. VSOE of fair value is based upon the normal pricing and discounting practices for those products and services when sold separately and, for support services, is additionally measured by the renewal rate. If we do not have VSOE for one of the delivered elements of an arrangement, but do have VSOE for all undelivered elements, we use the residual method to record revenue. Under the residual method, the arrangement fee is first allocated to the undelivered elements based upon their VSOE of fair value; the remaining arrangement fee, including any discount, is allocated to the delivered element. If the residual method is not used, discounts, if any, are applied proportionately to each element included in the arrangement based on each element’s fair value without regard to the discount.

Revenue allocated to product license fees is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, we have no significant remaining obligations with regard to implementation, and collection of a fixed or determinable fee is probable. We consider all payments outside our normal payment terms, including all amounts due in excess of one year, to not be fixed and determinable, and such amounts are recognized as revenue as they become due. If collectibility is not considered probable, revenue is recognized when the fee is collected. For software arrangements where we are obligated to perform professional services for implementation, we do not consider delivery to have occurred or customer payment to be probable of collection until no significant obligations with regard to implementation remain. Generally, this would occur when substantially all service work has been completed in accordance with the terms and conditions of the customer’s implementation requirements but may vary depending on factors such as an individual customer’s payment history or order type (e.g., initial versus follow-on).

Revenue from perpetual licenses that include unspecified, additional software products is recognized ratably over the term of the arrangement, beginning with the delivery of the first product.

Revenue allocated to maintenance and support is recognized ratably over the maintenance term (typically one year).

Revenue allocated to training and consulting service elements is recognized as the services are performed. Our consulting services are not essential to the functionality of our products as (i) such services are available from other vendors and (ii) we have sufficient experience in providing such services.

Deferred revenue includes amounts received from customers in excess of revenue recognized. Accounts receivable includes amounts due from customers for which revenue has been recognized.

We follow very specific and detailed guidelines, discussed above, in determining revenues; however, certain judgments and estimates are made and used to determine revenue recognized in any accounting period. Material differences may result in the amount and timing of revenue recognized for any period if different conditions were to prevail. For example, in determining whether collection is probable, we assess our customers’ ability and intent to pay. Our actual experience with respect to collections could differ from our initial assessment if, for instance, unforeseen declines in the overall economy occur and negatively impact our customers’ financial condition.

Allowance for doubtful accounts We continuously assess the collectibility of outstanding customer invoices and in doing such, we maintain an allowance for estimated losses resulting from the non-collection of customer receivables. In estimating this allowance, we consider factors such as: historical collection experience, a customer’s current credit-worthiness, customer concentrations, age of the receivable balance, both individually and in the aggregate, and general economic conditions that may affect a customer’s ability to pay. Actual customer collections could differ from our estimates. For example, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Long-term investments Long-term investments include investments in equity securities of both private and public companies. We also hold investment-grade securities and restricted certificates of deposit that collateralize certain lease obligations. These lease obligations have remaining terms in excess of one year. Long-term investments are recorded at their estimated fair value. We periodically analyze our long-term investments for impairments considered other than temporary. In performing this analysis, we evaluate whether general market conditions which reflect prospects for the economy as a whole, or information pertaining to an investment’s industry or that individual company, indicates that a decline in value that is other than temporary has occurred. If so, we consider specific factors, including the financial condition and near-term prospects of each investment, any event that may affect the investee company, and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in market value. We record an investment impairment charge in the line item “Other income (expense), net” when we

believe an investment has experienced a decline in value that is other than temporary.

Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.

Business restructuring We vacated excess leased facilities as a result of the restructuring plan we initiated in 2001 and subsequently expanded in 2002. We recorded an accrual for the remaining lease liabilities of such vacated properties as well as brokerage commissions, partially offset by estimated sublease income. We estimated the costs of these excess leased facilities, including estimated costs to sublease and sublease income, based on market information and trend analysis. Actual results could differ from these estimates. In particular, actual sublease income attributable to the consolidation of excess facilities might deviate from the assumptions used to calculate our accrual for facility lease commitments.

Goodwill and identifiable intangible assets We adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“Statement 142”) on January 1, 2002. In accordance with Statement 142, we replaced the ratable amortization of goodwill and other indefinite-lived intangible assets with a periodic review and analysis for possible impairment. We assess our goodwill on October 1 of each year and during an interim period if facts or circumstances would more likely than not suggest that the fair value of an identified reporting unit is below its carrying value. The assessment is completed using a two-step approach. Step 1 involves identifying reporting units, determining the fair value of each reporting unit, and determining if the fair value of each reporting unit is less than its carrying amount. Step 2 measures the impairment charge and is completed if the fair value is less than the carrying value, as determined in Step 1. Impairment reviews require management to make complex estimates and assumptions, including but not limited to determining our reporting unit(s), selecting the appropriate methodology to determine the estimated fair value of a reporting unit as well as the actual fair value estimation of each reporting unit. If our estimates or assumptions were to change, this could result in a materially different impairment conclusion.

The following table sets forth for the periods indicated the percentage of revenues represented by certain lines in our condensed consolidated statements of operations.

Total revenue decreased 12% in the three months ended March 31, 2003. This decrease relates primarily to the sustained global economic slowdown that originated in late 2000. The weakened economy substantially curtailed corporate information technology spending. As a result, we experienced a longer sales cycle and fewer new customers.

Product license. Product license revenue decreased 20% in the three months ended March 31, 2003 and related to a sustained reduction and delay in corporate information technology spending.

Services. Services revenue decreased 6% in the three months ended March 31, 2003 and related to decreased professional services revenue, which decreased 26% in the comparable period. Professional services revenue was impacted by fewer new product engagements, lower billing rates and to a lesser extent, transition of consulting and implementation engagements to our partners and other third-party integrators. Maintenance and support revenue increased 14% in 2003 and related to both Epicentric maintenance and support agreements assumed through our acquisition in December 2002 and an increase in maintenance renewals.

During the comparative three months ended March 31, 2003 and 2002, no single customer accounted for more than 10% of our total revenues. International revenue was $11.1 million and $14.8 million, or 27% and 32% of total revenues, in the three months ended March 31, 2003 and 2002, respectively.

Cost of revenue consists of costs to manufacture, package and distribute our products and related documentation, the costs of licensing third-party software incorporated into our products, the amortization of certain acquired technology, and personnel and other expenses related to providing professional and maintenance services.

Product license and amortization of acquired technology. Product license costs decreased 33% in the three months ended March 31, 2003. The decrease resulted primarily from the decline in overall product license revenue. Through our December 2002 purchase of Epicentric, we acquired certain technological intangible assets having an estimated fair value of $6.4 million and an estimated useful life of two years. The amortization of these intangible assets is recorded as a cost of revenue.

Services. Services costs decreased 20% in the three months ended March 31, 2003 and related primarily to our restructuring efforts via headcount reductions and other cost-saving measures. The overall improvement in services gross profit related to an increased mix of maintenance and support revenue, in relation to total services revenue. Professional services costs decreased 27% in the three months ended March 31, 2003. Maintenance and support costs increased 22% in 2003 and related to increased headcount to provide maintenance and support services to customers assumed through the Epicentric acquisition.

Research and development. Research and development expenses consist primarily of personnel costs to support product development. Research and development expenses decreased 13% in the three months ended March 31, 2003. The decrease related primarily to our restructuring efforts via reduced engineering headcount and other cost-saving measures.

Software development costs that were eligible for capitalization in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed, were insignificant during the periods presented. Accordingly, such development costs have been expensed in the period incurred.

Sales and marketing. Sales and marketing expenses consist primarily of salaries and other related costs for sales, marketing and customer care personnel, sales commissions, public relations, marketing materials and tradeshows as well as bad debt charges. Sales and marketing expenses decreased 37% in the three months ended March 31, 2003. The decrease in absolute dollars and as a percentage of revenue related primarily to our restructuring efforts via reduced headcount and other cost-saving measures, lower commissions due to lower product sales, as well as reduced bad debt charges.

General and administrative. General and administrative expenses consist primarily of salaries and other related costs for human resources, finance, accounting, facilities, information technology and legal employees. General and administrative expenses decreased 28% in the three months ended March 31, 2003. The decrease in absolute dollars and as a percentage of total revenue related primarily to our restructuring efforts via reduced headcount and other cost-saving measures.

Acquisition-related and other charges Acquisition-related and other charges include costs incurred for employees and consultants and relates to product integration and cross-training, other employee-related charges and Epicentric contingent compensation arrangements. The following table presents acquisition-related and other charges for the three months ended March 31, 2003 and 2002 (in thousands):

As part of the Epicentric acquisition, contingent compensation in the form of cash totaling $0.8 million was recorded during the three months ended March 31, 2003. We expect to pay an additional $2.7 million in cash to certain Epicentric employees over the next two years. Because contingent consideration is based on defined future employment requirements, it is compensatory in nature and is not included in the total purchase price, but is expensed as future employment requirements are satisfied.

Business restructuring charges. We incurred no additional business restructuring charges in 2003. During 2002, we expanded the restructuring efforts initiated during 2001. Although we have substantially implemented the restructuring activities announced during 2001 and 2002, there can be no assurance that the estimated costs of our restructuring efforts will not change. Components of business restructuring charges and the remaining restructuring accruals as of March 31, 2003 are as follows (in thousands):

Facility lease commitments related to lease obligations for excess office space that we have vacated as a result of the restructuring plan. Total lease commitments include the remaining lease liabilities and brokerage commissions, offset by estimated sublease income. We estimated costs of vacating these leased facilities, including estimated costs to sublease and any resulting sublease income, based on market information and trend analysis. It is reasonably possible that actual results could differ from these estimates in the near term, and such differences could be material to the financial statements. In particular, actual sublease income attributable to the consolidation of excess facilities might deviate from the assumptions used to calculate the accrual for facility lease commitments. Facility lease commitments relate to our departure from certain office space in Austin and Houston, Texas; Redwood City, Los Angeles and San Ramon, California; Boston, Waltham, Reading and Cambridge, Massachusetts; New York, New York; Reston, Virginia; Maidenhead, United Kingdom; Paris, France; Hamburg, Germany; Madrid, Spain; Sydney and Melbourne, Australia; Bangalore and Guragon, India; Hong Kong, China; and Singapore. The maximum lease commitment of such vacated properties is nine years from March 31, 2003.

Asset impairments related to the impairment of certain leasehold improvements and office and computer equipment. These fixed assets were impaired as a result of our decision to vacate certain office space and to align our infrastructure with current and projected headcount.

Employee separation and other costs include severance, related taxes, outplacement and other restructuring charges. As a result of the restructuring activities, we have severed approximately 1,525 employees. Employee groups impacted by the restructuring efforts include personnel in positions throughout the sales, marketing, professional services, engineering and general and administrative functions in all geographies.

Amortization of deferred stock compensation. For stock options issued to employees, we record deferred compensation at the grant date if a difference exists between the exercise price and the market value of our common stock. For restricted share issuances, we record deferred compensation equal to the market value on the issue date. Deferred stock compensation is amortized on an accelerated basis over the vesting periods of the applicable options and restricted share grants. Amortization of deferred stock compensation is attributable to the following cost categories (in thousands):

Amortization of intangible assets. Intangible amortization expense decreased 92% in the three months ended March 31, 2003 and related to a change in the estimated useful life of technologies purchased as part of the OnDisplay, Inc. acquisition. Due to changes in our product architecture and anticipated future product offerings, we reduced the estimated life of this acquired technology from four years to two years. Such technology was fully amortized at June 30, 2002.

Other income and expense, net consists primarily of interest income and expense, as well as recognized investment gains and losses.

Other income decreased 39% in the three months ended March 31, 2003 and related to the general decline in investment yields on our lower cash, cash equivalents and short-term investment balances, and a $0.1 million impairment of a long-term investment. The impairment related to an other than temporary decline in common stock held in a publicly-held technology company.

At March 31, 2003, our unrestricted, long-term investments totaled $2.0 million. Future adverse changes in market conditions or poor operating results of an investee could require future impairment charges.

Income tax expense consists primarily of estimated withholdings and income taxes due in certain foreign jurisdictions.

We have provided a full valuation allowance on our net deferred tax assets, which include net operating loss and research and development credit carryforwards, because of the uncertainty regarding their realization. Our accounting for deferred taxes under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, involves the evaluation of a number of factors concerning the realizability of our deferred tax assets. In concluding that a full valuation allowance was required, we primarily considered such factors as our history of operating losses and expected future losses and the nature of our deferred tax assets.

During our first quarter 2003 financial results conference call dated April 23, 2003, we provided the following forward-looking information. Such information is current as of that date, unless otherwise noted, and relates to the sequential quarter ended June 30, 2003, as compared to the quarter ended March 31, 2003.

We expect total revenue will range between $40 million and $42 million. We expect the mix of revenue will remain constant with license revenue accounting for 40% to 42% of total revenue and service revenue accounting for 58% to 60% of total revenue.

We expect our cost of revenue will remain relatively constant in the upcoming quarter. As a percentage of total revenue, gross margin will range between 70% and 73%.

To maintain a competitive advantage, we will continue to invest in research and development activities, and therefore expect our research and development costs will be between 26% and 28% of total revenue. We expect our sales and marketing costs will be between 46% and 48% of total revenue and our general and administrative costs will be between 9% and 11% of total revenue. We expect acquisition-related charges to be 3% of total revenues and relates to contingent consideration due to certain legacy-Epicentric employees. We expect both amortization of intangible assets and deferred stock compensation will be 1%, respectively.

We expect other income will be 3% of total revenue and the provision for income taxes will be 1% of total revenue. We expect a net loss of $0.02 per share, assuming 252.0 million shares outstanding.

The following table presents selected financial statistics and information (dollars in thousands):

At March 31, 2003, we had $282.1 million in cash, cash equivalents and short-term investments and no debt. We invest cash exceeding our operating requirements in short-term, investment-grade securities and classify these investments as available-for-sale. For the quarter ended March 31, 2003, our days sales outstanding decreased 22% to 51 days, as compared to 65 days for the quarter ended December 31, 2002. This decrease related to our continued focus on collection efforts.

Net cash used in operating activities was $10.5 million and $22.6 million in the three months ended March 31, 2003 and 2002, respectively. The decrease in operating cash outflows was due primarily to a decrease in our net loss, excluding non-cash and restructuring charges, and changes in working capital. We anticipate using net cash to fund operating activities in future periods as well as to fulfill our restructuring and exit commitments.

Net cash provided by investing activities was $32.4 million in the three months ended March 31, 2003 as compared to net cash use of $43.0 million in the three months ended March 31, 2002. The increase in cash provided was due primarily to the maturity of our investments in short-term marketable securities, partially offset by payment of $15.4 million for the remaining consideration for Epicentric. We expect that our future investing activities will generally consist of capital expenditures to support our future needs, investment in short-term securities to maximize investment yields while preserving cash flow for operational purposes, and acquisition of intellectual property or complementary businesses to expand our market.

Net cash provided by financing activities was $1.0 million and $3.7 million in the three months ended March 31, 2003 and 2002, respectively. Our financing activities consisted primarily of employee stock option exercises and purchases of employee stock purchase plan shares.

Our long-term investments are classified as available-for-sale and consist of common stock in publicly-held technology companies, limited partnership interests in a technology incubator, and cash collateral pledged for certain lease obligations. At both March 31, 2003 and December 31, 2002, long-term investments totaled $13.7. We may continue to invest in companies strategic to our business; however, we do not expect future investments to significantly impact our liquidity position.

At both March 31, 2003 and December 31, 2002, we had pledged $11.7 as cash collateral for certain of our lease obligations. These investments will remain restricted to the extent that the security requirements exist.

We expect our existing cash, cash equivalents and short-term investment balances will decline in the near future. We believe that our existing balances will be sufficient to meet our working capital, capital expenditure and investment requirements for at least the next 12 months. We may require additional funds for other purposes and may seek to raise such additional funds through public and private equity financings or from other sources. There can be no assurance that additional financing will be available at all or that, if available, such financing will be obtainable on terms favorable to us or that any additional financing will not be dilutive.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123 (“Statement 148”). This amendment provides two additional methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Additionally, more prominent disclosures in both annual and interim financial statements are required for stock-based employee compensation. We have adopted the additional disclosure provisions required by Statement 148. Such adoption of Statement 148 did not have a material impact on our consolidated financial statements.

You should carefully consider the following risks before making an investment decision. The risks described below are not the only ones that we face. Our business, operating results or financial condition could be materially adversely affected by any of the following risks. The trading price of our common stock could decline due to any of these risks, and you as an investor may lose all or part of your investment. You should also refer to the other information set forth in this report, including our consolidated financial statements and the related notes.

We have not achieved profitability and we expect to incur net operating losses in the coming quarter and potentially in future quarters. To date, we have primarily funded our operations from the sale of equity securities. We expect to continue to incur significant product development, sales and marketing, and administrative expenses and, as a result, we will need to generate significant revenues to achieve and subsequently maintain profitability. We cannot be certain that we will achieve sufficient revenues for profitability. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis in the future.

We were founded in December 1995 and thus have a limited operating history. As a result of our limited operating history, we cannot forecast revenue and operating expenses based on our historical results. Accordingly, we base our expenses in part on future revenue projections. Most of our expenses are fixed in the short term and we may not be able to quickly reduce spending if our revenues are lower than we had projected. Our ability to forecast accurately our quarterly revenue is limited because our software products have a long sales cycle that makes it difficult to predict the quarter in which sales will occur. We would expect our business, operating results and financial condition to be materially adversely affected if our revenues do not meet our projections and that net losses in a given quarter would be greater than expected.

Recent Terrorist Activities and Resulting Military and Other Actions Could Adversely Affect Our Business

The continued threat of terrorism within the United States and abroad, military action in other countries, and heightened security measures may cause significant disruption to commerce throughout the world. To the extent that such disruptions result in delays or cancellations of customer orders, a general decrease in corporate spending on information technology, or our inability to effectively market, sell and deploy our software and services, our business and results of operations could be materially and adversely affected. We are unable to predict whether the threat of terrorism or the responses thereto will result in any long-term commercial disruptions or if such activities or responses will have a long-term material adverse effect on our business, results of operations or financial condition.

Recent and Future Acquisitions, Including Our Acquisition of Epicentric, Inc., Could Be Difficult to Integrate, Disrupt Our Business, Dilute Stockholder Value and Adversely Affect Our Operating Results

We completed our acquisition of Epicentric, Inc. in December 2002. We may discover liabilities and risks associated with this acquisition that were not discovered in our due diligence prior to signing the definitive merger agreement. Although a portion of the purchase price was placed in escrow to cover such liabilities, it is possible that the actual amounts required to cover such liabilities will exceed the escrow amount. Additionally, we may acquire other businesses in the future, which would complicate our management tasks. We may need to integrate widely dispersed operations that have different and unfamiliar corporate cultures. These integration efforts may not succeed or may distract management’s attention from existing business operations. Failure to successfully integrate future acquisitions could seriously harm our business. Also, our existing stockholders would experience dilution if we financed the acquisitions by issuing equity securities.

Our revenues and operating results have varied significantly from quarter to quarter in the past and we expect that our operating results will continue to vary significantly from quarter to quarter. A number of factors are likely to cause these variations, including:

Accordingly, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful. Investors should not rely on the results of one quarter as an indication of future performance.

We will continue to invest in our research and development, sales and marketing, professional services and general and administrative organizations. We expect such spending, in absolute dollars, will remain relatively constant as compared to recent periods; however, if our revenue expectations are not achieved, our business, operating results or financial condition could be materially adversely affected and net losses in a given quarter would be greater than expected.

In previous quarters, we derived a significant portion of our software license revenues from a small number of relatively large orders. Our operating results could be materially adversely affected if we are unable to complete a significant order that we expected to complete in a specific quarter.

If We Experienced a Product Liability Claim We Could Incur Substantial Litigation Costs

Since our customers use our products for mission critical applications, errors, defects or other performance problems could result in financial or other damages to our customers. They could seek damages for losses from us, which, if successful, could have a material adverse effect on our business, operating results and financial condition. Although our license agreements typically contain provisions designed to limit our exposure to product liability claims, existing or future laws or unfavorable judicial decisions could negate or alter such limitation of liability provisions. Such claims, if brought against us, even if not successful, would likely be time consuming and costly.

We Depend on Increased Business from Our Current and New Customers and if We Fail to Grow Our Customer Base or Generate Repeat Business, Our Operating Results Could Be Harmed

If we fail to grow our customer base or generate repeat and expanded business from our current and new customers, our business and operating results would be seriously harmed. Many of our customers initially make a limited purchase of our products and services. Some of these customers may not choose to purchase additional licenses to expand their use of our products. Some of these customers have not yet developed or deployed initial applications based on our products. If these customers do not successfully develop and deploy such initial applications, they may not choose to purchase deployment licenses or additional development licenses. Our business model depends on the expanded use of our products within our customers’ organizations.

In addition, as we introduce new versions of our products or new products, our current customers may not require the functionality of our new products and may not ultimately license these products. Because the total amount of maintenance and support fees we receive in any period depends in large part on the size and number of licenses that we have previously sold, any downturn in our software license revenue would negatively impact our future services revenue. In addition, if customers elect not to renew their maintenance agreements, our services revenue could be significantly adversely affected.

Our Operating Results May Be Adversely Affected by Small Delays in Customer Orders or Product Implementations

Small delays in customer orders or product implementations can cause significant variability in our license revenues and operating results for any particular period. We derive a substantial portion of our revenue from the sale of products with related services. In certain cases, our revenue recognition policy requires us to substantially complete the implementation of our product before we can recognize software license revenue, and any end-of-quarter delays in product implementation could materially adversely affect operating results for that quarter.

In Order to Increase Market Awareness of Our Products and Generate Increased Revenue We Need to Continue to Strengthen Our Sales and Distribution Capabilities

Our direct and indirect sales operations must increase market awareness of our products to generate increased revenue. We cannot be certain that we will be successful in these efforts. Our products and services require a sophisticated sales effort targeted at the senior management of our prospective customers. All new hires will require training and will take time to achieve full productivity. We cannot be certain that our new hires will become as productive as necessary or that we will be able to hire enough qualified individuals or retain existing employees in the future. We plan to expand our relationships with systems integrators and certain third-party resellers to build an indirect influence and sales channel. In addition, we will need to manage potential conflicts between our direct sales force and any third-party reselling efforts.

Failure to Maintain the Support of Third-Party Systems Integrators May Limit Our Ability to Penetrate Our Markets

A significant portion of our sales are influenced by the recommendations of our products made by systems integrators, consulting firms and other third parties that help develop and deploy Web-based applications for our customers. Losing the support of these third parties may limit our ability to penetrate our markets. These third parties are under no obligation to recommend or support our products. These companies could recommend or give higher priority to the products of other companies or to their own products. A significant shift by these companies toward favoring competing products could negatively affect our license and services revenue.

Our Lengthy Sales Cycle and Product Implementation Makes It Difficult to Predict Our Quarterly Results

We have a long sales cycle because we generally need to educate potential customers regarding the use and benefits of Web-based applications. Our long sales cycle makes it difficult to predict the quarter in which sales may fall. In addition, since we recognize a portion of our revenue from product sales upon implementation of our product, the timing of product implementation could cause significant variability in our license revenues and operating results for any particular period. The implementation of our products requires a significant commitment of resources by our customers, third-party professional services organizations or our professional services organization, which makes it difficult to predict the quarter when implementation will be completed.

We May Be Unable to Adequately Sustain a Profitable Professional Services Organization, Which Could Affect Both Our Operating Results and Our Ability to Assist Our Customers with the Implementation of Our Products

Customers that license our software often engage our professional services organization to assist with support, training, consulting and implementation of their Web solutions. We believe that growth in our product sales depends in part on our continuing ability to provide our customers with these services and to educate third-party resellers on how to use our products.

During recent quarters, our professional services organization achieved profitability; however, prior to 2000, services costs related to professional services had exceeded, or had been substantially equal to, professional services-related revenue. In this current economic climate, we make periodic capacity decisions based on estimates of future sales, anticipated existing customer needs, and general market conditions. Although we expect that our professional services-related revenue will continue to exceed professional services-related costs in future periods, we cannot be certain that this will occur.

We generally bill our customers for our services on a time-and-materials basis. However, from time to time we enter into fixed-price contracts for services, and may include terms and conditions that may extend the recognition of revenue for work performed into following quarters. On occasion, the costs of providing the services have exceeded our fees from these contracts and such contracts have negatively impacted our operating results.

We May Be Unable to Attract Necessary Third-Party Service Providers, Which Could Affect Our Ability to Provide Sufficient Support, Consulting and Implementation Services for Our Products

We are actively supplementing the capabilities of our services organization by contracting with and educating third-party service providers and consultants to also provide these services to our customers. We may not be successful in attracting additional third-party providers or in educating or maintaining the interest of current third-party providers. In addition, these third parties may not devote sufficient resources to these activities to meet customers’ demand to adequately supplement our services.

Our Business May Become Increasingly Susceptible to Numerous Risks Associated with International Operations

We recorded 27% of our total revenue for the three months ended March 31, 2003 through licenses and services sold to customers located outside of the United States. We expect international revenue to remain a large percentage of total revenue and we believe that we must continue to expand our international sales activities in order to be successful. Our international sales growth will be limited if we are unable to establish appropriate foreign operations, expand international sales channel management and support organizations, hire additional personnel, customize products for local markets, develop relationships with international service providers and establish relationships with additional distributors and third-party integrators. In that case, our business, operating results and financial condition could be materially adversely affected. Even if we are able to successfully expand international operations, we cannot be certain that we will be able to maintain or increase international market demand for our products.

To date, a majority of our international revenues and costs have been denominated in foreign currencies. We believe that portion of our international revenues and costs will be denominated in foreign currencies in the future. To date, we have not engaged in any foreign exchange hedging transactions and we are therefore subject to foreign currency risk.

In Order to Properly Manage Future Growth, We May Need to Continue to Improve Our Operational Systems on a Timely Basis

We have experienced periods of rapid expansion since our inception. Rapid growth places a significant demand on management and operational resources. In order to manage such growth effectively, we must continue to improve our operational systems, procedures and controls on a timely basis. If we fail to continue to improve these systems, our business, operating results and financial condition will be materially adversely affected.

Our success depends largely on the skills, experience and performance of some key members of our management. If we lose one or more of our key employees, our business, operating results and financial condition could be materially adversely affected. In addition, our future success will depend largely on our ability to continue attracting and retaining highly skilled personnel. Like other software companies, we face competition for qualified personnel, particularly in the Austin, Texas area. We cannot be certain that we will be successful in attracting, assimilating or retaining qualified personnel in the future.

We Have Relied and Expect to Continue to Rely on Sales of Our Vignette V/Series Product Line for Our Revenue

We currently derive a substantial portion of our revenues from the license and related upgrades, professional services and support of our Vignette V/Series software products. We expect that we will continue to depend on revenue related to our Vignette V6 product line for at least the next several quarters. We cannot be certain that we will successfully market and sell our new Vignette V7 offerings, announced in October 2002 and released in December 2002. If we do not continue to increase revenue related to our existing products or generate revenue from new products and services, our business, operating results and financial condition would be materially adversely affected.

Our Future Revenue is Dependent Upon Our Ability to Successfully Market Our Existing and Future Products

We expect that our future financial performance will depend significantly on revenue from existing and future software products and the related tools that we plan to develop. There are significant risks inherent in a product introduction, such as our recently announced Vignette V7 software products and the recently acquired Epicentric products. Market acceptance of these and future products will depend on continued market development for Web applications and services and the commercial adoption of Vignette V7. We cannot be certain that either will occur. We cannot be certain that our existing or future products offering will meet customer performance needs or expectations when shipped or that it will be free of significant software defects or bugs. If our products do not meet customer needs or expectations, for whatever reason, upgrading or enhancing the product could be costly and time consuming.

If We are Unable to Meet the Rapid Changes in Software Technology, Our Existing Products Could Become Obsolete

The market for our products is marked by rapid technological change, frequent new product introductions and Internet-related technology enhancements, uncertain product life cycles, changes in customer demands, changes in packaging and combination of existing products and evolving industry standards. We cannot be certain that we will successfully develop and market new products, new product enhancements or new products compliant with present or emerging Internet technology standards. New products based on new technologies, new industry standards or new combinations of existing products as bundled products can render existing products obsolete and unmarketable. To succeed, we will need to enhance our current products and develop new products on a timely basis to keep pace with developments related to Internet technology and to satisfy the increasingly sophisticated requirements of our customers. Internet commerce technology, particularly Web-based applications technology, is complex and new products and product enhancements can require long development and testing periods. Any delays in developing and releasing enhanced or new products could have a material adverse effect on our business, operating results and financial condition.

We Face Intense Competition from Other Software Companies, Which Could Make it Difficult to Acquire and Retain Customers Now and in the Future

Our market is intensely competitive. Our customers’ requirements and the technology available to satisfy those requirements continually change. We expect competition to persist and intensify in the future.

Our principal competitors include: in-house development efforts by potential customers or partners; other vendors of software that directly address elements of Web-based applications; and developers of software that address only certain technology components of Web-based applications (e.g., content management, portal management, process, collaboration, integration or analytics).

Many of these companies have longer operating histories and significantly greater financial, technical, marketing and other resources than we do. Many of these companies can also leverage extensive customer bases and adopt aggressive pricing policies to gain market share. Potential competitors may bundle their products in a manner that may discourage users from purchasing our products. In addition, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share.

Competitive pressures may make it difficult for us to acquire and retain customers and may require us to reduce the price of our software. We cannot be certain that we will be able to compete successfully with existing or new competitors. If we fail to compete successfully against current or future competitors, our business, operating results and financial condition would be materially adversely affected.

We Develop Complex Software Products Susceptible to Software Errors or Defects that Could Result in Lost Revenues, or Delayed or Limited Market Acceptance

Complex software products such as ours often contain errors or defects, particularly when first introduced or when new versions or enhancements are released. Despite internal testing and testing by current and potential customers, our current and future products may contain serious defects. Serious defects or errors could result in lost revenues or a delay in market acceptance, which would have a material adverse effect on our business, operating results and financial condition.

Our Product Shipments Could Be Delayed if Third-Party Software Incorporated in Our Products is No Longer Available

We integrate third-party software as a component of our software. The third-party software may not continue to be available to us on commercially reasonable terms. If we cannot maintain licenses to key third-party software, shipments of our products could be delayed until equivalent software could be developed or licensed and integrated into our products, which could materially adversely affect our business, operating results and financial condition.

Our Business is Based on Our Intellectual Property and We Could Incur Substantial Costs Defending Our Intellectual Property from Infringement or a Claim of Infringement

In recent years, there has been significant litigation in the United States involving patents and other intellectual property rights. We could incur substantial costs to prosecute or defend any such litigation. Although we are not involved in any such litigation which we believe is material to our business, if we become a party to litigation in the future to protect our intellectual property or as a result of an alleged infringement of other’s intellectual property, we may be forced to do one or more of the following:

We rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our technology. These legal protections provide only limited protection. If we litigated to enforce our rights, it would be expensive, divert management resources and may not be adequate to protect our business.

Anti-Takeover Provisions in Our Corporate Documents and Delaware Law Could Prevent or Delay a Change in Control of Our Company

Certain provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable. Such provisions include:

Certain provisions of Delaware law and our stock incentive plans may also discourage, delay or prevent someone from acquiring or merging with us.

Further, in April 2002, our Board of Directors approved, adopted and entered into, a shareholder rights plan (the “Plan”). The Plan was not adopted in response to any attempt to acquire us, nor were we aware of any such efforts at the time of adoption.

The Plan was designed to enable our stockholders to realize the full value of their investment by providing for fair and equal treatment of all stockholders in the event that an unsolicited attempt is made to acquire us. Adoption of the Plan was intended to guard shareholders against abusive and coercive takeover tactics.

Under the Plan, stockholders of record as of the close of business on May 6, 2002, received one right to purchase a one one-thousandth of a share of Series A Junior Participating Preferred Stock, par $0.01 per share, at a price of $30.00 per one one-thousandth, subject to adjustment. The rights were issued as a non-taxable dividend and will expire 10 years from the date of the adoption of the rights Plan, unless earlier redeemed or exchanged. The rights are not immediately exercisable; however, they will become exercisable upon the earlier to occur of (i) the close of business on the tenth day after a public announcement that a person or group has acquired beneficial ownership of 15 percent or more of our outstanding common stock or (ii) the close of business on the tenth day (or such later date as may be determined by the Board of

Directors prior to such time as any person becomes an acquiring person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer that would result in the beneficial ownership by a person or group of 15 percent or more of our outstanding common stock. If a person or group acquires 15 percent or more of our common stock, then all rights holders except the acquirer will be entitled to acquire our common stock at a significant discount. The intended effect will be to discourage acquisitions of 15 percent or more of our common stock without negotiation with the Board of Directors.

If We Account for Our Employee Stock Option and Employee Stock Purchase Plans Using the Fair Value Method, Our Operating Results May be Adversely Affected

It is possible that future laws or regulations will require us to treat all stock-based compensation as a compensation expense using the fair value method. We are not currently required to record any compensation expense using the fair value method in connection with option grants that have an exercise price at or above fair market value and for shares issued under our employee stock purchase plan. If we elected or were required to record an expense for our stock-based compensation plans using the fair value method, we could have significant accounting charges. For example, if we had accounted for stock-based compensation plans using the fair value method, our loss per share for the three months ended March 31, 2003 would have been increased by $(0.10) per share.

We May Incur Increased Costs in Response to Recently Enacted and Proposed Regulations

Recently enacted and proposed changes in the laws and regulations affecting public companies, including but not limited to the Sarbanes-Oxley Act of 2002, could cause us to incur increased costs as we evaluate and respond to the resulting requirements. The new rules could make it more difficult for us to obtain certain types of insurance, and we may incur higher costs to obtain coverage similar to our existing policies. Additionally, we may incur increased accounting, audit and legal fees to assist us assess, implement and comply with such rules. The new and proposed rules could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors. Although we are evaluating and monitoring developments with respect to these new and proposed rules, we cannot estimate the amount of the additional costs we may incur or the timing of such costs at this time.

Our Financial Statements Could be Impacted by Unauthorized and Improper Actions of Our Personnel

Our financial statements could be adversely impacted by our employee’s errant or improper actions. For instance, revenue recognition depends on, among other criteria, the terms negotiated in our contracts with our customers. Our personnel may act outside of their authority and negotiate additional terms without our knowledge. We have implemented policies to prevent and discourage such conduct, but there can be no assurance that such policies will be followed. For instance, in the event that our sales personnel have negotiated terms that do not appear in the contract and of which we are unaware, whether the additional terms are written or oral, we could be prevented from recognizing revenue in accordance with our plans. Furthermore, depending on when we learn of unauthorized actions and the size of transactions involved, we may have to restate our financial statements for a previously reported period, which would seriously harm our business, operating results and financial condition.

Our Business is Sensitive to the Overall Economic Environment; the Continued Slowdown in Information Technology Spending Could Harm Our Operating Results

The primary customers for our products are enterprises seeking to launch or expand Web-based initiatives. The continued significant downturn in our customers’ markets and in general economic conditions that result in reduced information technology spending budgets would likely result in a decreased demand for our products and services and harm our business. Industry downturns like these have been, and may continue to be, characterized by diminished product demand, erosion of average selling prices, lower than expected revenues and difficulty making collections from existing customers.

The market for Web-based applications software is rapidly evolving. We expect that we will continue to need intensive marketing and sales efforts to educate prospective customers about the uses and benefits of our products and services. Accordingly, we cannot be certain that a viable market for our products will emerge or be sustainable. Enterprises that have already invested substantial resources in other methods of conducting business may be reluctant or slow to adopt a new approach that may replace, limit or compete with their existing systems. Similarly, individuals have established patterns of purchasing goods and services. They may be reluctant to alter those patterns. They may also resist providing the personal data necessary to support our existing and potential product uses. Any of these factors could inhibit the growth of online business generally and the market’s acceptance of our products and services in particular.

There is Substantial Risk that Future Regulations Could Be Enacted that Either Directly Restrict Our Business or Indirectly Impact Our Business by Limiting the Growth of Internet Commerce

As Internet commerce evolves, we expect that federal, state or foreign agencies will adopt regulations covering issues such as user privacy, pricing, content and quality of products and services. If enacted, such laws, rules or regulations could limit the market for our products and services, which could materially adversely affect our business, financial condition and operating results. Although many of these regulations may not apply to our business directly, we expect that laws regulating the solicitation, collection or processing of personal and consumer information could indirectly affect our business. The Telecommunications Act of 1996 prohibits certain types of information and content from being transmitted over the Internet. The prohibition’s scope and the liability associated with a Telecommunications Act violation are currently unsettled. In addition, although substantial portions of the Communications Decency Act were held to be unconstitutional, we cannot be certain that similar legislation will not be enacted and upheld in the future. It is possible that such legislation could expose companies involved in Internet commerce to liability, which could limit the growth of Internet commerce generally. Legislation like the Telecommunications Act and the Communications Decency Act could dampen the growth in Web usage and decrease its acceptance as a communications and commercial medium.

The United States government also regulates the export of encryption technology, which our products incorporate. If our export authority is revoked or modified, if our software is unlawfully exported or if the United States government adopts new legislation or regulation restricting export of software and encryption technology, our business, operating results and financial condition could be materially adversely affected. Current or future export regulations may limit our ability to distribute our software outside the United States. Although we take precautions against unlawful export of our software, we cannot effectively control the unauthorized distribution of software across the Internet.

There can be no assurance that we will maintain compliance with the minimum bid price trading requirements, or other requirements, for continued listing on the Nasdaq National Market. Noncompliance with Nasdaq’s Marketplace Rules may materially impair the ability of stockholders to buy and sell shares of our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock, and could significantly impair our ability to raise capital in the public markets should we desire to do so in the future.

The market price of our common stock has been highly volatile and has fluctuated significantly in the past. We believe that it may continue to fluctuate significantly in the future in response to the following factors, some of which are beyond our control:

Our Business May Be Adversely Affected by Class Action Litigation Due to Stock Price Volatility

In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We are a party to the securities class action litigation described in Part II, Item 1 – “Legal Proceedings” of this Report. The defense of this litigation described in Part II, Item 1 may increase our expenses and divert our management’s attention and resources, and an adverse outcome could harm our business and results of operations. Additionally, we may in the future be the target of similar litigation. Future securities litigation could result in substantial costs and divert management’s attention and resources, which could have a material adverse effect on our business, operating results and financial condition.

Although we expect our cash balances to decline in the near future, we expect the cash on hand, cash equivalents and short-term investments to meet our working capital and capital expenditure needs for at least the next 12 months. We may need to raise additional funds and we cannot be certain that we would be able to obtain additional financing on favorable terms, if at all. Further, if we issue equity securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. If we cannot raise funds, if needed, on acceptable terms, we may not be able to develop or enhance our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could have a material adverse effect on our business, operating results and financial condition.

The majority of our operations are based in the United States and accordingly, the majority of our transactions are denominated in U.S. Dollars. We have operations throughout the Americas, Europe, Asia and Australia where transactions are denominated in the local currency of each location. We currently do not use derivatives to hedge potential exposure to foreign currency exchange rate risk. To date, the impact of foreign currency exchange rate fluctuations has not been material to our consolidated financial statements. Our financial results could be materially affected by future changes in foreign currency exchange rates.

Cash, cash equivalents and short-term investments. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. Due to the nature of our short-term investments, we have concluded that we do not have material interest risk exposure. Our investment policy requires us to invest funds in excess of current operating requirements in:

At March 31, 2003, our cash and cash equivalents consisted primarily of commercial paper and market auction preferreds. Our short-term investments will mature in less than one year from March 31, 2003 and were invested in corporate notes, corporate bonds and medium-term notes in large U.S. institutions and governmental agencies. These securities as classified as available-for-sale and are recorded at their estimated fair market value.

Long-term investments. We invest in emerging technology companies considered strategic to our software business. At March 31, 2003, long-term investments consisted of common stock held in publicly-traded technology companies and a limited partnership interest in a technology incubator. We periodically analyze our long-term investments for impairments that could be considered other than temporary. Fair market values were based on quoted market prices where available. If quoted market prices were not available, we use a composite of quoted market prices of companies that are comparable in size and industry classification to our portfolio. We classify our long-term investments as available-for-sale and have recorded a cumulative net unrealized loss of $0.1 million at March 31, 2003.

In addition to strategic investments, we held $11.7 million in restricted investments at both March 31, 2003 and December 31, 2002. Restricted investments were composed of a certificate of deposit and investment grade securities placed with a high credit quality financial institution. Such restricted investments collateralize letters of credit related to certain leased office space security deposits. These investments will remain restricted to the extent that the security requirements exist. The term of the collateral arrangements range from 2003 to 2010 and the average yield of these investments is approximately 1.38%.

During the 90-day period prior to the filing date of this Quarterly Report on Form 10-Q, the Company, under supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported in a timely manner.

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

/s/ THOMAS E. HOGAN

Thomas E. Hogan

President and Chief Executive Officer

/s/ CHARLES W. SANSBURY

Charles W. Sansbury

Chief Financial Officer

		Page
Part I. Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at March 31, 2003 and December 31, 2002	2
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002	3
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35
Item 4.	Controls and Procedures	36
Part II. Other Information
Item 1.	Legal Proceedings	37
Item 6.	Exhibits and Reports on Form 8-K	38
SIGNATURES		39
CERTIFICATIONS		40

ASSETS	March 31, 2003		December 31, 2002
	(Unaudited)
Current assets:
Cash and cash equivalents	$	239,169	$	216,076
Short-term investments		42,946		91,678
Accounts receivable, net		22,806		28,817
Prepaid expenses and other current assets		4,737		4,044

Total current assets		309,658		340,615

Property and equipment, net		20,099		23,500
Investments		13,691		13,652
Goodwill, net		32,108		32,993
Other intangibles, net		10,111		11,637
Other assets		1,499		2,215

Total assets	$	387,166	$	424,612


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	53,435	$	77,647
Deferred revenue		38,820		41,644
Current portion of capital lease obligation		248		324
Other current liabilities		4,866		6,375

Total current liabilities		97,369		125,990

Deferred revenue, less current portion		3,162		2,650
Other long-term liabilities, less current portion		26,817		30,120

Total liabilities		127,348		158,760

Stockholders’ equity		259,818		265,852

Total liabilities and stockholders’ equity	$	387,166	$	424,612

	Three Months Ended March 31,
	2003			2002
Revenue:
Product license	$	16,451		$	20,491
Services		24,345			25,888

Total revenue		40,796			46,379

Cost of revenue:
Product license		553			826
Amortization of acquired technology		800			—
Services (1)		10,465			13,082

Total cost of revenue		11,818			13,908


Gross profit		28,978			32,471

Operating expenses:
Research and development (1)		12,109			13,949
Sales and marketing (1)		18,228			28,989
General and administrative (1)		4,801			6,627
Purchased in-process research and development, acquisition-related and other charges		1,142			—
Business restructuring charges		—			13,808
Amortization of deferred stock compensation		377			709
Amortization of intangible assets		609			7,633

Total operating expenses		37,266			71,715

Loss from operations		(8,288	)		(39,244	)
Other income (expense), net		1,035			1,687

Loss before provision for income taxes		(7,253	)		(37,557	)
Provision for income taxes		294			390

Net loss	$	(7,547	)	$	(37,947	)

Basic net loss per common share	$	(0.03	)	$	(0.15	)

Shares used in computing basic net loss per common share		251,230			247,220

	Three Months Ended March 31,
(1) Excludes amortization of deferred stock compensation as follows:	2003			2002
Cost of revenue—services	$	—		$	98
Research and development		114			166
Sales and marketing		23			222
General and administrative		240			223

	$	377		$	709

	Three Months Ended March 31,
	2003			2002
Operating activities:
Net loss	$	(7,547	)	$	(37,947	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		4,134			5,207
Noncash compensation expense		377			709
Amortization of intangible assets		1,526			7,633
Noncash restructuring charges		—			803
Noncash investment impairments		75			—
Other noncash items		4			(41	)
Changes in operating assets and liabilities		(9,093	)		1,068

Net cash used in operating activities		(10,524	)		(22,568	)

Investing activities:
Purchase of property and equipment		(742	)		(1,866	)
Purchase of business, net of cash acquired		(15,449	)		—
Maturity (purchase) of short-term investments, net		48,732			(38,989	)
Purchase of restricted investments		—			(253	)
Purchase of equity securities		(223	)		(800	)
Other		41			(1,097	)

Net cash provided by (used in) investing activities		32,359			(43,005	)

Financing activities:
Payments on capital lease obligations		(98	)		(326	)
Proceeds from exercise of stock options and purchase of employee stock purchase plan shares		1,114			4,006
Payments for unvested common stock		—			(24	)

Net cash provided by financing activities		1,016			3,656

Effect of exchange rate changes on cash and cash equivalents		242			(329	)

Net change in cash and cash equivalents		23,093			(62,246	)
Cash and cash equivalents at beginning of period		216,076			348,916

Cash and cash equivalents at end of period	$	239,169		$	286,670

	Three Months Ended March 31,
	2003			2002
Net loss:

Reported net loss	$	(7,547	)	$	(37,947	)
Add: Total stock-based employee compensation expense included in the determination of net loss as reported, net of related tax effects		377			709
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(24,650	)		(25,276	)

Pro forma net loss	$	(31,820	)	$	(62,514	)

Basic net loss per share :
Reported net loss per share	$	(0.03	)	$	(0.15	)

Pro-forma net loss per share	$	(0.13	)	$	(0.25	)

	Exit Costs			Severance and Relocation Costs			Total
Initial accrual at December 3, 2002	$	9,794		$	1,895		$	11,689
Cash activity		—			—			—

Balance at December 31, 2002		9,794			1,895			11,689
Cash activity		(774	)		(1,460	)		(2,234	)

Balance at March 31, 2003	$	9,020		$	435			9,455

Less: current portion								3,546

Accrued exit and severance costs, less current portion							$	5,909

	Goodwill
Balance at December 31, 2002	$	32,993
Purchase price adjustments		(885	)

Balance at March 31, 2003	$	32,108

	Gross Carrying Amount		Accumulated Amortization and Impairment			Net Carrying Amount
Intellectual property purchases:
Capitalized research and development	$	700	$	(233	)	$	467

Business combinations:
Technology		42,500		(37,167	)		5,333
Non-compete contracts		800		(133	)		667
Customer relationships		4,100		(456	)		3,644

Balance at March 31, 2003	$	48,100	$	(37,989	)	$	10,111

	March 31, 2003		December 31, 2002
Restricted investments (cost approximates fair value)	$	11,697	$	11,697
Equity investments:
Common stock		353		537
Limited partnership interest		1,641		1,418

	$	13,691	$	13,652

	Facility Lease Commitments			Asset Impairments			Employee Separation and Other Costs			Total
Balance at December 31, 2000	$	—		$	—		$	—		$	—
Total restructuring charge		55,150			33,683			32,102			120,935
Cash activity		(12,397	)		(878	)		(22,773	)		(36,048	)
Non-cash activity		(292	)		(32,805	)		(1,918	)		(35,015	)

Balance at December 31, 2001		42,461			—			7,411			49,872

Effect of expanded restructuring plan		6,518			8,730			11,118			26,366
Adjustment to accrual		9,538			463			(545	)		9,456
Cash activity		(21,959	)		—			(11,342	)		(33,301	)
Non-cash activity		—			(9,193	)		(36	)		(9,229	)

Balance at December 31, 2002		36,558			—			6,606			43,164

Cash activity		(3,010	)		—			(2,830	)		(5,840	)

Balance at March 31, 2003	$	33,548		$	—		$	3,776			37,324

Less: current portion											16,447


Accrued restructuring costs, less current portion										$	20,877

	Operating Leases
	Gross Commitment		Contractual Sublease Income		Net Commitment		Capital Leases
Remaining 2003	$	13,404	$	1,161	$	12,243	$	260
2004		14,057		801		13,256		30
2005		12,510		316		12,194		4
2006		6,926		—		6,926		—
2007		4,231		—		4,231		—
Thereafter		11,417		—		11417		—

Total minimum lease payments	$	62,545	$	2,278	$	60,267		294

Amounts representing interest								(15	)

Present value of net minimum lease payments (including current portion of $324)							$	279

	March 31, 2003			December 31, 2002
Accounts payable	$	2,645		$	3,151
Accrued employee liabilities		14,034			15,955
Accrued restructuring charges		16,447			19,759
Accrued exit and severance costs		3,546			5,027
Accrued acquisition consideration		1,303			13,854
Accrued other charges		15,460			19,901

	$	53,435		$	77,647


Long-term liabilities, less current portion consisted of the following (in thousands):
	March 31, 2003			December 31, 2002
Accrued restructuring charges, less current portion	$	20,877		$	23,405
Accrued exit and severance costs, less current portion		5,909			6,662
Capital lease obligation, less current portion		31			53

	$	26,817		$	30,120


Stockholders’ equity consisted of the following (in thousands):
	March 31, 2003			December 31, 2002
Common stock	$	2,529		$	2,518
Additional paid in capital		2,658,089			2,657,014
Notes receivable for purchase of common stock		(32	)		(32	)
Deferred stock compensation		(960	)		(1,367	)
Accumulated other comprehensive income		190			170
Accumulated deficit		(2,399,998	)		(2,392,451	)

	$	259,818		$	265,852

	Three Months Ended March 31,				2003 Compared to 2002
	2003		2002		2003 Compared to 2002
Product license	$	553	$	826	(33	)%
Amortization of acquired technology		800		—	100

Maintenance and support		2,185		1,796	22
Professional services		8,280		11,286	(27	)

Total services revenue		10,465		13,082	(20	)


Total cost of revenue		11,818		13,908	(15	)


Gross profit	$	28,978	$	32,471	(11	)%

Exhibit Number		Description

99.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	VIGNETTE CORPORATION

Date: May 15, 2003	By:	/s/ CHARLES W. SANSBURY
		Charles W. Sansbury
		*Chief Financial Officer*
		(Duly Authorized Officer and Principal Financial Officer)