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AspenTech Annual Report 2003

Driving Process Profitability

 
 
 
 
 
 
 
 
 
 
Aspen Technology Today 

AspenTech’s vision is to enable every process company to continuously improve its operating

performance across the entire enterprise through the everyday use of our software solutions. By realizing

this vision, we help reduce the cost and environmental impact of a broad spectrum of products essential

to the quality of life.

The company has established a leadership position in the emerging Enterprise Operations Management

(EOM) market space by building on the strengths of its two key product lines: engineering and

manufacturing/supply chain. With demand growing across the process industries for solutions that

deliver improved operating performance and real-time visibility, AspenTech has outlined the following

strategy to realize its vision:

Profitably grow our software product families into an integrated suite of scalable industry

modules and go to market with a few strategic alliance partners.

Establish AspenTech as the solution provider of choice, customer by customer, for the

emerging Enterprise Operations Management market.

Invest in new, targeted, vertical industry solutions for Oil & Gas, Petroleum, Chemicals,

Polymers, Batch Chemicals, Pharmaceuticals and Consumer Goods that deliver

significant value. 

Provide an open, Web-based infrastructure that lowers the IT lifecycle cost of ownership by

enabling our customers to easily deploy, integrate, scale and maintain their AspenTech

and third-party operations applications, predictive models and real-time data.

Q1

Q2

Q3

$ 0.06

Q4
$ 0.07

$ 0.02

AspenTech delivered steady operational
results in the last three quarters of fiscal
year 2003, sequentially increasing pro
forma earnings* per share each quarter.

($0.28)

*Pro Forma earnings per share exclude restructuring and one-time
charges, and preferred stock dividend and discount accretion. GAAP
earnings for the corresponding periods above were ($0.34), ($3.59),
($0.05), and ($0.47). A full reconciliation from GAAP earnings to
pro forma earnings can be found on page 70.

We maximize capital efficiency, increase operating margins

and improve operational flexibility for companies in the

process industries. Our solutions for Enterprise Operations

Management visualize, simulate and optimize operations.

These solutions enable process companies to achieve

Operational Excellence through their unique ability to model

and predict the future financial impact of operational decisions. 

Driving Process Profitability.

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Enterprise Operations Management

The World of Operations
The world of operations in the process industries
spans raw material supply to manufacturing to
distribution, linking the plants and supply chain
with the business. Within this world, process
companies are under tremendous pressure to
improve their operating performance, as return on
capital employed (ROCE) and operating margins
have been under downward pressure over the past
two decades. Manufacturers face a number of
significant challenges, including volatile raw material
prices, overcapacity, environmental and regulatory
requirements, and intense global competition.

Historically, technology has played a major role in
helping process companies drive profitability
improvements. In the 1980s there was a major wave
of IT investment in Distributed Control Systems
(DCS), which improved plant-wide efficiency, and in
the 1990s, the industry invested heavily in Enterprise
Resource Planning (ERP) systems to streamline the
back office.

A Focus on Operational Excellence
With the benefits of these systems largely realized,
the process industries are looking to drive the next
wave of profit improvement through Operational
Excellence initiatives. So what is Operational
Excellence? It is the continuous improvement of the
research and development, engineering,
manufacturing and supply chain processes that
underpin operations to achieve operating efficiency
and flexibility across the entire enterprise.

The Aspen Engineering and Aspen Manufacturing/
Supply Chain product family applications are
foundation blocks for Operational Excellence.
Today, these applications provide “windows” into
the world of operations and drive tremendous
value in areas ranging from process lifecycle
management to manufacturing operations
management, to supply chain management.

As process companies seek to unlock new sources
of value, they are broadening their Operational
Excellence focus, from individual departments and
plants, to an enterprise-wide perspective of their
global operations. This transformation is forcing
operations personnel to work together within
global, cross-functional business processes in order
to make better, faster and more profitable decisions.
These challenges are occurring at a time when the
pace of change is accelerating for our customers
and staffing levels have been reduced.

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An Emerging New Market Space
To meet this challenge, process companies are
investing in next-generation solutions that are
driving an emerging market space called Enterprise
Operations Management (EOM). EOM
encompasses today’s existing AspenTech and third-
party operations products, plus new-generation
vertical industry suites, which integrate and extend
these products to unlock significant sources of new
value and enable Operational Excellence across the
enterprise. EOM closes the gap between the
business (ERP) and plant floor (DCS) domains to
enable what analysts call the “real-time enterprise”.

EOM solutions arm operations personnel with
virtual “cockpits” to provide visibility, look-forward
analytics, workflow and event management, and
performance scorecarding capabilities to drive better,
faster and more profitable decisions for the company
as a whole. These Web-enabled, role-specific
“cockpits” encapsulate best-practice business
processes, provide seamless access to applications,
and work off of an asset knowledge warehouse
comprised of disparate, distributed models and data.

The result is significant improvements in operating
performance and profitability. Additionally, EOM
solutions lower the cost of integrating existing
AspenTech and third-party point applications,
lowering the IT lifecycle cost of ownership.

We believe EOM is the next major IT investment
wave in the process industries. We have responded
by being the “first to market” with the most
complete and modular set of EOM solutions.

“In the first year, we achieved
millions of euros of savings
through the utilities optimization
of our 55 plants, with recurring
annual benefits. We now have an
improved understanding of our
processes, which is helping us
make better decisions at the
business level.”

—Geert-Jan de Laat

Project Management & Studies
DSM TechnoPartners

AspenTech Product Strategy

AspenTech’s Engineering and Manufacturing/Supply Chain product family applications drive significant value today. Our product

strategy for the emerging Enterprise Operations Management market is to connect the users of these foundation applications to

create an integrated suite of high-value, vertical industry solutions that enable Operational Excellence across the enterprise. A key

component of this strategy is our new “Operations Cockpit” which extends the functionality of our existing applications by enabling

real-time performance management and providing users with their own virtual window into the entire world of operations.

3

Aspen Product Families

“Our simulation tools are integral 
to our operation because they
enable our engineers and
operators to monitor and optimize
the performance of our operating
units so that we can minimize
energy consumption and
maximize throughputs and
yields. The end result is that
bottom-line profitability of our
refineries improves.”

—Doug Evans

Director, Process Technology
and Reliability, Petro-Canada

The foundation of AspenTech's product strategy for
the Enterprise Operations Management (EOM)
market is comprised of the Aspen Engineering and
Aspen Manufacturing/Supply Chain product families.
The applications in these two product families are
used by tens of thousands of users worldwide across
the process industries. Through the development of a
third product family called Operations Cockpit, we
are integrating these applications to create a new
software suite comprised of scalable vertical industry
modules for the Oil & Gas, Petroleum, Chemicals,
Polymers, Batch Chemicals, Pharmaceuticals and
Consumer Goods markets.

These software offerings are packaged with
AspenTech’s world-class services and alliance
partner services to provide high-ROI, low-risk
solutions for a large spectrum of business problems.

Aspen Engineering
The management of assets through their lifecycle is
a key aspect of Operational Excellence and is a
critical requirement for process manufacturers to
improve capital efficiency and accelerate

4

innovation. The process industries operate some of
the most complicated, interdependent and expensive
facilities in the world, spending approximately $500
billion annually in the creation and maintenance
of assets.

The Aspen Engineering Suite is AspenTech’s solution
for process lifecycle management (PLM) in the
process industries. These applications include
process simulation and optimization, economic
evaluation, collaborative engineering, conceptual
engineering, physical properties & chemistries, and
equipment design & rating. Together, they enable
companies to maximize returns and make better
business decisions throughout the life of a process: at
the initial planning stage, during R&D and design,
during detailed engineering, and finally in the
improvement and optimization of operational
performance. By using these applications to create
rigorous, engineering-based models, customers can
make more informed operating decisions. Examples
of the business problems our Aspen Engineering
Suite helps companies to solve include questions
about plant performance, benchmarking, plant
capacity, production schemes and the costs
associated with changing a process.

Aspen Manufacturing/Supply Chain
Our manufacturing/supply chain solutions help our
customers to maximize operating margins, while
balancing operational efficiency with the flexibility
required to respond to a demand-driven market
environment. These benefits are another key aspect
of Operational Excellence in the process industries.

The Aspen Manufacturing Suite is AspenTech’s
solution for manufacturing operations management
in the process industries. These applications include
advanced process control (APC), real-time
optimization (RTO), manufacturing operations and
operator training. They enable manufacturers to
reduce raw material and energy consumption,
improve product yields, and increase plant
production. When combined with implementation
services, they form our Plantelligence solution and
help companies streamline and optimize their day-
to-day operational activities from selecting the right
raw materials, to improving plant performance to
delivering finished products in the most cost-
effective manner.

The Aspen Supply Chain Suite enables
manufacturers to reduce supply chain costs and
achieve the operational flexibility to respond to an
increasingly demand-driven market environment.
These applications encompass supply and demand

planning, production scheduling, order promising
and distribution, and logistics scheduling. Reduced
inventory and carrying costs are the largest benefits
delivered by these solutions. Additional benefits
include increased customer service, reduced logistics
costs and improved on-time deliveries.

Operations Cockpit
The drive to achieve Operational Excellence across
the entire enterprise in an increasingly dynamic
and competitive global marketplace is forcing
operations personnel to make better, faster and
more profitable decisions. Some refer to this trend
as the dawning of the real-time enterprise.

Operations Cockpit enables operations personnel to
visualize operations, access consistent models and
data from a distributed knowledge warehouse, track
and monitor key performance indicators, run
applications and collaborate around best-practice
business processes. It also helps to proactively identify
issues and do “what if” analysis to take the most
profitable actions. The software suite includes role-
based visibility, workflow and event management,
performance scorecarding, look-forward analytics,
and an asset knowledge warehouse.

Underpinning Operations Cockpit is the Aspen
Enterprise Platform (AEP), an open integration
infrastructure. AEP enables process manufacturers
to connect AspenTech and third-party applications
to their existing enterprise IT systems, including
ERP and DCS systems. AEP is based on an open,
standard Web-based technology, including
Microsoft and TIBCO, and has demonstrated a
significant reduction in integration and lifecycle
cost of ownership.

“The accuracy of both long-term
and short-term planning has
dramatically improved because
it is now based on real-time data
from the plant. Furthermore, the
planning is based on plant
constraints and on data that has
been reconciled to recognize any
plant changes.”

—Bengt-Ove Andersson

Specialist Advanced Process Control 
Olefins Projects & Operations Support
Borealis AB

5

Aspen Vertical Industry Solutions

Within the world of operations, the challenges and
business processes vary considerably across each
market. For example, converting crude oil into
gasoline and delivering it to your local gasoline
station is a quite different challenge than
manufacturing polymers for conversion into the
plastic bags and bottles you buy at your local
grocery store. Accordingly, EOM solutions that
enable Operational Excellence within each vertical
industry must be tailored — one size does not fit all.

AspenTech’s product strategy is to develop broad,
modular, vertical industry suites comprised of
applications from the Aspen Engineering and
Manufacturing/Supply Chain product families, as
well as third-party applications, integrated with
Operations Cockpit. These vertical industry suites
address the specific challenges and business
processes of the major process markets, including
Oil & Gas, Petroleum, Chemicals, Polymers, Batch
Chemicals, Pharmaceuticals and Consumer Goods.
They can be implemented step-by-step or as part of
a large-scale program.

Partners play a key role in developing and delivering
these vertical industry suites. AspenTech partnered
with Accenture to co-develop key Operations
Cockpit functionality and we are currently
co-marketing products with them in the chemicals
and petroleum industries. In petroleum, we are
partnering with UOP to help take to market a new
refinery-wide modeling solution. We will bring on
additional partners as we build out our vertical
industry suites.

The Aspen vertical industry solutions enable
Operational Excellence by allowing global
operations personnel to collaborate  in real-time
within the framework of a company’s integrated
business processes. This collaboration facilitates
faster, more profitable decisions based on consistent
models and real-time data from their operations.
Examples of some of the exciting new vertical
industry solutions we are implementing with our
partners include:

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Oil & Gas solutions that enable production
planners and engineers to optimize their
operations from the well-head to the gas plant, as
well as throughout the entire lifecycle of the
reservoir in order to maximize return on capital
employed. These solutions ensure that users, who
are often spread across massive geographical
distances and time zones, make operational
decisions based on a common set of models. This
data is then constantly adjusted to optimize
the entire asset network rather than just
sub-segments of the enterprise.

Petroleum solutions that enable refining and
marketing companies to capitalize on volatile
pricing changes in crude and finished products
by analyzing the financial impact of key
operational decisions such as crude oil
purchases, optimum inventory management,
and product mix strategies. New functionality
includes the ability to rigorously model
refinery-wide processes in conjunction with
planning and blending processes based on
real-time conditions in the plant.

6

Chemicals solutions that allow manufacturers to
reduce operating costs through utility
optimization, waste reduction and increased
customer service. New supply chain functionality
helps manufacturers differentiate themselves
from competitors by being able to repeat and
confidently commit to customized production
runs of products by linking detailed process
analysis with advanced supply chain applications.

Polymers solutions that reduce costs and
inventories and increase efficiency through
specialized modeling and optimization
capabilities that take into account the unique
challenges of polymer manufacturing, such as
transition times and methods. New functionality
includes advanced process control systems
tailored to the polymer manufacturing process.

Batch Chemicals solutions that enable
manufacturers to quickly design and scale up new
processes by capturing and sharing detailed
knowledge of complex multi-stage production
processes via Web-based models. Specialized
supply chain functionality enables planners to
simultaneously reduce inventories and increase
customer responsiveness and on-time deliveries by
managing supply and demand across multiple
plants and more accurately predicting raw
material requirements for hundreds of ingredients.

Pharmaceuticals solutions that increase the
benefits received from patents by designing
manufacturing strategies that shorten the time
from design to production. These solutions also
help to minimize the time and effort required
to comply with government regulations by
automating and digitizing production data
collection and reporting.

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Consumer Goods solutions that enable
manufacturers to implement demand-driven
supply chain strategies and increase customer
service with lower inventories through real-
time inventory visibility and the ability to
re-optimize production plans hourly, versus
weekly or monthly, based on demand data
from retail customers.

“AspenTech is enabling Degussa to
leverage its long-term investment
in process knowledge capture by
facilitating an achievable
corporate standard for modeling
and optimization.”

—Ralf Janowsky

Director of Computer-Aided
Process Engineering
Degussa

7

Letter to Our Shareholders

Fiscal 2003 was a year of transition and significant progress for AspenTech. Despite the challenges of an

anemic economy and a stagnant IT spending environment, the company met or exceeded its operational and

financial objectives for the last three quarters of the fiscal year. These profitable results were the culmination

of several decisive actions, which included reorganizing the company around our Engineering and

Manufacturing/Supply Chain product lines, strengthening the management team, dramatically reducing

operating expenses, and improving execution across the company.

By taking these actions and dramatically improving
our operating performance, the company was able
to take an important step forward with the
restructuring of our balance sheet. In August 2003,
we closed a $100 million private equity transaction
with Advent International, which eliminated near-
term debt obligations, bolstered working capital,
and put the company in a solid financial position to
fuel top-line and bottom-line growth.

With these changes, AspenTech enters fiscal 2004
with an improved and sustainable operating model,
an excellent market position, and the financial

resources to improve shareholder value by delivering
valuable, differentiated solutions to our customers.

Updated Strategic Direction
We began the fiscal year by showcasing our newest
solutions at AspenWorld, the biennial conference for
process industry executives that attracts more than
2,000 participants. These solutions address the
emerging Enterprise Operations Management (EOM)
market and are designed to increase the profitability of
our process industry customers by improving their
operational efficiency and flexibility. As a first mover in

8

Pictured on opposite page from left to right:
Stephen Doyle, General Counsel, Chief Strategy Officer, Charles Kane, Senior Vice President, Chief Financial Officer, David L. McQuillin,
President and Chief Executive Officer, C. Steven Pringle, Senior Vice President, Manufacturing/Supply Chain, Helen Moye, Senior Vice President,
Human Resources, Manolis Kotzabasakis, Senior Vice President, Engineering, Wayne Sim, Senior Vice President, Worldwide Sales

the EOM market, AspenTech is establishing a
leadership position. Our new EOM solutions have
been extremely well received by customers and
have already delivered significant economic
benefits to several early adopters that have
completed implementations. We believe the next
wave of IT spending in the process industries will
be focused on improving operational performance
and that AspenTech is well positioned as the EOM
market grows.

Improved Operational Performance
In October 2002, we reduced our expenses by
approximately twenty-five percent to deal with the
challenges of a weak IT spending environment.
These reductions, together with improved
productivity and execution across the company,
enabled us to stabilize the business and
sequentially grow pro forma earnings per share
each of the last three quarters of the fiscal year.

One of the key drivers of this improved
performance was the solid performance of the
Engineering product line, which exceeded our
targets for the year and enabled the company to
surpass our expectations for software revenue.
These products performed well because they help
customers improve their operating margins and
capital efficiency even during industry and
economic downturns. The addition of the heritage
Hyprotech products also allowed us to establish a
more significant presence in two major markets:
petroleum refining, and upstream oil & gas.

While the performance of our Manufacturing/
Supply Chain product line was not as robust as we
had hoped, we are excited about the growth
potential of several new products we developed
during the year, including three we jointly developed

with Accenture. One of these products, Aspen
Enterprise Platform (AEP), a robust open-
integration infrastructure and a key component of
our Operations Cockpit, has been sold to fourteen
customers and deployed in more than eighty plants
in just the ten months since its commercial launch.
Overall, we saw improved demand for our
Manufacturing/Supply Chain solutions in our fourth
quarter and are excited about our sales pipeline as
the economy improves and our customers return to
making strategic IT investments.

“AspenTech enters fiscal 2004
remarkably well positioned, with
solutions that deliver rapid,

substantial returns to customers
facing more pressure on their
profit margins every day.”

From an end-user standpoint, customers in the
upstream oil & gas, petroleum refining, chemicals,
polymers, engineering & construction, and
pharmaceutical industries comprised the largest
segments of our business in fiscal 2003. We will
continue to focus on these industries as the source
of our most significant opportunities and the main
drivers of our future growth by developing
targeted, scalable EOM solutions for each of these
major vertical industries.

Strengthened Balance Sheet
In August 2003, the company restructured its balance
sheet and significantly added to its cash balances by
completing a $100 million private equity financing
with Advent International. This transaction,
although dilutive to common shareholders,

9

addressed several near-term debt obligations and
put the company back in a stable financial
situation. Additionally, the confidence of Advent to
make such a significant investment was an
important validation of the value of AspenTech’s
franchise and market opportunity.

Another reason this capital investment was so
critical to the company was that shortly after the
fiscal year ended, the Federal Trade Commission
(FTC) decided to challenge our acquisition of
Hyprotech Ltd. The company’s improved financial
position will enable us to mount a vigorous
defense to this challenge. AspenTech does not agree
with the FTC’s assertion that the transaction was
anticompetitive or with its interpretation of the
facts. We believe that the acquisition benefits
customers and has enabled us to accelerate
innovation in the marketplace.

The company has accrued for the expenses relating
to this challenge, which may take as long as three
to five years to complete if all appeals are taken. In
the meantime, we have the resources to defend
against these allegations. In the interim, the
litigation will not impact our commitment to our
customers, and we will continue to deliver
innovative, high-value engineering solutions.

Positioned for Profitable Growth 
The improvement in our operating performance,
our strengthened balance sheet and the
tremendous value of our customer franchise give
me a high level of confidence as we begin our
new fiscal year. AspenTech enters fiscal 2004 very
well positioned, with a set of solutions that
deliver rapid, substantial returns to customers
facing significant pressures on their operating
performance every day.

As we leverage the strength of our latest product
offering, we will continue to focus on generating
positive cash flow to build on our improved
financial position. With more than seventy-five
percent of our software revenues coming from
recurring term licenses and with a significantly
lowered break-even point, we believe we have
dramatically increased the visibility and
predictability of our business model.

10

The executive management team has come
together nicely, with the most recent addition
being Chuck Kane, who joined the company as
Chief Financial Officer at the start of fiscal 2004.
The entire team is energized by the progress the
company has made and is committed to
generating profitable growth in the year ahead.

“As we leverage the strength of
our latest product offering, we will
continue to focus on generating
positive cash flow to build on our
improved financial position.” 

As I close out my first year as CEO, I would like
to recognize the loyalty of our customers and
partners, and thank our employees for their
dedication over what was a very challenging
period. The progress we made over the past year
would not have been possible without their
support and encouragement. With the solid
foundation we established in fiscal 2003, the
groundwork has been laid for AspenTech to
return to attractive financial and operational
performance in the year ahead.

David L. McQuillin 
President and Chief Executive Officer

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Report

Consolidated Balance Sheets

Consolidated Statements of Operations 

Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders’ Equity

Notes to Consolidated Financial Statements

Report of Independent Public Accountants

Independent Auditor’s Report

12

30

32

33

34

36

71

72

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Since our founding in 1981, we have developed and marketed software and services to companies in the
process industries. In addition to internally generated growth, we have acquired a number of businesses,
including Hyprotech on May 31, 2002. We acquired Hyprotech in a transaction accounted for as a purchase.
Our operating results include the operating results of Hyprotech only for periods subsequent to the date
of acquisition.

We typically license our engineering solutions for terms of three to five years and license our manufacturing/supply
chain solutions for terms of 99 years. See “Item 1. Business—Products: Software and Services.”

Software license revenues, including license renewals, consist principally of revenues earned under fixed-term
and perpetual software license agreements and are generally recognized upon shipment of the software if
collection of the resulting receivable is probable, the fee is fixed or determinable, and vendor-specific objective
evidence, or VSOE, of fair value exists for all undelivered elements. We determine VSOE based upon the price
charged when the same element is sold separately. Maintenance and support VSOE represents a consistent
percentage of the license fees charged to customers. Consulting services VSOE represents standard rates, which
we charge our customers when we sell our consulting services separately. For an element not yet being sold
separately, VSOE represents the price established by management having the relevant authority when it is
probable that the price, once established, will not change before the separate introduction of the element into
the marketplace. Revenues under license arrangements, which may include several different software products
and services sold together, are allocated to each element based on the residual method in accordance with SOP
98-9, “Software Revenue Recognition, with Respect to Certain Transactions.” Under the residual method, the
fair value of the undelivered elements is deferred and subsequently recognized when earned. We have
established sufficient VSOE for professional services, training and maintenance and support services.
Accordingly, software license revenues are recognized under the residual method in arrangements in which
software is licensed with professional services, training and maintenance and support services. We use
installment contracts as a standard business practice and have a history of successfully collecting under the
original payment terms without making concessions on payments, products or services.

Maintenance and support service revenues are recognized ratably over the life of the maintenance and support
contract period. Maintenance and support services include telephone support and unspecified rights to product
upgrades and enhancements. These services are typically sold for a one-year term and are sold either as part of
a multiple element arrangement with software licenses or are sold independently at time of renewal. We do not
provide specified upgrades to our customers in connection with the licensing of our software products.

Service revenues from fixed-price contracts are recognized using the proportional performance method,
measured by the percentage of costs (primarily labor) incurred to date as compared to the estimated total
costs (primarily labor) for each contract. When a loss is anticipated on a contract, the full amount thereof is
provided currently. Service revenues from time-and-expense contracts and consulting and training revenues
are recognized as the related services are performed. Services that have been performed but for which billings
have not been made are recorded as unbilled services, and billings that have been recorded before the services
have been performed are recorded as unearned revenue in the accompanying consolidated balance sheets. In
accordance with the Emerging Issues Task Force released Issue No. 01-14, “Income Statement Characterization
of Reimbursements Received for “Out-of-Pocket' Expenses Incurred,” reimbursement received for out-of-
pocket expenses is recorded as revenue and not as a reduction of expenses.

We license our software in U.S. dollars and several foreign currencies. We hedge material foreign currency-
denominated installments receivable with specific hedge contracts in amounts equal to those installments
receivable. Historically, we experience minor foreign currency exchange gains or losses due to foreign exchange
rate fluctuations, the impact of which have typically not been material. We do not expect fluctuations in foreign
currencies to have a significant impact on either our revenues or our expenses in the foreseeable future.

12

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Significant Events—Year ended June 30, 2003

The restructuring and other charges, totaling $81.2 million in the accompanying consolidated statement of
operations, consist of $68.2 million of charges associated with our October 2002 restructuring plan (as
described below), and $13.0 million of accrued legal costs, related to the FTC challenge of our acquisition of
Hyprotech (as described below).

In October 2002, we determined that the goodwill should be tested for impairment as a result of lowered
revenue expectations and the overall decline in our market value. An independent third party valued our three
business reporting units, license, consulting services, and maintenance and training. The valuation was based
on an income approach, using a five-year present value calculation of income, and a market approach, using
comparable company valuations. Based on this analysis, it was determined that the full values of the goodwill
associated with the license unit and consulting services unit were impaired. It was also determined that the fair
value of the maintenance and training reporting unit exceeded its carrying value, resulting in no impairment
of its goodwill. This amounted to a $74.7 million aggregate impairment charge, recorded in the accompanying
consolidated statement of operations.

On August 7, 2003, the FTC announced that it has authorized its staff to file a civil administrative complaint
alleging that our acquisition of Hyprotech in May 2002 was anticompetitive, seeking to declare the acquisition
in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act. It is too early to determine the likely
outcome of the FTC's challenge. Because of the length of the appeals process, the outcome of this matter may
not be determined for several years. If the FTC were to prevail in this challenge, it could seek to impose a wide
variety of remedies, some of which would have a material adverse effect on our ability to continue to operate
under our current business plans and on our results of operations. These potential remedies include
divestiture of Hyprotech, as well as mandatory licensing of Hyprotech software products and our other
engineering software products to one or more of our competitors. As of June 30, 2003, we had accrued $13.0
million to cover the cost of (1) professional service fees associated with our cooperation in the FTC's
investigation since its commencement on June 7, 2002, and (2) estimated future professional services fees
relating to the initial administrative proceeding and any subsequent appeals.

In January 2003, we executed a Loan Arrangement with Silicon Valley Bank. This arrangement provides a line
of credit of up to the lesser of (i) $15.0 million or (ii) 70% of eligible domestic receivables, and a line of credit
of up to the lesser of (i) $10.0 million or (ii) 80% of eligible foreign receivables. The lines of credit bear
interest at the bank's prime rate (4.00% at June 30, 2003) plus  1/2%, which may be reduced to the bank's prime
rate upon the achievement of two consecutive quarters of net income. We are required to maintain a $4.0
million compensating cash balance with the bank, or be subject to an unused line fee and collateral handling
fees. The lines of credit will initially be collateralized by nearly all of our assets, and upon achieving certain net
income targets, the collateral will be reduced to a lien on the accounts receivable. We are required to meet
certain financial covenants, including minimum tangible net worth, minimum cash balances and an adjusted
quick ratio. In August 2003, we executed an amendment to the Loan Arrangement that adjusted the terms of
certain financial covenants, and cured a default of the tangible net worth covenant as of June 30, 2003. The
Loan Arrangement expires in January 2005.

13

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Summary of Restructuring Accruals

Fiscal 2003
In October 2002, we initiated a plan to further reduce operating expenses in response both to first quarter
revenue results that were below our expectations and to general economic uncertainties. In addition, we
revised our revenue expectations for the remainder of the fiscal year and beyond, primarily related to our
manufacturing/supply chain product line, which has been affected the most by the current economic
conditions. The plan to reduce operating expenses resulted in headcount reductions, consolidation of
facilities, cancellation of certain internal capital projects and discontinuation of development and support for
certain non-critical products. As a result of the discontinuation of development and support for certain
products, coupled with the revised revenue expectations, certain long-lived assets were reviewed and
determined to be impaired in accordance with SFAS No. 144. These actions resulted in an aggregate
restructuring charge of $55.6 million. In June 2003, we reviewed our estimates to this plan and recorded a
$12.5 million increase to the accrual, primarily due to revisions of the facility sub-leasing assumptions, as well
as increases to severance and other costs.

As of June 30, 2003, there was $18.1 million remaining in accrued expenses relating to the remaining
severance obligations and lease payments. During the year ended June 30, 2003, the following activity was
recorded (in thousands):

Restructuring charge
Write-off/Impairment of assets
Payments

Closure/
Consolidation
of Facilities
$17,347
—
(3,548)

Employee
Severance, Benefits,
and Related Costs
$10,028 
—
(7,297)

Accrued expenses, June 30, 2003

$13,799

$ 2,731

Impairment
of Assets and
Disposition Costs
$40,728
(39,148)

—

$  1,580

Total
$68,103
(39,148)
(10,845)

$18,110

We expect that the remaining obligations will be paid by December 2010.

Fiscal 2002
In the fourth quarter of fiscal 2002, we initiated a plan to reduce operating expenses and to restructure
operations around our two primary product lines, engineering software and manufacturing/supply chain
software. We reduced worldwide headcount by approximately 10%, or 200 employees, closed and consolidated
facilities, and disposed of certain assets, resulting in an aggregate restructuring charge of $14.4 million. As of
June 30, 2003, there was $5.9 million remaining in accrued expenses relating to the remaining severance
obligations and lease payments. During the year ended June 30, 2003, the following activity was recorded:

Accrued expenses, June 30, 2002
Payments

Accrued expenses, June 30, 2003

Closure/ 
Consolidation of
Facilities
$ 4,901
(695)

Employee
Severance, Benefits,
and Related Costs
$  6,436
(4,748)

$ 4,206

$  1,688

Total
$11,337
(5,443)

$ 5,894

We expect that the remaining obligations will be paid by December 2010.

14

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During the first quarter of fiscal 2002, in light of further economic uncertainties, our management made a
decision to adjust our business plan by further reducing spending. This change in business plan consisted of a
reduction in worldwide headcount of approximately 5% of the workforce and a reduction of certain future
discretionary expenses. As a result of these measures, we recorded a restructuring charge of $2.6 million,
primarily for severance, for the quarter ended September 30, 2001. During the year ended June 30, 2003, the
following activity was recorded:

Accrued expenses, June 30, 2002
Payments

Accrued expenses, June 30, 2003

Closure/ 
Consolidation of
Facilities
$144
(144)

Employee
Severance, Benefits,
and Related Costs
$19
(19)

$  —

$  —

Total
$163
(163)

$  —

Fiscal 2001
In the third quarter of fiscal 2001, the revenues realized were below expectations as customers delayed spending
in the widespread slowdown in information technology spending and the deferral of late-quarter purchasing
decisions. At that time, we also reduced our revenue expectations for the fourth quarter of fiscal year 2001 and
for the fiscal year 2002. Based on the reduced revenue expectations, management evaluated the business plan
and made significant changes, resulting in a restructuring plan for our operations. This restructuring plan
included a reduction in headcount, a substantial decrease in discretionary spending and a sharpening of our
e-business focus to emphasize our marketplace solutions. The restructuring plan resulted in a pretax charge
totaling $7.0 million. As of June 30, 2003, there was $0.7 million remaining in accrued expenses relating to the
restructuring. During the year ended June 30, 2003, the following activity was recorded:

Accrued expenses, June 30, 2002
Payments

Accrued expenses, June 30, 2003

Closure/ 
Consolidation of
Facilities
$1,137
(397)

Employee
Severance, Benefits,
and Related Costs
$53
(53)

$   740

$  —

Total
$1,190
(450)

$740

We expect that the remaining obligations will be paid by March 2008.

Fiscal 1999
In the fourth quarter of fiscal 1999, we undertook certain actions to restructure our business. The
restructuring resulted from a lower than expected level of license revenues, which adversely affected fiscal year
1999 operating results. The license revenue shortfall resulted primarily from delayed decision making driven
by economic difficulties among customers in certain of our core vertical markets. The restructuring plan
resulted in a pre-tax restructuring charge totaling $17.9 million. As of June 30, 2003, there was $0.5 million
remaining in the accrued expenses relating to the restructuring. During the year ended June 30, 2003, the
following activity was recorded:

Accrued expenses, June 30, 2002
Net sub-lease receipts (lease payments)

Accrued expenses, June 30, 2003

Closure/
Consolidation
of Facilities
$375
147

$522

We expect that the remaining obligations will be paid by December 2004.

15

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Estimates and Judgments
Our consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States (GAAP). The preparation of our financial statements requires management to
make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosures. We base our estimates on historical experience and various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions. The significant accounting
policies that we believe are the most critical to aid in fully understanding and evaluating our reported
financial results include the following:

Revenue recognition for both software licenses and fixed-fee consulting services,

Impairment of long-lived assets, goodwill and intangible assets,

Accounting for income taxes, and 

Allowance for doubtful accounts.

Revenue Recognition—Software Licenses
We recognize software license revenue in accordance with American Institute of Certified Public Accountants
(AICPA) Statement of Position (SOP) No. 97-2, “Software Revenue Recognition”, as amended by SOP
No. 98-4 and SOP No. 98-9, as well as the various interpretations and clarifications of those statements. These
statements require that four basic criteria must be satisfied before software license revenue can be recognized:

Persuasive evidence of an arrangement between ourselves and a third party exists;

Delivery of our product has occurred;

The sales price for the product is fixed or determinable; and 

Collection of the sales price is probable.

Our management uses its judgment concerning the satisfaction of these criteria, particularly the criteria
relating to the determination of whether the fee is fixed and determinable and the criteria relating to the
collectibility of the receivables, particularly the installments receivable, relating to such sales. Should changes
and conditions cause management to determine that these criteria are not met for certain future transactions,
all or substantially all of the software license revenue recognized for such transactions could be deferred.

Revenue Recognition—Consulting Services
We recognize revenue associated with fixed-fee service contracts in accordance with the proportional
performance method, measured by the percentage of costs (primarily labor) incurred to date as compared to
the estimated total costs (primarily labor) for each contract. When a loss is anticipated on a contract, the full
amount of the anticipated loss is provided currently. Our management uses its judgment concerning the
estimation of the total costs to complete the contract, considering a number of factors including the
experience of the personnel that are performing the services and the overall complexity of the project. Should
changes and conditions cause actual results to differ significantly from management's estimates, revenue
recognized in future periods could be adversely affected.

Impairment of Long-lived Assets, Goodwill and Intangible Assets
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, we
review the carrying value of long-lived assets when circumstances dictate that they should be reevaluated,
based upon the expected future operating cash flows of our business. These future cash flow estimates are
based on historical results, adjusted to reflect our best estimate of future markets and operating conditions,
and are continuously reviewed based on actual operating trends. Actual results may differ materially from
these estimates, and accordingly cause a full impairment of our long-lived assets.

16

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, we conduct at least an annual
assessment on January 1st of the carrying value of our goodwill assets. We obtain a third-party valuation of
the reporting units associated with the goodwill assets, which is based on either estimates of future income
from the reporting units or estimates of the market value of the units, based on comparable recent
transactions. These estimates of future income are based upon historical results, adjusted to reflect our best
estimate of future markets and operating conditions, and are continuously reviewed based on actual
operating trends. Actual results may differ materially from these estimates. In addition, the relevancy of recent
transactions used to establish market value for our reporting units is based on management's judgment.

During the year ended June 30, 2003, we recorded charges related to the impairment of certain long-lived
assets and intangible assets and a portion of our goodwill. The timing and size of future impairment charges
involves the application of management's judgment and estimates and could result in the write-off of all or
substantially all of our long-lived assets, intangible assets and goodwill, which totaled $97.5 million as of
June 30, 2003.

Accounting for Income Taxes
As part of the process of preparing our consolidated financial statements we are required to estimate our
income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual
current tax liabilities together with the assessment of temporary differences resulting from differing treatment
of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax
assets and liabilities, which are included within our consolidated balance sheet. Tax assets also result from net
operating losses, research and development tax credits and foreign tax credits. We must then assess the
likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we
believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a
valuation allowance or increase or decrease this allowance in a period, the impact will be included in the tax
provision in the statement of operations.

Significant management judgment is required in determining our provision for income taxes, our deferred tax
assets and liabilities and any valuation allowance recorded against our deferred tax assets. The valuation
allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period
over which our deferred tax assets will be recoverable. In the event that actual results differ from these
estimates, or we adjust these estimates in future periods, we may need to establish an additional valuation
allowance which could result in a tax provision equal to the carrying value of our deferred tax assets.

Allowance for Doubtful Accounts
We make judgments as to our ability to collect outstanding receivables and provide allowances for the portion
of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all
significant outstanding invoices. In determining these provisions, we analyze our historical collection
experience and current economic trends. If the historical data we use to calculate the allowance provided for
doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions
for doubtful accounts may be required for all or substantially all of certain receivable balances.

17

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations
The following table sets forth the percentages of total revenues represented by certain consolidated statement
of operations data for the periods indicated:

Year Ended June 30
Revenues:

Software licenses
Service and other

Total revenues

Expenses:

Cost of software licenses
Cost of service and other
Selling and marketing
Research and development
General and administrative
Costs related to acquisition
Goodwill impairment charge
Restructuring and other charges
Charges for in-process research and development

Total expenses

Income (loss) from operations

Interest income
Interest expense
Write-off of investments
Other income (expense), net

2001

2002

2003

45.1%
54.9

100.0

41.8%
58.2

43.3%
56.7

100.0

100.0

3.6
35.0
34.8
21.1
9.4

—
—

2.1
3.0

109.0
(9.0)
3.1
(1.7)
(1.5)
0.2

3.7
37.5
35.9
23.2
10.7
—
—

5.0
4.6

120.6
(20.6)
2.1
(1.7)
(2.9)
(0.2)

4.3
33.1
32.8
20.2
11.4
—
23.2
25.1
—

150.1
(50.1)
2.7
(2.2)
—
(0.2)

Income (loss) before provision for (benefit from) income taxes

(8.9)%

(23.3)%

(49.8)%

Revenues
Revenues are derived from software licenses, consulting services and maintenance and training. Total revenues
for fiscal 2003 increased 0.7% to $322.7 million from $320.6 million in fiscal 2002. Total revenues for fiscal
2002 decreased 1.9% from $326.9 million in fiscal 2001. Total revenues from customers outside the United
States were $172.5 million or 53.5% of total revenues for fiscal 2003, $146.9 million or 45.8% of total
revenues for fiscal 2002, and $159.5 million or 48.8% for fiscal 2001, respectively. The geographical mix of
revenues can vary from period to period.

Software license revenues represented 43.3%, 41.8% and 45.1% of total revenues for fiscal 2003, 2002, and
2001 respectively. Revenues from software licenses in fiscal 2003 increased 4.4% to $139.9 million from $133.9
million in fiscal 2002, as compared to a decrease of 9.2% in fiscal 2002 from $147.7 million fiscal 2001.
Software license revenues are attributable to software license renewals covering existing users, the expansion
of existing customer relationships through licenses covering additional users, licenses of additional software
products, and, to a lesser extent, to the addition of new customers. Greater software license revenues in fiscal
2003 were driven by the inclusion of software license revenue associated with Hyprotech, offset by an overall
decline in demand for our manufacturing/supply chain products. Revenues and expenses associated with
Hyprotech are included in our results from operations from the May 31, 2002 date of acquisition; for fiscal
2002 this includes the month of June 2002 and for fiscal 2003 this includes the full fiscal year. Lower software
license revenues in fiscal 2002 were driven by significant delays in purchases by our customers in the process
industries, due to the struggling economic environments in the United States and Europe, which resulted in
license revenues for the whole fiscal year 2002 being lower than our initially anticipated levels.

18

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Revenues from service and other consist of consulting services, post-contract support on software licenses,
training and sales of documentation. Revenues from service and other for fiscal 2003 decreased 2.1% to $182.9
million from $186.7 million for fiscal 2002, as compared to an increase of 4.0% in fiscal 2002 from $179.5
million for fiscal 2001. This decline in revenue is reflective of a decrease in consulting revenue, partially offset
by the inclusion of maintenance revenue associated with Hyprotech. The decline in consulting revenue
primarily is related to the decline in demand for our manufacturing/supply chain software products, along
with which we typically sell consulting projects.

Cost of Software Licenses
Cost of software licenses consists of royalties, amortization of previously capitalized software costs, costs
related to delivery of software, including disk duplication and third-party software costs, printing of manuals
and packaging. Cost of software licenses for fiscal 2003 increased 17.6% to $13.9 million from $11.8 million in
fiscal 2002. Cost of software licenses remained consistent between 2002 and 2001, decreasing to $11.8 million
from $11.9 million in fiscal 2001. Cost of software licenses as a percentage of revenues from software licenses
represented 10.0%, 8.8%, and 8.0% for fiscal years 2003, 2002 and 2001, respectively. The increases between
fiscal 2002 and 2003 was primarily the result of a royalty arrangement with Accenture, which was effective as
of July 2002, under which we pay royalties on the licensing of certain manufacturing/supply chain products.
The increase between fiscal 2001 and 2002 was result of decreased license revenue, and the largely fixed nature
of the costs that are included in cost of software licenses.

Cost of Service and Other
Cost of service and other consists of the cost of execution of application consulting services, technical support
expenses and the cost of training services. Cost of service and other for fiscal 2003 decreased 10.9% to $106.9
million from $120.0 million for fiscal 2002, as compared to an increase of 4.7% from $114.6 million in fiscal
2001. Cost of service and other, as a percentage of revenues from service and other, was 58.4%, 64.3% and
63.8% for fiscal years 2003, 2002 and 2001, respectively. This decrease in absolute dollars between fiscal 2003
and 2002 is due to the reductions in headcount reflected in the restructuring charges of May 2002 and
October 2002. The decrease as a percentage of service and other revenues between fiscal 2002 and 2003 was
due to the headcount reductions, as well as the increase of revenues from software maintenance as a
percentage of service and other revenue, a service that provides higher margins than consulting services.

Selling and Marketing
Selling and marketing expenses for fiscal 2003 decreased 8.1% to $105.9 million from $115.2 million for fiscal
2002, as compared to an increase of 1.4% in fiscal 2002 from $113.6 million in fiscal 2001. Selling and marketing
expenses as a percentage of total revenues were 32.8%, 35.9% and 34.8% in fiscal years 2003, 2002 and 2001. The
decrease between fiscal 2002 and 2003 is attributable to the headcount reductions reflected in the restructuring
charges of May 2002 and October 2002, partially offset by costs associated with our October 2002 AspenWorld
conference, which occurs bi-annually, the inclusion of costs associated with Hyprotech, increases in certain
foreign-based sales expenses where currencies strengthened as compared to the US dollar, and an increase in
sales commissions related to significantly higher license revenues in the three months ended September 30, 2002
as compared to the three months ended September 30, 2001. The increase in selling and marketing costs between
fiscal 2001 and fiscal 2002 was primarily attributable to an expense base that increased in the initial part of fiscal
2002 to support an expected higher license revenue level, including our investment in additional headcount to
support our initiatives in the areas of expanding partnerships, in addition to sales and marketing expenses
contributed by Hyprotech in June 2002. Fiscal 2002 also included additional expenses as compared to fiscal 2001
relating to our plans to expand certain new business initiatives, including PetroVantage.

19

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Research and Development
Research and development expenses consist of personnel and outside consultancy costs required to conduct
our product development efforts. Capitalized software development costs are amortized over the estimated
remaining economic life of the relevant product, not to exceed three years. Research and development
expenses for fiscal 2003 decreased 12.6% to $65.1 million from $74.5 million for fiscal 2002. This compared to
an increase of 8.0% in fiscal 2002 from $68.9 million in fiscal 2001. Research and development expenses as a
percentage of total revenues were 20.2%, 23.2%, and 21.1% in fiscal years 2003, 2002 and 2001, respectively.
The decrease in costs between fiscal 2003 and 2002 are attributable to the effect of reductions in headcount
reflected in the restructuring charges of May 2002 and October 2002, partially offset by the inclusion of costs
associated with Hyprotech and increases in certain foreign-based research and development expenses where
currencies strengthened as compared to the US dollar. The increase in costs between fiscal 2001 and 2002 was
attributable to a full year of costs relating to the June 2001 acquisitions of certain technology divisions of CPU
and the Houston Consulting Group, non-capitalizable costs incurred in association with the Accenture
Strategic Alliance, a general increase in normal development activities and costs contributed by Hyprotech in
June 2002. The increase in research and development expenses as a percentage of total revenues between fiscal
2001 and 2002 was primarily related to lower than anticipated revenues.

We capitalized software development costs that amounted to 14.6%, 11.7% and 7.6% of our total research and
development costs for fiscal years 2003, 2002 and 2001. This increase between fiscal 2002 and 2003 is due to
product development activity related to the Accenture co-development alliance, as well as a smaller level of
overall research and development spending. The increase between fiscal 2001 and 2002 was primarily related
to internal costs and costs incurred by Accenture, as part of the Accenture Strategic Alliance. Specifically, 3.0%
of the capitalized was associated from this activity with Accenture.

General and Administrative
General and administrative expenses consist primarily of salaries of administrative, executive, financial and
legal personnel, outside professional fees and amortization of identifiable intangibles. General and
administrative expenses for fiscal 2003 increased 7.1% to $36.7 million from $34.3 million for fiscal 2002, as
compared to an increase of 11.8% for fiscal 2002 from $30.6 million in fiscal 2001. General and administrative
expenses as a percentage of total revenues were 11.4%, 10.7%, and 9.4% in fiscal years 2003, 2002, and 2001,
respectively. The increase between fiscal 2002 and 2003 is due primarily to the full year of amortization of
identifiable intangibles related to the May 2002 acquisition of Hyprotech, increases to our bad debt reserve, and
the inclusion of general and administrative costs associated with Hyprotech, all offset by the effect of reductions
in headcount reflected in the restructuring charges of May 2002 and October 2002. Fiscal 2001 includes $2.6
million associated with the amortization of goodwill, for which there is no corresponding charge in fiscal 2002,
resulting in a comparative increase of $6.2 million or 22.2%. The increases between fiscal 2001 and 2002 were
due primarily to the full year of amortization of intangibles related to the 2001 acquisitions of Icarus, CPU and
the Houston Consulting Group, an increase to our bad debt reserve due to the current economic environment,
an increase in certain non-recurring professional fees and costs related to the settlement of minor litigation.
Amortization of intangible assets, including goodwill in fiscal 2001, was $5.2 million in fiscal 2002 and $6.1
million in fiscal 2001, respectively, a decrease of 14.8% in fiscal 2002 as compared to the prior year. General and
administrative expenses contributed by Hyprotech were not significant in fiscal 2002. In October 2002, we
determined that the goodwill should be tested for impairment as a result of lowered revenue expectations and
the overall decline in our market value. This amounted to a $74.7 million aggregate impairment charge,
recorded in the accompanying consolidated statement of operations.

20

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Restructuring and Other Charges

Fiscal 2003 Restructuring Charges
During fiscal 2003, we recorded $81.2 million in restructuring and other charges. Of this amount, $68.2
million is associated with our October 2002 restructuring plan, and $13.0 million represents accrued legal
costs, related to the FTC challenge of our acquisition of Hyprotech.

The October 2002 restructuring plan resulted in a $55.6 restructuring charge recorded in the three months
ended December 31, 2002. In June 2003 we reviewed our estimates to this plan and recorded a $12.5 million
increase to the accrual, primarily due to revisions of the facility sub-leasing assumptions, as well as
adjustments to severance and other costs. The components of the restructuring plan are as follows:

Closure/consolidation of facilities: Approximately $17.4 million of the restructuring charge relates to the
termination of facility leases and other lease related costs. Of this amount, approximately $8.7 million was
recorded in the three months ended December 31, 2002, and approximately $8.7 million was recorded as a result
of the June 2003 increase to the accrual. The facility leases had remaining terms ranging from several months to
eight years. The amount accrued is an estimate of the remaining obligation under the lease or actual costs to buy-
out leases, reduced by expected income from the sublease of the underlying properties. The June 2003 increase to
the accrual is primarily due to revised estimates related to sublease assumptions, as actual sub-lease rates have
been significantly less than originally estimated and we have experienced delays contracting with sub-lessors.

Employee severance, benefits and related costs:  Approximately $10.0 million of the restructuring charge
relates to the reduction in headcount. Of this amount, approximately $8.2 million was recorded in the three
months ended December 31, 2002 and approximately $1.8 million was recorded as a result of the June 2003
increase to the accrual. Approximately 400 employees, or 20% of the workforce, were eliminated under the
restructuring plan implemented by management. All geographic regions and business units were affected,
including services, sales and marketing, research and development, and general and administrative.

Impairment of assets and disposition costs:  Approximately $40.7 million of the restructuring charge relates
to charges associated with long-lived assets that were reviewed for impairment under the provisions of
SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” and were either written-
down to fair value or written-off due to the fact that the underlying assets will no longer be utilized. Of
this amount, approximately $38.7 million was recorded in the three months ended December 31, 2002 and
approximately $2.0 million was recorded as a result of the June 2003 increase to the accrual. The resulting
charges include:

A $23.6 million impairment charge related to the intellectual property purchased from Accenture in
February 2002. The fair value of this asset was determined by forecasting the future net cash flows
associated with the asset and then was compared to its carrying value. This intellectual property is
used primarily in the development of manufacturing / supply chain software products, within our
license line of business. As noted above, the revenue expectations for the manufacturing / supply
chain product line were significantly reduced by management, which prompted the recoverability
review, and ultimately, the impairment.

$13.8 million in impairment charges related to acquired technology, computer software development
costs and purchased software. These assets were considered to be impaired because they will either no
longer be used or their carrying values were in excess of their fair values. The assets that will no
longer be used were identified by management's decisions to either discontinue future development
efforts associated with certain products or discontinue internal capital projects. The carrying values
of the remaining assets were compared to the fair values of those assets resulting in an impairment.
The fair values were determined by forecasting the future net cash flows associated with the products.
All of these assets were part of the license line of business.

21

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

A $3.3 million impairment charge related to assets and liabilities associated with certain products
which we are divesting. These assets have historically been considered to be part of the license line of
business. As part of the cost reductions, management decided that we would no longer devote
resources to the development or support of these products. The fair value of the related assets was
determined from letters of intent to purchase the intellectual property.

Fiscal 2002 Restructuring Charges
During fiscal 2002, management undertook two separate restructuring plans. The first occurred in August
2001 and amounted to $2.6 million, primarily related to severance. The second occurred in May 2002 and
amounted to $14.4 million, related to severance, facility consolidations and the write-off of certain assets. In
addition, during fiscal 2002, we revised estimates on previously recorded restructuring plans, resulting in a
reversal of an aggregate $1.1 million of facility accruals and a $0.1 million increase to a severance settlement.

August 2001 restructuring plan. During August 2001, in light of economic uncertainties, management
made a decision to adjust the business plan by reducing spending, which resulted in a restructuring charge of
$2.6 million, primarily for severance. Approximately 100 employees, or 5% of the workforce, were eliminated
under the changes to the business plan implemented by management. Areas impacted included sales and
marketing, services, research and development, and general as well as administrative.

May 2002 restructuring plan. In the third quarter of fiscal 2002, revenues were lower than our expectations
as customers delayed spending due to the general weakness in the economy. Like many other software
companies, we reduced our revenue expectations for the fourth quarter and for the fiscal year 2003. Based
upon the impact of these reduced revenue expectations, management evaluated our current business and
made significant changes, resulting in a restructuring plan for our operations. This restructuring plan
included a reduction in headcount, tighter cost controls, the close-down and consolidation of facilities, and
the write-off of certain assets.

Close-down/consolidation of facilities:  Approximately $4.9 million of the restructuring charge relates to
the termination of facility leases and other lease-related costs. The facility leases had remaining terms
ranging from several months to nine years. The amount accrued reflects our best estimate of the actual
costs to buy-out leases or to sublease the underlying properties.

Employee severance, benefits and related costs: Approximately $8.3 million of the restructuring charge
relates to the reduction in headcount. Approximately 200 employees, or 10% of the workforce, were
eliminated under the changes to the business plan implemented by management. Business units
impacted included sales and marketing, services, research and development, and general and
administrative, across all geographic areas.

Write-off of assets: Approximately $1.2 million of the restructuring charge relates to the write-off of
prepaid royalties related to third-party software products that we will no longer support.

Adjustments to previously recorded restructuring charges. In March 2002, due to revised sub-lease
assumptions at one of our facilities, we recorded a $0.5 million reversal to the restructuring accrual that had
been recorded in the fourth quarter of fiscal 2001. In June 2002, due to revisions to the life of the expected
sublease end dates for two facilities, we recorded $0.3 million reversals to both the restructuring accrual that
had been recorded in the fourth quarter of fiscal 2001 and in the fourth quarter of fiscal 1999.

Charge for In-Process Research and Development
In connection with the acquisition of Hyprotech in May 2002, $14.9 million of the purchase price was
allocated to in-process research and development projects based upon an independent appraisal. This
allocation represented the estimated fair value based on risk-adjusted cash flows related to the incomplete
research and development projects. At the date of acquisition, the development of these projects had not yet

22

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

reached technological feasibility, and the research and development in progress had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date.

At the acquisition date, Hyprotech was conducting design, development, engineering and testing activities
associated with the completion of its next-generation product. This project involved developing a new
componentized architecture that would result in a next-generation software suite. In addition, design and
development was in progress for the next release cycle for several of Hyprotech's other products. At the
acquisition date, the technologies under development ranged from 25 to 74 percent complete based on
engineering man-month data and technological progress. Anticipated completion dates ranged from three
months to two years at an estimated cost of $19.3 million.

In making this purchase price allocation, we considered present value calculations of income, an analysis of
project accomplishments and remaining outstanding items and an assessment of overall contributions, as well
as project risks. The values assigned to purchased in-process technology were determined by estimating the
costs to develop the acquired technologies into commercially viable products, estimating the resulting net cash
flows from the projects, and discounting the net cash flows to their present values. The revenue projections
used to value the in-process research and development were based on estimates of relevant market sizes and
growth factors, expected trends in technology, and the nature and expected timing of new product
introductions by us and our competitors. The resulting net cash flows from the projects are based on estimates
of cost of sales, operating expenses, and income taxes from the projects. The rates utilized to discount the net
cash flows to their present value were based on estimated cost of capital calculations. Due to the nature of the
forecasts and the risks associated with the projected growth as well as profitability of the developmental
projects, discount rates of 20 to 40 percent were considered appropriate for the in-process research and
development. Risks related to the completion of technology under development include the inherent
difficulties and uncertainties in achieving technological feasibility, anticipated levels of market acceptance and
penetration, market growth rates, and risks related to the impact of potential changes in future target markets.

Interest Income
Interest income is generated from investment of excess cash in short-term and long-term investments and
from the license of software pursuant to installment contracts. Under these installment contracts, we offer a
customer the option to make annual payments for its term licenses instead of a single license fee payment at
the beginning of the license term. Historically, a substantial majority of the engineering customers have
elected to license these products through installment contracts. Included in the annual payments is an implicit
interest rate established by us at the time of the license. As we sell more perpetual licenses for
manufacturing/supply chain solutions, these sales are being paid for in forms that are generally not
installment contracts. If the mix of sales moves away from installment contracts, interest income in future
periods will be reduced.

We sell a portion of the installment contracts to unrelated financial institutions. The interest earned by us on
the installment contract portfolio in any one year is the result of the implicit interest rate established by us on
installment contracts and the size of the contract portfolio. Interest income was $8.5 million for fiscal 2003 as
compared to $6.8 million in fiscal 2002. Interest income in fiscal 2001 was $10.3 million. The increase between
fiscal 2002 and 2003 primarily is due to the increase of installment contracts associated with Hyprotech. The
decrease between fiscal 2001 and 2002 was due to the general decline in interest rates during fiscal 2002, which
affected interest earned on installment contracts and our short-term investments.

Interest Expense
Interest expense was incurred under our 5 1/4% convertible debentures, amounts owed to Accenture, and
capital lease obligations. Interest expense in fiscal 2003 increased to $7.1 million from $5.6 million in fiscal
2002. This increase primarily is due to interest on the amounts owed to Accenture. Interest expense in fiscal
2001 was $5.5 million.

23

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Write-off of Investment
During fiscal 2001 and 2002 we invested $10.8 million in Optimum Logistics Ltd. consisting of cash and stock,
of which $2.1 was refunded in March 2002. This investment entitled us to a minority interest in Optimum
Logistics and was accounted for using the cost method. During the fourth quarter of fiscal 2002, we
determined that our investment in Optimum Logistics was impaired and this investment of $8.7 million was
written-off, in addition to $0.2 million of other write-offs.

Foreign Currency Exchange Loss
Foreign currency exchange gains and losses are primarily incurred through the revaluation of receivables
denominated in foreign currencies. Foreign currency exchange loss in fiscal 2003 decreased to $0.1 million
from $1.1 million in fiscal 2002, as compared to a loss of $0.1 million in fiscal 2001. The decrease between
fiscal 2002 and 2003 was due to the implementation of a more effective hedging policy for Hyprotech's
receivables. In fiscal 2002, an effective hedging policy had not yet been implemented. The increase between
fiscal 2001 and 2002 was due to the weakening of the U.S. Dollar against European currencies and translation
losses attributable to Hyprotech's receivables during the month of June.

Income (Loss) on Equity in Joint Ventures and Realized Gain on Sales of Investments
Income (loss) on equity in joint ventures and realized gain on sales of investments was a $0.5 million loss in
fiscal 2003 as compared to $0.2 million in income in fiscal 2002 and $0.8 million in income for fiscal 2001.
The loss in fiscal 2003 is related to losses in the joint ventures, caused by the general economic slowdown
during the year. In fiscal 2002 this consisted entirely of income on equity in joint ventures. In fiscal 2001, this
primarily consisted of $0.6 million of realized gains on the partial sale of two investments and $0.1 million of
income on equity in joint ventures.

Provision for/Benefit from Income Taxes
We provided a full valuation against the benefit generated during fiscal 2003 and recorded a provision for
income taxes of $2.4 million for fiscal 2002. We recorded a benefit from income taxes of $8.7 million for fiscal
2002 and 2001, respectively. The provision for fiscal 2002 represents income taxes on income generated in
certain foreign jurisdictions where we did not have operating loss carry forwards. We generated significant
U.S. tax loss carryforwards during fiscal 2003, 2002, and 2001. The provision for fiscal 2002 was comprised of
an income tax provision related to foreign subsidiaries, a benefit from income taxes and an offsetting increase
in the tax valuation. The provision for fiscal 2002 also included a benefit from income taxes and a
corresponding increase in the tax valuation of $8.7 million.

Under SFAS No. 109, a deferred tax asset related to the future benefit of a tax loss carryforward should be
recorded unless we make a determination that it is “more likely than not” that such deferred tax asset would
not be realized. Accordingly, a valuation allowance would be provided against the deferred tax asset to the
extent that we cannot demonstrate that it is “more likely than not” that the deferred tax asset will be realized.
In determining the amount of valuation allowance required, we consider numerous factors, including
historical profitability, estimated future taxable income, the volatility of the historical earnings, and the
volatility of earnings of the industry in which we operate. We periodically review our deferred tax asset to
determine if such asset is realizable. In fiscal 2002, we concluded, in accordance with SFAS No. 109, that we
should not recognize the full value of our deferred tax asset under the “more likely than not” test and therefore
increased the amount of the valuation allowance. In fiscal 2003, we determined that it was more likely than
not that the deferred tax asset would be realized. (See Note 10 of Notes to Consolidated Financial Statements.) 

24

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Quarterly Results

Our operating results and cash flow have fluctuated in the past and may fluctuate significantly in the future as
a result of a variety of factors, including purchasing patterns, timing of introductions of new solutions and
enhancements by us and our competitors, and fluctuating economic conditions. Because license fees for our
software products are substantial and the implementation of our solutions often requires the services of our
engineers over an extended period of time, the sales process for our solutions is lengthy and can exceed one
year. Accordingly, software revenues are difficult to predict, and the delay of any order could cause our
quarterly revenues to fall substantially below expectations. Moreover, to the extent that we succeed in shifting
customer purchases away from point solutions and toward integrated solutions, the likelihood of delays in
ordering may increase and the effect of any delay may become more pronounced.

We ship software products within a short period after receipt of an order and usually do not have a material
backlog of unfilled orders of software products. Consequently, revenues from software licenses, including
license renewals, in any quarter are substantially dependent on orders booked and shipped in that quarter.
Historically, a majority of each quarter's revenues from software licenses has been derived from license
agreements that have been consummated in the final weeks of the quarter. Therefore, even a short delay in the
consummation of an agreement may cause revenues to fall below expectations for that quarter. Since our
expense levels are based in part on anticipated revenues, we may be unable to adjust spending in a timely
manner to compensate for any revenue shortfall and any revenue shortfall would likely have a
disproportionately adverse effect on net income. We expect that these factors will continue to affect our
operating results for the foreseeable future.

The table on the following page presents selected quarterly consolidated statement of operations data for fiscal
2002 and 2003. These data are unaudited but, in our opinion, reflect all adjustments necessary for a fair
presentation of these data in accordance with accounting principles generally accepted in the United States.

25

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Fiscal 2002 Quarter Ending

Fiscal 2003 Quarter Ending

Sep. 30

Dec. 31

Mar. 31

June 30

Sep. 30

Dec. 31

Mar. 31

Sep. 30

(In thousands)

Revenues

Software licenses $ 19,231 $39,939
47,057
Service and other 46,960

$37,380
46,086

$37,363
46,588

$29,646
47,604

$36,781 
46,192

$34,883
44,846

$38,549
44,220

Total revenues 66,191

86,996

83,466

83,951

77,250

82,973

79,729

82,769

2,444

30,142

26,624

Expenses:
Cost of
software licenses
Cost of service
and other
Selling and 
marketing
Research and 
development
General and 
administrative
Goodwill 
impairment charge —
Restructuring and
other charges
Charge for 
in-process research
hand development

17,999

7,422

2,642

—

3,054

3,165

3,167

3,335

3,511

2,891

4,179

30,261

29,969

29,600

28,008

26,823

25,745

26,292

28,451

29,521

30,629

29,154

27,031

24,455

25,243

17,829

19,585

19,045

17,745

15,997

15,727

15,617

7,520

8,678

10,638

9,821

8,923

8,893

9,044

—

—

—

—

—

(500)

13,941

—

14,900

—

—

—

74,715

—

—

60,529

2,100

18,533

—

—

—

Total expenses 87,273

87,115

90,418

121,920

88,063

217,529

79,811

98,908

Income (loss)
(21,082)
from operations
753
Interest income, net
Write-off of investments —
Other income,
(expense) net
Income (loss) 
before provision
for (benefit from) taxes(20,513)
Provision for
(benefit from)
income taxes

(6,154)
Net income (loss) (14,359)

(184)

(119)
144
—

(6,952)
103
—

(37,969)
177
(8,923)

(10,813)
581
—

(134,556)
268
—

(171)

(152)

(386)

(501)

(313)

(82)
349
—

64

(16,139)
155
—

154

(146)

(7,001)

(47,101)

(10,733)

(134,601)

331

(15,830)

(44)
(102)

(2,100)
(4,901)

10,702
(57,803)

—
(10,733)

—
(134,601)

—
331

—
(15,830)

Accretion of
preferred stock
discount and dividend —

—

(4,140)

(2,161)

(2,234)

(2,287)

(2,291)

(2,372)

Net income (loss) applicable to common stockholders
$(14,359) $    (102)

$  (9,041)

$(59,964)

$(12,967) $(136,888)

$  (1,960)

$(18,202)

Basic and diluted
income(loss) 
applicable to
common
shareholders
Basic and diluted
weighted average
Shares outstanding

26

$     (0.45) $     0.00

$   (0.17)

$ (1.60)

$  (0.34) $      (3.59)

$    (0.05)

$    (0.47)

31,760

31,748

31,948

37,438

37,994

38,128

38,795

39,026

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources
In fiscal 2003, operating activities provided $21.6 million of cash primarily due to decreases to accounts
receivable, unbilled services, and prepaid expenses, partially offset by a decrease in accounts payable and accrued
expenses. In fiscal 2001 and 2002, operating activities used $14.1 million and $8.0 million of cash, respectively.

In fiscal 2003, investing activities provided $7.5 million of cash primarily as a result of the maturity of short-
term investments, offset in part by an increase in computer software development costs and purchases of
property and leasehold improvements. In fiscal 2001 and 2002, investing activities used $13.0 million and
$102.3 million of cash, respectively.

In fiscal 2003, financing activities used $11.6 million of cash primarily due to payments made on our amount
owed to Accenture and on our long-term debt and capital lease obligations. In fiscal 2001 and 2002, financing
activities provided $15.6 million and $107.1 million of cash, respectively.

Historically, we have financed our operations principally through cash generated from public offerings of our
5 1/4% convertible debentures and common stock, private offerings of our Series B convertible preferred stock
and common stock, operating activities, and the sale of installment contracts to third parties. Additionally, in
August 2003 we closed on a private offering of the Series D preferred.

In August 2003, we issued and sold 300,300 shares of Series D-1 preferred, along with warrants to purchase
up to 6,006,006 shares of common stock, for an aggregate purchase price of $100.0 million. Concurrently, we
paid $30.0 million and issued 63,064 shares of Series D-2 preferred, along with warrants to purchase up to
1,261,280 shares of common stock, to repurchase all of the outstanding Series B-I and B-II preferred. The
Series D preferred, earns cumulative dividends at an annual rate of 8%, that are payable when and if declared
by the board, in cash or, subject to certain conditions, common stock. Each share of Series D preferred is
initially convertible into 100 shares of common stock, subject to anti-dilution and other adjustments. As a
result, the shares of Series D preferred initially were convertible into an aggregate of approximately 36,336,400
shares of common stock. The Series D preferred is subject to redemption at the option of the holders as
follows: 50% on or after August 14, 2009 and 50% on or after August 14, 2010.

We intend to use $45.0 million in proceeds from the sale of our Series D preferred to repay a portion of the
convertible debentures at, or prior to, maturity. We cannot use those proceeds for any other purpose without
the consent of the holders of the Series D-1 preferred. We may also attempt to increase the sale of our
installment contracts and use these proceeds from such sales to fund additional repurchases of our
convertible debentures at, or prior to, maturity.

Historically, we have had arrangements to sell long-term installments receivable to two financial institutions,
General Electric Capital Corporation and Fleet Business Credit Corporation. These contracts represent amounts
due over the life of existing term licenses. During fiscal 2001, 2002 and 2003, we sold $66.7 million, $42.7
million and $55.6 million of installments receivable, respectively. As of June 30, 2003 there was approximately
$45 million in additional availability under the arrangements. We expect to continue to have the ability to sell
installments receivable, as the collection of the sold receivables will reduce the outstanding balance, and the
availability under the arrangements can be increased. At June 30, 2003 we had a partial recourse obligation that
was within the range of $4.1 million to $5.7 million. We may in the future establish new arrangements to sell
additional installment contracts to other financial institutions and increase our cash position.

In January 2003, we executed a Loan Arrangement with Silicon Valley Bank. This arrangement provides a line
of credit of up to the lesser of (i) $15.0 million or (ii) 70% of eligible domestic receivables, and a line of credit
of up to the lesser of (i) $10.0 million or (ii) 80% of eligible foreign receivables. The lines of credit bear
interest at the bank's prime rate (4.00% at June 30, 2003) plus  1/2%, which may be reduced to the bank's
prime rate upon the achievement of two consecutive quarters of net income. We are required to maintain a
$4.0 million compensating cash balance with the bank, or be subject to an unused line fee and collateral

27

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

handling fees. The lines of credit will initially be collateralized by nearly all of our assets, and upon achieving
certain net income targets, the collateral will be reduced to a lien on our accounts receivable. We are required to
meet certain financial covenants, including minimum tangible net worth, minimum cash balances and an
adjusted quick ratio. As of June 30, 2003, there were $8.8 million in letters of credit outstanding under the line of
credit, and there was $15.7 million available for future borrowing. In August 2003, we executed an amendment to
the Loan Arrangement that adjusted the terms of certain financial covenants, and cured a default of the tangible
net worth covenant as of June 30, 2003. The Loan Arrangement expires in January 2005.

As of June 30, 2003, we had cash and cash-equivalents totaling $51.6 million. Our commitments as of June 30,
2003 consisted primarily of the maturity of the convertible debentures, amounts owed to Accenture, capital lease
obligations, and leases on our headquarters and other facilities. Other than these, there were no other material
commitments for capital or other expenditures. Our obligations related to these items at June 30, 2003 are as
follows (in thousands):

Non-cancelable operating leases
Non-cancelable capital leases and 
debt obligations
Amounts owed to Accenture 
(includes royalty minimums)
Maturity of convertible debentures

2004
$16,747

2005
$14,411

2006
$12,526

2007
$11,956

2008
$10,887

Thereafter
$34,808

3,849

1,597

1,039

6,117
—

3,820
86,250

—
—

224

—
—

183

—
—

618

—
—

Total commitments

$26,713

$106,078

$13,565

$12,180

$11,070

$35,426

We believe our current cash balances, availability of sales of our installment contracts, availability under the
Silicon Valley Bank line of credit, cash flows from our operations and proceeds from our August 2003 Series D
Preferred financing will be sufficient to meet our working capital and capital expenditure requirements for at
least the next 12 months. However, we may need to obtain additional financing thereafter or earlier, if our
current plans and projections prove to be inaccurate or our expected cash flows prove to be insufficient to fund
our operations because of lower-than-expected revenues, unanticipated expenses or other unforeseen difficulties,
due to normal operations or FTC-related costs. In addition, we may seek to take advantage of favorable market
conditions by raising additional funds from time to time through public or private security offerings, debt
financings, strategic alliances or other financing sources. Our ability to obtain additional financing will depend
on a number of factors, including market conditions, our operating performance and investor interest. These
factors may make the timing, amount, terms and conditions of any financing unattractive. They may also result
in our incurring additional indebtedness or accepting stockholder dilution. If adequate funds are not available or
are not available on acceptable terms, we may have to forego strategic acquisitions or investments, reduce or defer
our development activities, or delay our introduction of new products and services. Any of these actions may
seriously harm our business and operating results.

Inflation
Inflation has not had a significant impact on our operating results to date and we do not expect inflation to have
a significant impact during fiscal 2004.

New Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board, FASB, issued Statement of Financial Accounting
Standards, SFAS, No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This statement
supersedes Emerging Issues Task Force, EITF, No. 94-3, “Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity.” Under this statement, a liability or a cost associated with a disposal
or exit activity is recognized at fair value when the liability is incurred rather than at the date of an entity's
commitment to an exit plan as required under EITF 94-3. The provisions of this statement are effective for exit
or disposal activities that are initiated after December 31, 2002, with early adoption permitted. All of our prior
restructuring actions will continue to be accounted for under EITF 94-3.

28

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation—Transition
and Disclosure, an amendment of FASB Statement No. 123.” This Statement amends SFAS No. 123,
“Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee compensation. In addition,
this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The provisions of this statement are
effective for fiscal years ending after December 31, 2002. The adoption of SFAS No. 148 did not have a
material effect on our consolidated financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and
Hedging Activities.” This Statement amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments
and Hedging Activities.” The provisions of this statement are effective for transactions that are entered into or
modified after June 30, 2003. We do not expect that the adoption of SFAS No. 149 will have a material effect
on our consolidated financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an
issuer classify certain financial instruments as liabilities. The provisions of this statement are effective for
transactions that are entered into or modified after May 31, 2003. We do not expect that the adoption of SFAS
No. 150 will have a material effect on our consolidated financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45, or FIN 45, “Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which clarifies
disclosure, recognition and measurement requirements related to certain guarantees. The disclosure
requirements are effective for financial statements issued after December 15, 2002 and the recognition and
measurement requirements are effective on a prospective basis for guarantees issued or modified after
December 31, 2002. The adoption of FIN 45 did not have a material impact on our consolidated financial
position and results of operations.

In January 2003, the FASB issued Interpretation No. 46, or FIN 46, “Consolidation of Variable Interest
Entities,” which clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial
Statements,” relating to consolidation of certain entities. First, FIN 46 will require identification of the
Company's participation in variable interest entities, or VIE, which are defined as entities with a level of
invested equity that is not sufficient to fund future activities to permit them to operate on a stand alone basis,
or whose equity holders lack certain characteristics of a controlling financial interest. For entities identified as
VIE, FIN 46 sets forth a model to evaluate potential consolidation based on an assessment of which party to
the VIE, if any, bears a majority of the exposure to its expected losses, or stands to gain from a majority of its
expected returns. FIN 46 also sets forth certain disclosure regarding interests in VIE that are deemed
significant, even if consolidation is not required. We are currently in the process of determining the impact
the adoption of FIN 46 may have on our consolidated financial position or results of operations; however, we
do not expect that the adoption of this statement will have a material impact.

In November 2002, the EITF issued EITF No. 00-21, “Revenue Arrangements with Multiple Deliverables,”
which provides guidance on the timing and method of revenue recognition for sales arrangements that
include the delivery of more than one product or service. EITF 00-21 is effective prospectively for
arrangements entered into in fiscal periods beginning after June 15, 2003. We do not expect that the adoption
of EITF No. 00-21 will have a material effect on our consolidated financial position or results of operations.

29

CONSOLIDATED BALANCE SHEETS

Aspen Technology, Inc. and Subsidiaries Consolidated Balance Sheets

(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful
accounts of $5,997 in 2002 and $3,692 in 2003 
Unbilled services
Current portion of long-term installments receivable
net of unamortized discount of $1,931 in 2002 and $2,033 in 2003
Deferred tax asset
Prepaid expenses and other current assets

Total current assets

Long-term installments receivable, net of unamortized discount
of $12,990 in 2002 and $13,684 in 2003
Property and leasehold improvements, at cost:

Building and improvements
Computer equipment
Purchased software
Furniture and fixtures
Leasehold improvements

Less—Accumulated depreciation and amortization

Computer software development costs, net of
accumulated amortization of $20,804 in 2002 and $25,085 in 2003
Purchased intellectual property, net of accumulated
amortization of $1,974 in 2002 and $400 in 2003
Other intangible assets, net of accumulated 
amortization of $15,232 in 2002 and $20,354 in 2003
Goodwill
Deferred tax asset
Other assets

June 30

2002

2003

$  33,571
18,549

$  51,567
—

95,418
30,569

40,404
2,929
18,699
240,139

77,725
15,279

34,720
2,929
11,581
193,801

68,318

73,377

2,241
50,253
53,552
17,552
10,078
133,676
82,873
50,803

13,810

27,626

41,105
84,258
15,576
6,708

1,663
52,847
45,939
17,061
10,506
128,016
96,858
31,158

17,728

1,861

26,946
14,333
13,831
5,445

$548,343

$378,480

30

CONSOLIDATED BALANCE SHEETS

Aspen Technology, Inc. and Subsidiaries Consolidated Balance Sheets

(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Current portion of long-term obligations
Amount owed to Accenture
Accounts payable
Accrued expenses
Unearned revenue
Deferred revenue

Total current liabilities

Long-term obligations, less current portion
5 1/4% Convertible subordinated debentures
Obligation subject to common stock settlement
Deferred revenue, less current portion
Deferred tax liability
Other liabilities
Commitments and contingencies (Notes 12, 13, 14 and 16)
Series B redeemable convertible preferred stock, $0.10 par value — 
Authorized, issued and outstanding—60,000 shares in 2003
(Liquidation preference of $60,598 as of June 30, 2003)
Stockholders' equity:

Series B convertible preferred stock, $0.10 par value—
Authorized, issued and outstanding—60,000 shares in 2002
(Liquidation preference of $60,860 as of June 30, 2002)
Common stock, $0.10 par value—Authorized—120,000,000 shares
Issued—37,731,183 shares in 2002 and 39,279,268 shares in 2003 
Outstanding—37,500,753 shares in 2002 and 39,045,804 shares in 2003
Additional paid-in capital
Accumulated deficit
Treasury stock, at cost—230,430 shares of common stock
in 2002 and 233,464 shares of common stock in 2003
Accumulated other comprehensive income (loss)

Total stockholders' equity

June 30

2002

2003

$ 5,334
11,100
16,852
71,126
20,983
38,624

164,019
5,885
86,250
1,810
9,548
15,003
12,040

$    3,849
8,162
8,622
73,472
20,492
37,266

151,863
3,661
86,250
—
9,815
13,258
16,009

—

57,537

50,753

—

3,773
310,039
(107,593)

(502)
(2,682)

253,788
$548,343

3,929
315,726
(277,610)

(513)
(1,445)

40,087
$378,480

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

31

CONSOLIDATED STATEMENT OF OPERATIONS 

Aspen Technology, Inc. and Subsidiaries Consolidated Statements of Operations

Years Ended June 30

(In thousands, except per share data)
Revenues:

Software licenses
Service and other

Expenses:

Cost of software licenses
Cost of service and other
Selling and marketing1
Research and development
General and administrative
Goodwill impairment charge
Restructuring and other charges
Charges for in-process research and development

Income (loss) from operations

Interest income
Interest expense
Write-off of investments
Foreign currency exchange loss
Income (loss) on equity in joint ventures and
realized gain on sale of investments  

Income (loss) before provision for 
(benefit from) income taxes

Provision for (benefit from) income taxes

Net income (loss)

Accretion of preferred stock discount and dividend

2001

2002

2003

$147,448
179,476

326,924

11,856
114,595
13,608
68,913
30,643
—
6,969
9,915

356,499
(29,575)
10,268
(5,469)
(5,000)
(81)

$133,913
186,691

320,604

11,830
119,972
115,225
74,458
34,258
—
16,083
14,900

386,726
(66,122)
6,768
(5,591)
(8,923)
(1,073)

$139,859
182,862

322,721

13,916
106,868
105,883
65,086
36,681
74,715
81,162
—

484,311
(161,590)
8,485
(7,132)
—
(134)

750

180

(462)

(29,107)
(8,732)
(20,375)

—

(74,761)
2,404
(77,165)
(6,301)

(160,833)
—
(160,833)
(9,184)

Net income (loss) attributable to common shareholders $ (20,375)

$(83,466)

$(170,017)

Basic and diluted net income (loss) attributable to
common shareholders per share
Basic and diluted weighted average shares outstanding

$     (0.68)
29,941

$    (2.58)
32,308

$     (4.42)
38,476

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

32

CONSOLIDATED STATEMENT OF CASH FLOWS

Aspen Technology, Inc. and Subsidiaries Consolidated Statement of Cash Flows

Years Ended June 30
(In thousands)
Cash flows from operating activities:

Net income (loss)

2001

2002

2003

$(20,375)

$(77,165)

$(160,833)

Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities—
Depreciation and amortization
Goodwill impairment charge
Write-off of assets related to restructuring
Charges for in-process research and development
Write-off of investments
Deferred stock-based compensation
(Gain) loss on the disposal of property
Deferred income taxes
Research and development costs subject to
common stock settlement
Changes in assets and liabilities—

Accounts receivable
Unbilled services
Prepaid expenses and other current assets
Long-term installments receivable
Accounts payable and accrued expenses
Unearned revenue
Deferred revenue
Other liabilities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

Purchase of property and leasehold improvements
Proceeds on sale of property
Capitalized computer software development costs
Increase in other assets
Decrease in short-term investments
Cash used in the purchase of businesses,
net of cash acquired
Net cash provided by (used in) investing activities

Cash flows from financing activities:

Issuance of common stock and common stock warrants,
net of issuance costs
Issuance of Series B convertible preferred stock
and common stock warrants, net of issuance costs
Payment of amounts owed to Accenture
Issuance of common stock under employee
stock purchase plans
Exercise of stock options and warrants
Payments of long-term debt and capital lease obligations
Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash
and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:

Cash paid for income taxes
Cash paid for interest

Supplemental disclosure of non-cash financing activities:

Accretion of discount on Series B
convertible preferred stock
Preferred stock dividend due to beneficial
conversion feature of Series B convertible preferred stock
Issuance of common stock in settlement of obligation
subject to common stock settlement
Modification of Series B convertible preferred stock to
Series B redeemable convertible preferred stock
Issuance of common stock in settlement of Series B
convertible preferred stock dividend

Supplemental disclosure of cash flows related to acquisitions:
The Company acquired certain companies as described
in Note 4. These acquisitions are summarized as follows:
Fair value of assets acquired, excluding cash
Payments in connection with the acquisitions,
net of cash acquired
Value of stock issued in connection with the acquisitions
Charge for in-process research and development

Liabilities assumed

24,099
—
1,159
9,915
5,000
65
(257)
(12,783)

—

(3,399)
(7,277)
(417)
(8,845)
5,195
4,323
(9,786)
(675)
(14,058)

(20,350)
2,438
(5,573)
(1,693)
33,884

(21,746)
(13,040)

—

—
—

4,710
11,901
(1,041)
15,570

(1,210)
(12,738)
49,371
$36,633

$2,072
$5,023

$—

$—

$—

$—

$—

$60,379

(21,746)
(31,555)
9,915

$16,993

25,763
—
1,169
14,900
8,923
(65)
—
896

924

1,591
333
(1,400)
6,816
8,865
751
(368)
36
(8,031)

(12,940)
1,725
(7,986)
(1,940)
12,257

(93,437)
(102,321)

47,956

56,588
—

5,306
1,619
(4,305)
107,164

126
(3,062)
36,633
$33,571

$1,955
$4,841

$2,209

$3,232

$18,500

$—

$—

$140,141

(93,437)
—
14,900

$61,604

30,994
74,715
38,732
—
—
—
288
—

1,082

20,861
16,714
7,338
(1,587)
(7,184)
(1,240)
(2,283)
3,969
21,566

(4,746)
—
(7,661)
1,323
18,535

—
7,451

—

—
(8,433)

3,293
150
(6,603)
(11,593)

572
17,996
33,571
$51,567

$1,695
$5,902

$6,784

$—

$—

$57,537

$2,662

$3,027

—
—
—
$3,027

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

33

CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY

Aspen Technology, Inc. and Subsidiaries Consolidated Statements Stockholder’s Equity

Series B Convertible
Preferred Stock

Common Stock

Number of
Shares

Carrying
Value

Number of
Shares

$0.10 Par
Value

Additional
Paid-in 
Capital

(In thousands, except share data)
Balance, July 1, 2000
Issuance of stock in
the purchase of businesses
and equity investment
Issuance of common stock
under employee stock purchase plans
Exercise of stock options and warrants
Translation adjustment, not tax effected
Unrealized market gain on investments,
net of tax effect
Issuance of restricted common stock
Amortization of deferred compensation
Net Loss
Comprehensive net loss for the year ended June 30, 2001
Balance, June 30, 2001
Issuance of common stock
under employee stock purchase plans
Exercise of stock options and warrants
Issuance of Series B convertible preferred
stock and common stock warrants,
net of issuance costs
Beneficial conversion feature embedded
in Series B convertible preferred stock
Issuance of common stock and common
stock warrants, net of issuance costs
Issuance of common stock in settlement
of obligation subject to common
stock settlement
Return of escrowed shares issued
to Optimum Logistics Ltd
Reversal of unvested and forfeited
restricted common stock
Accretion of discount on Series B
convertible preferred stock
Accrual of Series B convertible
preferred stock dividend
Translation adjustment, not tax effected
Unrealized market gain on investments,
net of tax effect
Amortization of deferred compensation
Net Loss
Comprehensive net loss for the year ended June 30, 2002
Balance, June 30, 2002
Issuance of common stock under
employee stock purchase plans
Exercise of stock options
Issuance of common stock in settlement of
Series B convertible preferred stock dividend
Accrual of Series B convertible
preferred stock dividend
Accretion of discount on Series B
convertible preferred stock
Modification of Series B
convertible preferred stock
Reacquisition of common
shares issued to CPU
Translation adjustment, not tax effected
Unrealized market gain on
investments, net of tax effect
Net Loss
Comprehensive net loss for the year ended June 30, 2003

—

—

—
—
—

—
—
—
—

—

—
—

—

—

—

—

—

—

—
—

—
—
—

—
—

—

—

—

—
—

—
—

—

60,000

60,000

(60,000)

Balance, June 30, 2003

34

$— 

29,060,428

$2,906

$173,591

—

—
—
—

—
—
—
—

—

—
—

48,544

(3,232)

—

—

—

—

5,441

—
—

—
—
—

1,255,782

174,463
991,751
—

—
94,500
—
—

126

17
99
—

—
9
—
—

37,151

4,693
11,802
—

—
1,739
—
—

31,576,924

3,157

228,976

313,337
185,625

—

—

4,166,665

1,641,672

(58,540)

(94,500)

—

—
—

—
—
—

31
19

—

—

417

164

(6)

(9)

—

—
—

—
—
—

5,275
1,600

8,044

3,232

47,539

18,336

(2,084)

(1,739)

—

860
—

—
—
—

50,753

37,731,183

3,773

310,039

—
—

—

—

6,784

(57,537)

—
—

—
—

759,771
56,934

731,380

—

—

—

—
—

—
—

76
6

74

—

—

—

—
—

—
—

3,217
144

(74)

2,400

—

—

—
—

—
—

$—

39,279,268

$3,929

$315,726

CONSOLIDATED STATEMENT OF STOCKHOLDER’S EQUITY

Accumulated
Deficit

Deferred
Compensation

Notes
Receivable
From 
Stockholders

Accumulated 
Other
Comprehensive 
Income Loss

Treasury Stock

Number of
Shares

Stockholders'
Equity

Cost

Total
Comprehensive
Income (Loss)

$(3,752)

$—

$—

$(3,045)

230,430

$(502)

$169,198

—

—
—
—

—
—
—
(20,375)

(24,127)

—
—

—

—

—

—

—

—

(5,441)

(860)
—

—
—
(77,165)

(107,593)

—
—

—

(2,400)

(6,784)

—

—
—

—

(160,833)

—

—
—
—

—
(1,465)
65
—

(1,400)

—
—

—

—

—

—

—

—

—
—
—

—
(283)
—
—

(283)

—
—

—

—

—

—

—

1,209

283

—

—
—

—
191
—

—

—
—

—

—

—

—

—
—

—
—

—

—
—

—
—
—

—

—
—

—

—

—

—

—
—

—
—

—

—
—
(2,434)

728
—
—
—

—

—
—
—

—
—
—
—

—

—
—
—

—
—
—
—

37,277

4,710
11,901
(2,434)

728
—
65

(20,375)

(4,751)

230,430

502

201,070

(2,434)

728

(20,375)
$(22,081)

—
—

—

—

—

—

—

—

—

—
2,268

(199)
—
—

—
—

—

—

—

—

—

—

—

—
—

—
—
—

—
—

—

—

—

—

—

—

—

—
—

—
—
—

5,306
1,619

56,588

—

47,956

18,500

(2,090)

(256)

—

—
2,268

(199)
191
(77,165)

(2,682)

230,430

(502)

253,788

—
—

—

—

—

—

—
1,364

(127)
—

—
—

—

—

—

—

3,034
—

—
—

—
—

—

—

—

—

(11)
—

—
—

3,293
150

—

—

—

(57,537)

(11)
1,364

(127)
(160,833)

2,268

(199)

(77,165)
$(75,096)

1,364

(127)
(160,833)
$(159,596)

35

$(277,610)

$—

$—

$(1,445)

233,464

$(513)

$40,087

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Aspen Technology Inc. and Subsidiaries Notes to Consolidated Financial Statements

(1) Operations

Aspen Technology, Inc. and its subsidiaries (the Company) is a leading supplier of integrated software and services
to the process industries, which consist of petroleum, chemicals, pharmaceutical and other industries that provide
products from a chemical process. The Company develops two types of software to design, operate, manage and
optimize its customers' key business processes; engineering software and manufacturing/supply chain software.

(2) Significant Accounting Policies

(a) Principles of Consolidation

The accompanying consolidated financial statements include the results of operations of the Company and its
wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in
consolidation.

(b) Management Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions. These estimates and assumptions 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 period. Actual results
could differ from those estimates.

(c) Cash and Cash Equivalents

Cash and cash equivalents consist of short-term, highly liquid investments with original maturities of three months
or less.

(d) Short-Term Investments

Securities purchased to be held for indefinite periods of time, and not intended at the time of purchase to be held
until maturity, are classified as available-for-sale securities. Securities classified as available-for-sale are included in
short-term investments and cash and cash equivalents and are recorded at market value in the accompanying
consolidated financial statements. Unrealized gains and losses have been accounted for as a component of
comprehensive income (loss). Realized investment gains and losses were not material in fiscal 2001, 2002 or 2003.

Available-for-sale investments as of June 30, 2002 and 2003 were as follows (in thousands):

Cash and cash equivalents:
Cash and cash equivalents
Money market funds 0-3 months

Total cash and cash equivalents
Short-term investments:
Corporate and foreign bonds
Corporate and foreign bonds

Total short term investments

Contracted
Maturity

N/A
11,736

4-12 months
1-2 years

June 30, 2002

June 30, 2003

Total
Market
Value

Total
Amortized
Cost

$21,835
11,736

33,571

13,389
5,160

18,549
$52,120

$21,835
29,155

33,571

13,381
5,151

18,532
$52,103

Total
Market
Value

$22,412
29,155

51,567

—
—

—
$51,567

Total
Amortized
Cost

$22,412

51,567

—
—

—
$51,567

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Short-term investments totaling $14.7 million and cash equivalents of $0.5 million were held by the bank as
compensating balances for outstanding letters of credit as of June 30, 2002 and 2003, respectively.

(e) Derivative Instruments and Hedging

The Company follows the provisions of Statement of Financial Accounting Standards (SFAS), No. 133 “Accounting for
Derivative Instruments and Hedging Activities.” SFAS No. 133, as amended by SFAS No. 138, requires that all
derivatives, including foreign currency exchange contracts, be recognized on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through earnings. If a derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of the derivative are either offset against the change in fair value of assets,
liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair value is to be immediately recognized in
earnings. The adoption of SFAS No. 133 in fiscal 2001 resulted in an immaterial cumulative effect on income and other
comprehensive income for the Company.

Forward foreign exchange contracts are used primarily by the Company to hedge certain balance sheet exposures
resulting from changes in foreign currency exchange rates. Such exposures primarily result from portions of the
Company's installment receivables that are denominated in currencies other than the U.S. dollar, primarily the
Japanese Yen and the British Pound Sterling. These foreign exchange contracts are entered into to hedge recorded
installments receivable made in the normal course of business, and accordingly, are not speculative in nature. As part
of its overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, the
Company hedges the majority of its installments receivable denominated in foreign currencies.

In addition, in May 2002, as part of the acquisition of Hyprotech, the Company initiated loans with two foreign
subsidiaries. The two loans, denominated in British pounds and Canadian dollars, were intended to be a natural hedge
against foreign currency risk associated with installment receivable contracts acquired with Hyprotech that were
denominated in a currency other than their functional currency.

At June 30, 2003, the Company had effectively hedged $3.2 million of installments receivable and accounts receivable
denominated in foreign currency. The Company does not hold or transact in financial instruments for purposes other
than to hedge foreign currency risk. The gross value of the long-term installments receivable that were denominated in
foreign currency was $16.1 million at June 30, 2002 and $25.2 million at June 30, 2003. The installments receivable
held as of June 2003 mature at various times through April 2009. There have been no material gains or losses recorded
relating to hedge contracts for the periods presented.

The Company records its foreign currency exchange contracts at fair value in its consolidated balance sheet and the
related gains or losses on these hedge contracts are recognized in earnings. Gains and losses resulting from the impact
of currency exchange rate movements on forward foreign exchange contracts are designated to offset certain accounts
and installments receivable and are recognized as other income or expense in the period in which the exchange rates
change and offset the foreign currency losses and gains on the underlying exposures being hedged. During fiscal 2001,
2002 and 2003 the net gain recognized in the consolidated statements of operations was not material. A small portion
of the forward foreign currency exchange contract is designated to hedge the future interest income of the related
receivables. The ineffective portion of a derivative's change in fair value is recognized currently through earnings
regardless of whether the instrument is designated as a hedge. The gains and losses resulting from the impact of
currency rate movements on forward currency exchange contracts are recognized in other comprehensive income for
this portion of the hedge. During fiscal 2003, net loss deferred in other comprehensive income was not material.

The following table provides information about the Company's foreign currency derivative financial instruments
outstanding as of June 30, 2003. The information is provided in U.S. dollar amounts, as presented in the Company's
consolidated financial statements. The table presents the notional amount (at contract exchange rates) and the
weighted average contractual foreign currency rates:

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands)

Total

Currency

British Pound Sterling
Japanese Yen
Euro
Swiss Franc

Notional
Amount

$1,499
1,219
274
250

$3,242

Estimated
Fair
Value*

$1,5680
1,127
313
258

$3,266

Average
Contract
Rate

.66
121.48
1.02
1.40

Payments on the hedged receivables due during fiscal 2004 equal $3.0 million.

*The estimated fair value is based on the estimated amount at which the contracts could be settled based on the
spot rates as of June 30, 2003. The market risk associated with these instruments resulting from currency exchange
rate movements is expected to offset the market risk of the underlying installments being hedged. The credit risk is
that the Company's banking counterparties may be unable to meet the terms of the agreements. The Company
minimizes such risk by limiting its counterparties to major financial institutions. In addition, the potential risk of
loss with any one party resulting from this type of credit risk is monitored. Management does not expect any loss
as a result of default by other parties. However, there can be no assurances that the Company will be able to
mitigate market and credit risks described above.

(f) Depreciation and Amortization

The Company provides for depreciation and amortization, primarily computed using the straight-line
method, by charges to operations in amounts estimated to allocate the cost of the assets over their estimated
useful lives, as follows:

Asset Classification
Building and improvements
Computer equipment
Purchased software
Furniture and fixtures
Leasehold improvements

Estimated Useful Life
7-30 years
3-5 years
3 years
3-10 years
Life of lease or asset,
whichever is shorter

(g) Revenue Recognition
The Company recognizes revenue in accordance with Statement of Position (SOP) No. 97-2, “Software
Revenue Recognition,” as amended and interpreted. License revenue, including license renewals, consists
principally of revenue earned under fixed-term and perpetual software license agreements and is generally
recognized upon shipment of the software if collection of the resulting receivable is probable, the fee is fixed
or determinable, and vendor-specific objective evidence (VSOE) of fair value exists for all undelivered
elements. The Company determines VSOE based upon the price charged when the same element is sold
separately. Maintenance and support VSOE represents a consistent percentage of the license fees charged to
customers. Consulting services VSOE represents standard rates, which the Company charges its customers
when the Company sells its consulting services separately. For an element not yet being sold separately, VSOE
represents the price established by management having the relevant authority when it is probable that the
price, once established, will not change before the separate introduction of the element into the marketplace.
Revenue under license arrangements, which may include several different software products and services sold
together, are allocated to each element based on the residual method in accordance with SOP 98-9,
“Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions.” Under the
residual method, the fair value of the undelivered elements is deferred and subsequently recognized when
earned. The Company has established sufficient VSOE for professional services, training and maintenance and
support services. Accordingly, software license revenues are recognized under the residual method in
arrangements in which software is licensed with professional services, training and maintenance and support

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

services. The Company uses installment contracts as a standard business practice and has a history of successfully
collecting under the original payment terms without making concessions on payments, products or services.

Maintenance and support services are recognized ratably over the life of the maintenance and support
contract period. Maintenance and support services include telephone support and unspecified rights to
product upgrades and enhancements. These services are typically sold for a one-year term and are sold either
as part of a multiple element arrangement with software licenses or are sold independently at time of renewal.
The Company does not provide specified upgrades to its customers in connection with the licensing of its
software products.

Service revenues from fixed-price contracts are recognized using the proportional performance method,
measured by the percentage of costs (primarily labor) incurred to date as compared to the estimated total
costs (primarily labor) for each contract. When a loss is anticipated on a contract, the full amount thereof is
provided currently. Service revenues from time and expense contracts and consulting and training revenue are
recognized as the related services are performed. Services that have been performed but for which billings have
not been made are recorded as unbilled services, and billings that have been recorded before the services have
been performed are recorded as unearned revenue in the accompanying consolidated balance sheets. In
accordance with the Emerging Issues Task Force (EITF) released Issue No. 01-14, “Income Statement
Characterization of Reimbursements Received for ‘Out-of-Pocket’ Expenses Incurred,” reimbursement
received for out-of-pocket expenses is recorded as revenue and not as a reduction of expenses.

(h) Computer Software Development Costs

Certain computer software development costs are capitalized in the accompanying consolidated balance sheets.
Capitalization of computer software development costs begins upon the establishment of technological
feasibility. In accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased,
or otherwise Marketed”, the Company defines the establishment of technological feasibility as the completion of
a detail program design. Amortization of capitalized computer software development costs is provided on a
product-by-product basis using the straight-line method, beginning upon commercial release of the product,
and continuing over the remaining estimated economic life of the product, not to exceed three years. Total
amortization expense charged to operations was approximately $4.1 million, $4.6 million and $5.1 million in
fiscal 2001, 2002 and 2003, respectively. During fiscal 2003, the Company recorded an impairment charge
associated with the capitalized computer software development costs of certain products (see Note 3(a)).

(i) Foreign Currency Translation

The financial statements of the Company's foreign subsidiaries are translated in accordance with SFAS No. 52,
“Foreign Currency Translation”. The determination of functional currency is based on the subsidiaries' relative
financial and operational independence from the Company. Foreign currency exchange gains or losses for
certain wholly owned subsidiaries are credited or charged to the accompanying consolidated statements of
operations since the functional currency of the subsidiaries is the U.S. dollar. Foreign currency transaction
gains or losses are credited or charged to the accompanying consolidated statements of operations as incurred.
Gains and losses from foreign currency translation related to entities whose functional currency is their local
currency are credited or charged to the accumulated other comprehensive income (loss) account, included in
stockholders' equity in the accompanying consolidated balance sheets.

(j) Net Income (Loss) per Share

Basic earnings per share was determined by dividing net income (loss) attributable to common shareholders
by the weighted average common shares outstanding during the period. Diluted earnings per share was
determined by dividing net income (loss) attributable to common shareholders by diluted weighted average
shares outstanding. Diluted weighted average shares reflect the dilutive effect, if any, of potential common
shares. To the extent their effect is dilutive, potential common shares include common stock options, restricted

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

stock and warrants, based on the treasury stock method, convertible debentures and preferred stock, based on
the if-converted method, and other commitments to be settled in common stock. The calculations of basic
and diluted net income (loss) attributable to common shareholders per share and basic and diluted weighted
average shares outstanding are as follows (in thousands, except per share data):

Years Ended June 30
Net income (loss) attributable to common shareholders
Basic weighted average common shares outstanding
Weighted average potential common shares
Diluted weighted average shares outstanding
Basic net income (loss) attributable to common
shareholders per share
Diluted net income (loss) attributable to common
shareholders per share

2001
$(20,375)
29,941
—
29,941

2002
$(83,466)
32,308
—
32,308

$    (0.68)

$   (2.58)

$    (0.68)

$   (2.58)

2003
$(170,017)
38,476
—
38,476

$

$

(4.42)

(4.42)

The following dilutive effect of potential common shares was excluded from the calculation of dilutive
weighted average shares outstanding as their effect would be anti-dilutive (in thousands):

Years Ended June 30
Convertible debt
Convertible preferred stock
Obligation subject to common stock settlement
Preferred stock dividend, to be settled in common stock
Options, restricted stock and warrants

Total

(k) Concentration of Credit Risk

2001
1,628
—
—
—
2,897

4,525

2002
1,628
1,113
1,043
23
1,173

4,980

2003
1,628
3,135
—
184
920

5,867

Financial instruments that potentially subject the Company to concentrations of credit risk are principally
cash and cash equivalents, short-term investments, accounts receivable and installments receivable. The
Company places its cash and cash equivalents and investments in highly rated institutions. Concentration of
credit risk with respect to receivables is limited to certain customers (end users and distributors) to which the
Company makes substantial sales. To reduce risk, the Company routinely assesses the financial strength of its
customers, hedges specific foreign installments receivable and routinely sells its installments receivable to
financial institutions with limited recourse and without recourse. As a result, the Company believes that the
accounts and installments receivable credit risk exposure is limited. As of June 30, 2002 and 2003, the
Company had no customers that represented 10% of total accounts and installments receivable.

(l) Allowance for Doubtful Accounts

The Company makes judgments as to its ability to collect outstanding receivables and provide allowances for
the portion of receivables when it is probable that a loss has been incurred. Provisions are made based upon a
specific review of all significant outstanding invoices. In determining these provisions, the Company analyzes
its historical collection experience and current economic trends.

(m) Financial Instruments

Financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable,
installments receivable, foreign exchange contracts and 5 1/4% convertible subordinated debentures. The
estimated fair value of these financial instruments approximates their carrying value and, except for accounts
receivable and installments receivable, is based primarily on market quotes.

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(n) Intangible Assets, Goodwill and Impairment of Long-Lived Assets

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, “Goodwill and Other
Intangible Assets.” This statement supercedes Accounting Principles Board (APB) Opinion No. 17, “Intangible
Assets,” and applies to goodwill and intangible assets previously acquired. Under this statement, goodwill as
well as certain other intangible assets determined to have an indefinite life, are no longer being amortized.
Instead, these assets are reviewed for impairment on a periodic basis. Pursuant to this statement, the Company
elected early adoption effective July 1, 2001. Accordingly, the Company stopped amortizing goodwill and
acquired assembled workforce, now classified jointly as goodwill, associated with past acquisitions.

In October 2002, management determined that the goodwill should be tested for impairment as a result of
management's lowered revenue expectations and the overall decline in the Company's market value. An
independent third party valued the Company's three reporting units: license, consulting services, and
maintenance and training. The valuation was based on an income approach, using a five-year present value
calculation of income, and a market approach, using comparable company valuations. Based on this analysis, it
was determined that the full values of the goodwill associated with the license reporting unit and consulting
services reporting unit were impaired. This resulted in a $74.7 million aggregate impairment charge included on
the accompanying consolidated statement of operations as goodwill impairment charge. It was also determined
that the fair value of the maintenance and training reporting unit exceeded its carrying value, resulting in no
impairment of its goodwill. The Company's next annual impairment test will occur on January 1, 2004.

The Company evaluates it long-lived assets, which include property and leasehold improvements, intangible
assets and capitalized software development costs for impairment as events and circumstances indicate that
the carrying amount may not be recoverable and at a minimum at each balance sheet date. The Company
evaluates the realizability of its long-lived assets based on profitability and undiscounted cash flow
expectations for the related asset or subsidiary. Concurrent with the goodwill impairment test that was
initiated in October 2002, the Company evaluated the realizability of it long-lived assets and recorded an
impairment charge related to various long-lived assets. See Note 3 for discussion regarding restructuring and
other charges.

Intangible assets subject to amortization consist of the following at June 30, 2002 and 2003 (in thousands):

Asset Class
Acquired technology
Uncompleted contracts
Trade name
Other

Estimated
Useful Life
3-5 years
4 years
10 years
3-12 years

June 30, 2002

June 30, 2003

Gross
Carrying
Amount
$53,469
1,936
766
166

$56,337

Accumulated
Amortization
$13,683
957
498
94

$15,232

Gross
Carrying
Amount
$44,352
1,936
766
246

$47,300

Accumulated
Amortization
$17,980
1,619
569
186

$20,354

Aggregate amortization expense for intangible assets subject to amortization was $3.5 million, $5.3 million and
$7.4 million for the years ended June 30, 2001, 2002 and 2003, respectively, and is expected to be $7.4 million,
$7.3 million, $7.2 million, $5.1 million and $0.1 million in each of the next five fiscal years, respectively.

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The changes in the carrying amount of the goodwill by reporting unit for the years ended June 30, 2002 and
2003 were as follows (in thousands):

Asset Class

Carrying amount as of June 30, 2001

Goodwill acquired during fiscal 2002
Effect of exchange rates used for translation

Carrying amount as of June 30, 2002
Purchase price adjustment —
Hyprotech acquisition

Impairment charge
Goodwill acquired during fiscal 2003
Effect of exchange rates used for translation

License

$21,078
46,590
245

67,913

1,407
(69,323)
2,358
3

Carrying amount as of June 30, 2003

$ 2,358

Reporting Unit

Consulting
Services

$  944
4,341
11

5,296

88
(5,392)
147
8

$  147

Maintenance
and
Training

$  2,330
8,692
27

11,049

264
—
442
73

$11,828

Total

$24,352
59,623
283

84,258

1,759
(74,715)
2,947
84

$14,333

The pro forma effect on prior year earnings of excluding goodwill and acquired assembled workforce
amortization expense, net of tax, is as follows:

Reported net income (loss) attributable to common shareholders
Add: Goodwill and acquired assembled workforce amortization

Adjusted net income (loss)

Basic and diluted income per common share

Reported net income (loss)
Goodwill and acquired assembled workforce amortization

Adjusted net income (loss)

(o) Comprehensive Income (Loss)

2001
$(20,375)
1,840

$(18,535)

$    (0.68)
0.06

$    (0.62)

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. Comprehensive income (loss) is
disclosed in the accompanying consolidated statements of stockholders' equity. The components of
accumulated other comprehensive income (loss) as of June 30, 2002 and 2003 are as follows (in thousands):

Unrealized gain (loss) on investments, net of tax
Cumulative translation adjustment

Total accumulated other comprehensive income (loss)

(p) Fair Value of Stock Options

2002
$    127
(2,809)

$(2,682)

2003
$      —
(1,445)

$(1,445)

The Company issues stock options to its employees and outside directors and provides employees the right to
purchase stock pursuant to stockholder approved stock option and employee stock purchase plans, which are
described more fully in Note 10. The Company accounts for these plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees”, and related Interpretations. No material stock-based employee compensation cost is reflected in
net income, as all options granted under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No.
123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation. For pro forma

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

disclosures, the estimated fair value of the options is amortized over the vesting period, typically four years,
and the estimated fair value of the stock purchases is amortized over the six-month purchase period:

Net income (loss) attributable to common
shareholders (in thousands) 

—As reported
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects

Pro forma

Net income (loss) attributable to common
shareholders per share

—Basic and diluted—
As reported

Pro forma

2001

2002

2003

$(20,375)

$ (83,466)

$(170,017)

(25,654)

$(46,029)

(21,734)

$(105,200)

(14,566)

$(184,583)

$ (0.68)

(1.54)

$     (2.58)

$      (4.42)

(3.26)

(4.80)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions used for grants during the applicable period:

Risk free interest rates
Expected dividend yield
Expected life
Expected volatility
Weighted average fair value per option

(q) Income Taxes

2001
5.14-6.05%
None
5 Years
101%
$16.97

2002
3.91-4.39%
None
5 Years
72%
$8.00

2003
2.78-4.15%
None
5 Years
125%
$2.63

Deferred income taxes are recognized based on temporary differences between the financial statement and tax
bases of assets and liabilities. Deferred tax assets and liabilities are measured using the statutory tax rates and laws
expected to apply to taxable income in the years in which the temporary differences are expected to reverse.
Valuation allowances are provided against net deferred tax assets if, based upon the available evidence, it is more
likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income and the timing of the temporary differences
becoming deductible. Management considers, among other available information, scheduled reversals of deferred
tax liabilities, projected future taxable income, and other matters in making this assessment.

Income taxes are provided on undistributed earnings of foreign subsidiaries where such earnings are expected
to be remitted to the U.S. parent company. The Company determines annually the amount of unremitted
earnings of foreign subsidiaries to invest indefinitely in its non-U.S. operations. Unrecognized provisions for
taxes on undistributed earnings of foreign subsidiaries, which are considered permanently invested, are not
material to the Company's consolidated financial position or results of operations.

(r) Legal Fees

The Company accrues estimated future legal fees associated with outstanding litigation. Liabilities for loss
contingencies arising from claims, assessments, litigation and other sources are recorded when it is probable that
a liability has been incurred and the amount of the claim assessment or damages can be reasonably estimated.

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(s) Recently Issued Accounting Pronouncements

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal
Activities”. This statement supercedes EITF No. 94-3, “Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity.” Under this statement, a liability or a cost associated with a
disposal or exit activity is recognized at fair value when the liability is incurred rather than at the date of an
entity's commitment to an exit plan as required under EITF 94-3. The provisions of this statement are
effective for exit or disposal activities that are initiated after December 31, 2002. All of the Company's prior
restructuring actions will continue to be accounted for under EITF 94-3.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation—Transition
and Disclosure, an amendment of FASB Statement No. 123.” This Statement amends SFAS No. 123,
“Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee compensation. In addition, this
pronouncement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The provisions of this statement are
effective for fiscal years ending after December 31, 2002. The adoption of SFAS No. 148 did not have a
material effect on the Company's consolidated financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and
Hedging Activities.” This pronouncement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities.” The provisions of this statement are effective for transactions that are
entered into or modified after June 30, 2003. The Company does not expect that the adoption of SFAS No. 149
will have a material effect on its consolidated financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity.” This pronouncement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer
classify certain financial instruments as liabilities. The provisions of this statement are effective for transactions
that are entered into or modified after May 31, 2003. The Company does not expect that the adoption of SFAS
No. 150 will have a material effect on its consolidated financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), “Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which clarifies disclosure,
recognition and measurement requirements related to certain guarantees. The disclosure requirements are
effective for financial statements issued after December 15, 2002 and the recognition and measurement
requirements are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The
adoption of FIN 45 had no impact on the Company's consolidated financial position and results of operations.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,”
which clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,”
relating to consolidation of certain entities. First, FIN 46 will require identification of the Company's
participation in variable interest entities (VIE), which are defined as entities with a level of invested equity that
is not sufficient to fund future activities to permit them to operate on a stand alone basis, or whose equity
holders lack certain characteristics of a controlling financial interest. For entities identified as VIE, FIN 46 sets
forth a model to evaluate potential consolidation based on an assessment of which party to the VIE, if any,
bears a majority of the exposure to its expected losses, or stands to gain from a majority of its expected returns.
FIN 46 also sets forth certain disclosure regarding interests in VIE that are deemed significant, even if
consolidation is not required. The Company is currently in the process of determining the impact the adoption
of FIN 46 may have on it's  consolidated financial position or results of operations; however, the Company does
not expect that the adoption of this statement will have a material impact.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In November 2002, the EITF issued EITF No. 00-21, “Revenue Arrangements with Multiple Deliverables,” which
provides guidance on the timing and method of revenue recognition for sales arrangements that include the
delivery of more than one product or service. EITF 00-21 is effective prospectively for arrangements entered
into in fiscal periods beginning after June 15, 2003. The Company does not expect that the adoption of EITF
No. 00-21 will have a material effect on its consolidated financial position or results of operations.

(s) Reclassifications

Certain amounts in the Company's consolidated balance sheets and consolidated statements of cash flows
have been reclassified to conform to the current presentation.

(3) Restructuring and Other Charges

(a) Fiscal 2003

During fiscal 2003, the Company recorded $81.2 million in restructuring and other charges. Of this amount,
$68.2 million is associated with an October 2002 restructuring plan, and $13.0 million is accrued legal costs,
related to the FTC challenge of the Company's acquisition of Hyprotech.

In October 2002, management initiated a plan to further reduce operating expenses in response to first
quarter revenue results that were below expectations and to general economic uncertainties. In addition,
management revised revenue expectations for the remainder of the fiscal year and beyond, primarily related to
the manufacturing / supply chain product line, which has been effected the most by the current economic
conditions. The plan to reduce operating expenses resulted in headcount reductions, consolidation of
facilities, cancellation of certain internal capital projects and discontinuation of development and support for
certain non-critical products. As a result of the discontinuation of development and support for certain
products, coupled with the revised revenue expectations, certain long-lived assets were reviewed and
determined to be impaired in accordance with SFAS No. 144. These actions resulted in an aggregate
restructuring charge of $55.6 million, recorded during the three months ended December 31, 2002. In June
2003, the Company reviewed its estimates to this plan and recorded a $12.5 million increase to the accrual,
primarily due to revisions of the facility sub-lease assumptions, as well as increases to severance and other
costs. The components of the restructuring plan are as follows (in thousands):

Restructuring charge

Impairment of assets
Fiscal 2003 payments

Closure/
Consolidation
of Facilities
$17,347
—
(3,548)

Accrued expenses, June 30, 2003

$13,799

Employee
Severance,
Benefits, and
Related Costs
$10,028
—
(7,297)

$  2,731

Impairment
of Assets and
Disposition
Costs
$40,728
(39,148)
—

$  1,580

Total
$68,103
(39,148)
(10,845)

$18,110

The Company expects that the remaining obligations will be paid by December 2010.

Closure/consolidation of facilities:  Approximately $17.4 million of the restructuring charge relates to the termination
of facility leases and other lease related costs. Of this amount, approximately $8.7 million was recorded in the three
months ended December 31, 2002 and approximately $8.7 million was recorded as a result of the June 2003
increase to the accrual. The facility leases had remaining terms ranging from several months to eight years. The
amount accrued is an estimate of the remaining obligation under the lease or actual costs to buy-out leases, reduced
by expected income from the sublease of the underlying properties. The June 2003 increase to the accrual is
primarily due to revised estimates related to sublease assumptions, as actual sub-lease rates have been significantly
less than originally estimated and the Company has experienced delays contracting with sub-lessors.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employee severance, benefits and related costs:  Approximately $10.0 million of the restructuring charge relates
to the reduction in headcount. Of this amount, approximately $8.2 million was recorded in the three months
ended December 31, 2002, and approximately $1.8 million was recorded as a result of the June 2003 increase
to the accrual. Approximately 400 employees, or 20% of the workforce, were eliminated under the
restructuring plan implemented by management. All geographic regions and business units were affected,
including services, sales and marketing, research and development, and general and administrative.

Impairment of assets and disposition costs:  Approximately $40.7 million of the restructuring charge relates to
charges associated with long-lived assets that were reviewed for impairment under the provisions of SFAS No.
144 “Accounting for the Impairment or Disposal of Long-Lived Assets” and were either written-down to fair
value or written-off due to the fact that the underlying assets will no longer be utilized. Of this amount,
approximately $38.7 million was recorded in the three months ended December 31, 2002 and approximately $2.0
million was recorded as a result of the June 2003 increase to the accrual. The resulting charges include:

A $23.6 million impairment charge related to the intellectual property purchased from Accenture in
February 2002. The fair value of this asset was determined by forecasting the future net cash flows
associated with the asset and then was compared to its carrying value. This intellectual property is used
primarily in the development of manufacturing / supply chain software products, within the license line
of business. As noted above, the revenue expectations for the manufacturing / supply chain product line
were significantly reduced by management, which prompted the review for impairment.
$13.8 million in impairment charges related to acquired technology, computer software development
costs and purchased software. These assets were considered to be impaired because they will either no
longer be used or their carrying values were in excess of their fair values. The assets that will no longer
be used were identified by management's decisions to either discontinue future development efforts
associated with certain products or discontinue internal capital projects. The carrying values of the
remaining assets were compared to the fair values of those assets resulting in an impairment. The fair
values were determined by forecasting the future net cash flows associated with the products. All of these
assets were part of the license line of business.
A $3.3 million impairment charge related to assets and liabilities associated with certain products of
which the Company is divesting. These assets have historically been considered to be part of the license
line of business. As part of the cost reductions, management decided that we would no longer devote
resources to the development or support of these products. The fair value of the related assets was
determined from letters of intent to purchase the intellectual property.

(3) Restructuring and Other Charges

(b) Fiscal 2002—Fourth quarter
In the third quarter of fiscal 2002, revenues were lower than expectations as customers delayed spending due to
the general weakness in the economy. The Company reduced revenue expectations for the fourth quarter and
for the fiscal year 2003. Based upon the impact of these reduced revenue expectations, management evaluated
the Company's current business and made significant changes, resulting in a restructuring plan for its
operations. This restructuring plan included a reduction in headcount, tighter cost controls, the close-down
and consolidation of facilities, and the write-off of certain assets, and is broken-down as follows (in thousands):

Restructuring charge
Write-off of asset
Fiscal 2002 payments

Accrued expenses, June 30, 2002

Fiscal 2003 payments

Closure/
Consolidation
of Facilities
$4,901
—
—
4,901
(695)

Accrued expenses, June 30, 2003

$4,206

Employee
Severance,
Benefits, and
Related Costs
$8,285
—
(1,849)
6,436
(4,748)

$1,688

Write-off
of Assets
$1,169
(1,169)
—
—
—

$    —

Total
$14,355
(1,169)
(1,849)
11,337
(5,443)

$5,894

The Company expects that the remaining obligations will be paid-out by December 2010.

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Closure/consolidation of facilities:  Approximately $4.9 million of the restructuring charge relates to the
termination of facility leases and other lease-related costs. The facility leases had remaining terms ranging
from several months to nine years. The amount accrued is an estimate of the actual costs to buy-out leases or
to sublease the underlying properties.

Employee severance, benefits and related costs:  Approximately $8.3 million of the restructuring charge relates to
the reduction in headcount. Approximately 200 employees, or 10% of the workforce, were eliminated under
the changes to the business plan implemented by management. Business units impacted included sales and
marketing, services, research and development, and general and administrative, across all geographic areas.

Write-off of assets: Approximately $1.2 million of the restructuring charge relates to the write-off of prepaid
royalties related to third-party software products that the Company will no longer support and sell.

(c) Fiscal 2002—First quarter

During August 2001, in light of further economic uncertainties, Company management made a decision to
further reduce spending. This reduction primarily consisted of a reduction in worldwide headcount of
approximately 100 employees, or 5% of the workforce, effecting such areas as sales and marketing, services,
research and development and general and administrative. As a result of these measures, the Company
recorded a restructuring charge of $2.6 million in the quarter ending September 30, 2001, as follows
(in thousands):

Restructuring charge

Fiscal 2002 payments
Adjustment

Accrued expenses, June 30, 2002

Fiscal 2003 payments

Accrued expenses, June 30, 2003

(d) Fiscal 2001

Employee
Severance,
Benefits, and
Related Costs
$2,466
(2,457)
135
144
(144)

$ —

Other
$176
(157)
—
19
(19)

$ —

Total
$2,642
(2,614)
135
163
(163)

$ —

In the third quarter of fiscal 2001 the revenues realized by the Company were reduced from the Company's
expectations as customers delayed spending in the widespread slowdown in information technology spending
and the deferral of late-quarter purchasing decisions. The Company reduced its revenue expectations for the
fourth quarter and for the fiscal year 2002 until revenue visibility and predictability improved. Based on these
reduced revenue expectations Company management evaluated the business plan and made significant
changes, resulting in a restructuring plan for the Company's operations. This restructuring plan included a
reduction in headcount, a substantial decrease in discretionary spending and a sharpening of the Company's
e-business focus to emphasize its marketplace solutions, and resulted in a pre-tax restructuring charge totaling
$7.0 million. The restructuring charge is broken down as follows (in thousands):

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructuring charge
Write-off of asset
Fiscal 2001 payments

Accrued expenses, June 30, 2001

Adjustments — revised assumptions
Fiscal 2002 payments

Accrued expenses, June 30, 2002

Fiscal 2003 payments

Closure/
Consolidation
of Facilities
$2,774
—
(114)
2,660
(800)
(723)
1,137
(397)

Accrued expenses, June 30, 2003

$   740

Employee
Severance,
Benefits, and
Related Costs
$3,148
—
(1,878)
1,270
—
(1,217)
53
(53)

$     —

Write-off
of Assets
$1,047
(1,047)
—
—
—
—
—
—

$ —

Total
$6,969
(1,047)
(1,992)
3,930
(800)
(1,940)
1,190
(450)

$ 740

The Company expects that the remaining obligations will be paid-out by March 2008.

Closure/consolidation of facilities: Approximately $2.8 million of the restructuring charge relates to the
termination of facility leases and other lease-related costs. The facility leases had remaining terms ranging
from one month to six years. The amount accrued reflects the Company's best estimate of the actual costs to
buy out the leases in certain cases of the net cost to sublease the properties in other cases. Included in this
amount is the write-off of certain assets, primarily leasehold improvements. The adjustments to the accrual
that occurred in fiscal 2002 relate to revisions made to sub-lease assumptions.

Employee severance, benefits and related costs: Approximately $3.2 million of the restructuring charge relates to
the reduction in workforce. Approximately 100 employees, or 5% of the workforce, were eliminated under the
changes to the business plan implemented by Company management. Areas impacted included sales and
marketing, services, general and administrative, and research and development.

Write-off of assets: Approximately $1.0 million of the restructuring and other charges relates to the
impairment of an investment in certain e-business initiatives that the Company will no longer support as a
direct consequence of the change in business plan.

(e) Fiscal 1999

In the fourth quarter of fiscal 1999, the Company experienced a significant slow down in certain of its
businesses due to difficulties that customers in its core vertical markets of refining, chemicals and
petrochemicals were experiencing. These markets were experiencing a significant decrease in pricing for their
products, which significantly reduced their revenues and related cash inflows. In turn, these companies began
to reduce their capital spending and lengthened the evaluation and decision-making cycle for purchases. The
impact of this on the Company was dramatic, lowering license revenues from expected levels by a significant
amount. Based on these reduced revenues, Company management made significant changes to the business
plan, resulting in a restructuring plan. The restructuring plan resulted in a pre-tax restructuring charge
totaling $17.9 million. The restructuring and other charges are broken down as follows (in thousands):

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructuring and other charges
Write-off of assets, and other
Fiscal 1999 payments

Accrued expenses, June 30, 1999

Fiscal 2000 payments

Accrued expenses, June 30, 2000

Fiscal 2001 payments

Accrued expenses, June 30, 2001

Adjustment—revised assumptions
Fiscal 2002 payments

Accrued expenses, June 30, 2002

Fiscal 2003 net sublease receipts
(lease payments)

Accrued expenses, June 30, 2003

Closure/
Consolidation
of Facilities
$10,224
(5,440)
(24)
4,760
(1,408)
3,352
(1,484)
1,868
(250)
(1,243)
375

Employee
Severance,
Benefits, and
Related Costs
$4,324
—
(2,386)
1,938
(1,462)
476
(126)
350
—
(350)
—

147

$     522

—

$ —

Write-off
of Assets
$3,060
(3,060)
—
—
—
—
—
—
—
—
—

—

$     —

Other
$259
(101)
(57)
101
(97)
4
—
4
—
(4)
—

—

$  —

Total
$17,867
(8,601)
(2,467)
6,799
(2,967)
3,832
(1,610)
2,222
(250)
(1,597)
375

147

$  522 

The Company expects that the remaining obligations will be paid-out by December 2004.

Closure/consolidation of facilities: Approximately $10.2 million of the restructuring charge relates to the
termination of facility leases and other lease-related costs. The facility leases had remaining terms ranging
from one month to six years. The amount accrued reflects the Company's best estimate of actual costs to buy
out the leases in certain cases or the net cost to sublease the properties in other cases. Included in this amount
is the write-off of certain assets, primarily building and leasehold improvements and adjustments to certain
obligations that relate to the closing of facilities. The adjustment of the accrual during fiscal 2002 is due to a
revision in some of the original sublease assumptions.

Employee severance, benefits and related costs:  Approximately $4.3 million of the restructuring charge relates to
the reduction in workforce. Approximately 200 employees, or 12% of the workforce, were eliminated as the
Company rationalized its product and service offerings against customer needs in various markets.

Write-off of assets:  Approximately $3.1 million of the restructuring and other charge relates to the write-off of
certain assets that had been determined to be of no further value to the Company as a direct consequence of
the change in the business plans that have been made as a result of the restructuring. These business plan
changes are the result of management's assessment and rationalization of certain non-core products and
activities acquired in recent years. The write-off was based on management's assessment of the current fair
value of certain assets, including intangible assets, and their resale value, if any.

(4) Acquisitions and Dispositions

(a) Acquisitions and Dispositions During Fiscal Year 2003

In January 2003, the Company acquired a portion of the salesforce of Soteica S.R.L. and purchased the
exclusive marketing rights held by Soteica. Soteica was a sales-agent of Hyprotech that held exclusive rights to
market Hyprotech products in certain South and Latin American countries, including Argentina, Brazil,
Mexico and Venezuela. The purchase price consists of 12 quarterly payments of $0.3 million beginning in
April 2003, the net present value of which is $3.0 million. Allocation of the purchase price was based on an
independent appraisal of the fair value of the net assets acquired.

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The purchase price was allocated to the fair market value of assets acquired and liabilities assumed, as follows
(in thousands):

Description
Marketing rights
Goodwill

Net fair value of tangible assets acquired, less liabilities assumed

Total purchase price

Life
2 months
—

Amount
$     80
2,947
3,027
—

$3,027

Pro forma information related to this acquisition is not presented, as the effect of this acquisition is not
material.

On January 31, 2003, the Company completed the sale of the assets and liabilities associated with the Aspen
Metals products. These products were originally acquired by the Company in the December 2000 acquisition
of Broner Systems. The Company will receive an aggregate of £300,000 ($494,000 as of January 31, 2003), to
be paid in four semi-annual installments from June 2003 to January 2005. The Company recorded a loss on
the sale of the net assets of $0.9 million, which was included in the restructuring and other charge as discussed
Note 3.

(b) Acquisitions During Fiscal Year 2002

On May 31, 2002, the Company acquired Hyprotech Ltd. and related subsidiaries of AEA Technology plc
(collectively, Hyprotech), a market leader in providing software and service solutions designed to improve
profitability and operating performance for process industry clients by simulating plant design and
operations. The Company acquired 100% of the outstanding capital of Hyprotech for a purchase price of
approximately $105.0 million, consisting of $96.6 million in cash and $8.4 million in transaction costs. This
acquisition was accounted for as a purchase, and accordingly, the results of operations from the date of
acquisition are included in the Company's consolidated statements of operations commencing as of the
acquisition date.

The purchase price was allocated to the fair market value of assets acquired and liabilities assumed, as follows
(in thousands):

Description
Purchased in-process research and development
Goodwill
Acquired technology
Customer contracts

Net fair value of tangible assets acquired, less liabilities assumed

Less—Deferred taxes

Total purchase price

Amount
$ 14,900
59,270
23,800
1,000
98,970
13,474
112,444
7,440

$105,004

Life
—
—
5 years
4 years

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In December 2002, the Company made adjustments to the purchase price allocation associated with the
acquisition. These consisted of various adjustments to the opening balance sheet to accrue for certain
obligations and contingencies and to write-off certain assets. These adjustments resulted in an approximately
$1.8 million increase to goodwill.

The following table represents selected unaudited pro forma combined financial information for the Company
and Hyprotech, assuming the companies had combined at the beginning of fiscal 2001 (in thousands, except
per share data):

Pro forma revenue
Pro forma net income (loss)
Pro forma net income (loss) applicable to common shareholders

Pro forma earnings (loss) per share applicable to common shareholders
Pro forma weighted average common shares outstanding

(1)Does not reflect the charge for in-process research and development

Year Ended June 30

2001
$375,701
(21,327)
(21,327)

$

(0.63)
34,108

2002(1)
$366,426
(69,811)
(76,112)

$    (2.12)
35,912

Pro forma results are not necessarily indicative of either actual results of operations that would have occurred
had the acquisition been made at the beginning of fiscal 2001 or of future results.

On April 30, 2002, the Company acquired 100% of Richardson Engineering Services, Inc. (Richardson) and
Skelton & Plummer Project Engineering, PTY Limited (S&P). Richardson is a provider of construction cost
estimation software and data, while the group of employees acquired from S&P will expand the scope of sales
and service in sub-Saharan Africa.

These acquisitions were accounted for as purchase transactions, and accordingly, the results of operations
from the dates of acquisition are included in the Company's consolidated condensed statements of operations
commencing as of the acquisition dates. Total purchase price for these acquisitions was approximately $3.2
million, consisting of $3.1 million in cash and $0.1 million in acquisition-related costs.

The purchase prices were allocated to the fair market value of assets acquired and liabilities assumed, as
follows (in thousands):

Description
Goodwill
Acquired technology

Net fair value of tangible assets acquired, less liabilities assumed

Total purchase price

Life
—
5 years

Amount
$2,112
1,510
3,621
(445)

$3,176

Pro forma information related to these acquisitions is not presented, as the effect of these acquisitions was not
material.

(c) Acquisitions During Fiscal Year 2001
On August 29, 2000, the Company acquired ICARUS Corporation and ICARUS Services Limited (together, ICARUS),
a market leader in providing software that is used by process manufacturing industries to estimate plant capital costs
and evaluate project economics. The Company acquired 100% of the outstanding shares and options to purchase
shares of ICARUS for a purchase price of approximately $24.9 million, consisting of $12.4 million in shares of the
Company's stock, $9.0 million in cash and $2.1 million in promissory notes, and $1.4 million in transaction costs. This
acquisition was accounted for as a purchase, and accordingly, the results of operations from the date of acquisition are
included in the Company's consolidated statements of operations commencing as of the acquisition date.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The purchase price was allocated to the fair market value of assets acquired and liabilities assumed, as follows
(in thousands):

Description
Purchased in-process research and development
Goodwill
Acquired technology
Other intangibles

Net fair value of tangible assets acquired, less liabilities assumed

Less—Deferred taxes

Total purchase price

Amount
$ 5,000
7,011
7,000
300
19,311
8,340
27,651
2,701

$24,950

Life
—
6 years
6 years
2 years

In the second quarter of fiscal 2001, the Company acquired the outstanding stock of Broner Systems (Broner)
and certain assets of an internet-based trading company. These acquisitions were accounted for as purchase
transactions, and accordingly, the results of operations from the dates of acquisition are included in the
Company's consolidated condensed statements of operations commencing as of the acquisition dates. Total
purchase price for these acquisitions were approximately $10.9 million, consisting of $9.5 million in cash, $0.9
million in shares of the Company stock, and $0.5 million in acquisition-related costs. Broner specializes in
advanced planning and scheduling software specifically designed for the metals industry.

The purchase prices were allocated to the fair market value of assets acquired and liabilities assumed, as
follows (in thousands):

Description
Purchased in-process research and development
Acquired technology
Goodwill
Other intangibles

Net fair value of tangible assets acquired, less liabilities assumed

Less—Deferred taxes

Total purchase price

Life
—
3-5 years
5-7 years
3 years

Amount
$ 2,615
4,400
2,631
780
10,426
1,904
12,330
1,434

$10,896

On June 15, 2001, the Company acquired the technology assets of the Houston Consulting Group and the
process applications division of CPU, a New Orleans-based consulting firm. These acquisitions were
accounted for as purchase transactions, and accordingly, the results of operations from the dates of acquisition
are included in the Company's consolidated condensed statements of operations commencing as of the
acquisition dates. Total purchase price for these acquisitions was approximately $20.3 million, consisting of
$17.5 million in shares of the Company's stock, $1.2 million in cash, $0.8 million in stock options held by
employees, as valued under the provisions of FIN 44, and $0.8 million in acquisition-related costs.

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The purchase prices were allocated to the fair market value of assets acquired and liabilities assumed, as
follows (in thousands):

Description

Amount

Life

Purchased in-process research and development
Goodwill
Acquired technology
Other intangibles

Net fair value of tangible assets acquired, less liabilities assumed

Total purchase price

—
5 years
3-5 years
3 years

$  2,300
9,856
7,900
500
20,556
(273)

$20,283

Pro forma information related to these acquisitions is not presented, as the effect of these acquisitions was not
material.

(d) Purchase Price Allocation

Allocation of the purchase prices for all acquisitions was based on estimates of the fair value of the net assets
acquired. The fair market value of significant intangible assets acquired was based on independent appraisals.
In making each of these purchase price allocations, the Company considered present value calculations of
income, an analysis of project accomplishments and remaining outstanding items and an assessment of overall
contributions, as well as project risks. The values assigned to purchased in-process technology were
determined by estimating the costs to develop the acquired technologies into commercially viable products,
estimating the resulting net cash flows from the projects, and discounting the net cash flows to their present
values. The revenue projections used to value the in-process research and development were based on
estimates of relevant market sizes and growth factors, expected trends in technology, and the nature and
expected timing of new product introductions by the Company and its competitors. The resulting net cash
flows from the projects are based on estimates of cost of sales, operating expenses, and income taxes from the
projects. The rates utilized to discount the net cash flows to their present value were based on estimated costs
of capital calculations. Due to the nature of the forecasts and the risks associated with the projected growth
and profitability of the developmental projects, discount rates of 20 to 40 percent were considered appropriate
for the in-process research and development. Risks related to the completion of technology under
development include the inherent difficulties and uncertainties in achieving technological feasibility,
anticipated levels of market acceptance and penetration, market growth rates and risks related to the impact of
potential changes in future target markets.

(5) Line of Credit

In January 2003, the Company executed a Loan Arrangement with Silicon Valley Bank. This arrangement
provides a line of credit of up to the lesser of (i) $15.0 million or (ii) 70% of eligible domestic receivables, and
a line of credit of up to the lesser of (i) $10.0 million or (ii) 80% of eligible foreign receivables. The lines of
credit bear interest at the bank's prime rate (4.00% at June 30, 2003) plus  1/2%, which may be reduced to the
bank's prime rate upon the achievement of two consecutive quarters of net income. The Company is required
to maintain a $4.0 million compensating cash balance with the bank, or be subject to an unused line fee and
collateral handling fees. The lines of credit will initially be collateralized by nearly all of the assets of the
Company, and upon achieving certain net income targets, the collateral will be reduced to a lien on the
accounts receivable. The Company is required to meet certain financial covenants, including minimum
tangible net worth, minimum cash balances and an adjusted quick ratio. The Company capitalized $0.3
million in costs associated with the origination of the Loan Arrangement, which are being amortized to
interest expense over the life of the agreement. The Loan Arrangement expires in January 2005.

As of June 30, 2003, there were $8.8 million in letters of credit outstanding under the line of credit, and there
was $15.7 million available for future borrowing. In August 2003, the Company executed an amendment to

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the Loan Arrangement that adjusted the terms of certain financial covenants, and cured a default of the
tangible net worth covenant as of June 30, 2003.

(6) Long-Term Obligations

Long-term obligations consist of the following at June 30, 2002 and 2003 (in thousands):

Capital lease obligations due in various monthly installments of principal
February 2005 plus interest, maturing through 
Note payable to Soteica incurred in connection with salesforce acquisition,
payable in quarterly installments of approximately $273 plus interest
at 6% per year
Note payable of a UK subsidiary due in monthly installments of
approximately $50 plus interest at 9% per year 
Mortgage payable of a UK subsidiary due in annual installments of
approximately $91 plus interest at 6% per year
Note payable of a Belgian subsidiary that was divested during fiscal 2003
Mortgages payable of a U.S. subsidiary due in aggregate monthly installments
of $3 plus interest of 5.3% and 9.5% per year
Note payable to the former Richardson owners, due in fiscal 2003, interest
payable at an annual rate of 12%
Convertible Debenture of a Belgian subsidiary due in fiscal 2003, interest
payable at an annual rate of 6%. This note was convertible into approximately
7,500 shares of the Company's common stock at the option of the holder
Other obligations

Less—Current portion

Maturities of these long-term obligations are as follows (in thousands):

Years Ending June 30
2004
2006
2006
2007
2008
Thereafter

2002

2003

$  7,594

$  3,050

—

992

866
1,030

366

188

74
109
11,219
5,334

2,777

847

837
—

—

—

—
—
7,510
3,849

$  5,885

$  3,661

Amount
$  3,849
1,597
1,039
224
183
618

$  7,510

The mortgage payable of the UK subsidiary and the capital lease obligations are collateralized by the property
and equipment to which they relate.

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) 5 1/4% Convertible Subordinated Debentures
In June 1998, the Company sold $86.3 million of 5 1/4% Convertible subordinated debentures (the
Debentures) to qualified institutional buyers which mature on June 15, 2005. The Debentures are convertible
into shares of the Company's common stock at any time prior to June 15, 2005, unless previously redeemed or
repurchased, at a conversion price of $52.97 per share, subject to adjustment in certain events. Interest on the
Debentures is payable on June 15 and December 15 of each year. The Debentures are redeemable in whole or
part at the option of the Company at any time on or after June 15, 2001 at the following redemption prices
expressed as a percentage of principal plus accrued interest through the date of redemption:

12 Months
Beginning June 15 of
2001
2002
2003
2004

Redemption
Price
103.00%
102.25%
101.50%
100.75%

In the event of a change of control, as defined, each holder of the Debentures may require the Company to
repurchase its Debentures, in whole or in part, for cash or, at the Company's option, for common stock
(valued at 95% of the average last reported sale prices for the 5 trading days immediately preceding the
repurchase date) at a repurchase price of 100% of the principal amount of the Debentures to be repurchased,
plus accrued interest to the repurchase date. The Debentures are unsecured obligations subordinate in right of
payment to all existing and future senior debt of the Company, as defined, and effectively subordinate in right
of payment to all indebtedness and other liabilities of the Company's subsidiaries. The Company has filed a
shelf registration statement in respect of the Debentures and common stock issuable upon conversion thereof.

In connection with this financing, the Company incurred approximately $3.9 million of issuance costs. These
costs have been classified as other assets in the accompanying consolidated balance sheets and are being
amortized, as interest expense, over the term of the Debentures. The Company recorded interest expense
associated with these debentures of $5.1 million in each of the years ended June 30, 2001, 2002 and 2003.

(8) Strategic alliance

On February 8, 2002 the Company entered into a strategic alliance with Accenture, focused on creating
solutions for manufacturing and supply chain execution by chemical and petroleum manufacturers. The
Company will work with Accenture to jointly market and promote the developed solutions in the chemicals
and petroleum markets and Accenture will become a strategic implementation partner for these solutions.
Under the alliance, the Company purchased a $29.6 million nonexclusive perpetual license to certain
intellectual property owned by Accenture and committed to purchase $7.4 million in certain professional
development services relating to the existing intellectual property. In addition, in consideration for the
development work, the Company committed to pay Accenture a royalty on sales of the software relating to the
alliance arrangement over a four-year period, beginning July 1, 2002.

The Company recorded the $29.6 million intellectual property asset and a corresponding obligation subject to
common stock settlement in the accompanying June 30, 2002 consolidated balance sheet. This liability was
partially settled with the payment of $18.5 million in common stock (1,642,672 shares) on June 9, 2002. The
remaining $11.1 million obligation was converted into a note bearing interest at 12% and secured by certain
installments receivable not sold to financial institutions. The Company made principal payments of $8.4
million during the year ended June 30, 2003. The June 30, 2003 principal balance of $2.7 million was paid in
August 2003.

This intellectual property asset is being amortized over its estimated life of five years. In October 2002, this
asset was reviewed for impairment as discussed in Note 3, resulting in a charge of $23.6 million. During fiscal

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2002, the Company recorded $2.0 million of amortization, of which $1.0 was charged to research and
development costs and $1.0 million was capitalized as computer software development costs. During fiscal
2003, the Company recorded $4.1 million of amortization, of which $3.7 was charged to research and
development costs and $0.4 million was capitalized as computer software development costs.

Under the alliance agreement, the $7.4 million in professional development services were to be paid in stock
or, under certain circumstances, in cash at the Company's election. During fiscal 2002 and 2003, Accenture
provided $1.8 million and $3.7 million in services, respectively, which were recorded on the accompanying
consolidated balance sheet as obligation subject to common stock settlement. Of these amounts, $0.9 million
was charged to research and development costs and $0.9 million was capitalized as computer software
development costs in fiscal 2002, and $1.1 million was charged to research and development costs and $2.6
million was capitalized as computer software development costs in fiscal 2003. In August 2003, the Company
paid $7.4 million in cash in settlement of this obligation.

Under the alliance agreement, the Company pays a royalty to Accenture equal to 5% of the sales of
manufacturing/supply chain products in certain markets over a four-year period, beginning July 1, 2002. The
Company is committed to pay a minimum of $9.0 million due as follows: $1.7 million in fiscal 2003, $3.5
million in fiscal 2004, and $3.8 million in fiscal 2005. The Company is recognizing the royalty expense at the
greater of the straight-line amortization of the minimum commitment over the four-year royalty period, or the
actual royalties earned during the period. The Company recorded royalty expense of $2.3 million in fiscal 2003.

(9) Preferred Stock

The Company's Board of Directors is authorized, subject to any limitations prescribed by law, without further
stockholder approval, to issue, from time to time, up to an aggregate of 10,000,000 shares of preferred stock in
one or more series. Each such series of preferred stock shall have such number of shares, designations,
preferences, voting powers, qualifications and special or relative rights or privileges, which may include,
among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences
and conversion rights, as shall be determined by the Board of Directors in a resolution or resolutions
providing for the issuance of such series. Any such series of preferred stock, if so determined by the Board of
Directors, may have full voting rights with the common stock or limited voting rights and may be convertible
into common stock or another security of the Company.

In February and March 2002, the Company sold 40,000 shares of Series B-I convertible preferred stock (Series
B-I Preferred), and 20,000 shares of Series B-II convertible preferred stock (Series B-II Preferred and
collectively with Series B-I Preferred, the Series B Preferred) together with (i) warrants to purchase 507,584
shares of common stock at an initial exercise price of $23.99 per share; and (ii) warrants to purchase 283,460
shares of common stock at an initial exercise price of $20.64 per share, to three institutional investors for an
aggregate purchase price of $60.0 million. The Company received approximately $56.6 million in net cash
proceeds after closing costs.

In June 2003, the Company amended the terms of the Series B Preferred in conjunction with the proposed
Series D preferred stock financing. This amendment gave the holders of the Series B Preferred the right to
redeem their Series B Preferred shares for cash in certain circumstances that were outside of the Company's
control. As a result of this redemption feature, the carrying value of the Series B Preferred was reclassified
outside of stockholders' equity on the accompanying consolidated balance sheet. In August 2003, the
Company repurchased all of the outstanding shares of Series B Preferred (see Note 20).

Each share of Series B Preferred stock was entitled to vote on all matters in which holders of common stock
are entitled to vote, receiving a number of votes equal (subject to certain limitations) to the number of shares
of common stock into which it was then convertible.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Series B Preferred stock accrued dividends at an annual rate of 4% that were payable quarterly,
commencing June 30, 2002, in either cash or common stock, at the Company's option (subject to the
satisfaction of specified conditions). During the years ended June 30, 2002 and 2003, the Company accrued
$0.9 million and $2.4 million, respectively, associated with this dividend obligation, which was recorded in
additional paid-in capital on the accompanying consolidated balance sheet. During fiscal 2003, the Company
issued 731,380 shares of common stock in settlement of its dividend obligations through March 31, 2003. In
July 2003, the Company issued 120,740 shares of common stock in settlement of its dividend obligations for
the three months ended June 30, 2003.

Each share of Series B-I Preferred stock and Series B-II Preferred stock was convertible into a number of
shares of common stock equal to its stated value (initially $1,000 per share) divided by a conversion price of
$19.97 and $17.66, respectively. As a result, the shares of Series B-I Preferred and Series B-II Preferred stock
initially were convertible into approximately 2,002,974 and 1,132,503 shares of common stock, respectively.

Beginning on August 7, 2003 and August 28, 2003, holders of Series B-I Preferred stock and Series B-II
Preferred stock, respectively, could have required that the Company redeem up to a total of 20,000 shares of
Series B-1 Preferred stock and 10,000 shares of Series B-II Preferred stock. Beginning on February 8, 2004 and
February 28, 2004, holders of Series B-I Preferred stock and Series B-II Preferred stock, respectively, could
have required that the Company redeem any or all of their remaining shares of Series B Preferred stock. Any
such redemption could have been made in cash or stock, at the Company's option (subject to the satisfaction
of specified conditions set forth in the Company's charter), at a price equal to the stated value, initially $1,000
per share, plus accrued but unpaid dividends.

The Company allocated the net consideration received from the sale of the Series B Preferred stock between
the Series B Preferred stock and the warrants on the basis of the relative fair values at the date of issuance,
allocating $8.0 million to the warrants. The warrants are exercisable at any time prior to the fifth anniversary
of their issue date. The fair value of the common shares into which the Series B Preferred Stock was
convertible on the date of issuance exceeded the proceeds allocated to the Series B Preferred Stock by $3.2
million, resulting in a beneficial conversion feature that was recognized as an increase in additional paid-in-
capital and as a discount to the Series B Preferred Stock. This additional discount was immediately accreted
through a charge to accumulated deficit in fiscal 2002. The remaining discount on the Series B Preferred stock
was being accreted to its redemption value over the earliest period of redemption. For fiscal 2002 and 2003,
the Company accreted $2.2 million and $6.8 million of Series B Preferred stock discount, respectively.

(10) Common Stock

(a) Common stock financing

In May 2002, the Company issued and sold 4,166,665 shares of common stock together with warrants to
purchase common stock to a group of institutional investors and two individuals, for an aggregate purchase
price of $50 million. The net proceeds from this transaction were $48.0 million. The Company issued
warrants with five-year lives to purchase up to 750,000 additional shares of common stock at a price of $15.00
per share and also issued a second class of warrants that entitled the investors to purchase, on or prior to July
28, 2002, up to 2,083,333 shares of common stock at a price of $13.20, together with five year warrants to
purchase an additional 375,000 shares of common stock at a price of $15.60. The second class of warrants
expired unexercised.

(b) Warrants

In connection with the August 1997 acquisition of NeuralWare, Inc., the Company converted warrants to
purchase NeuralWare common stock into warrants to purchase 10,980 shares of the Company's common
stock. Warrants to purchase 1,260 shares have expired through June 30, 2003. All remaining warrants are
currently exercisable with an exercise price of $120.98 per share.

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the February and March 2002 sales of Series B convertible preferred stock, the Company
issued warrants to purchase 791,044 shares of common stock at an exercise price ranging from $20.64 to
$23.99 per share, as noted above in Note 9. As of June 30, 2003, none of these warrants had been exercised. In
August 2003, these warrants were exchanged for new warrants to purchase 791,044 shares of common stock at
an exercise price of $4.08 per share (see Note 20).

In connection with the May 2002 sale of common stock to private investors, the Company issued warrants to
purchase up to 3,208,333 shares of common stock, as noted above in Note 10(a). As of June 30, 2003, none of
these warrants had been exercised, and during fiscal 2003 the second class of warrants to purchase up to
2,458,333 shares of common stock expired unexercised. In August 2003, the remaining warrants were
canceled, and new warrants were issued to purchase 1,152,665 shares at an exercise price of $9.76 per share in
their place (see Note 20).

(c) Stock Options

In December 2000, the shareholders approved the establishment of the 2001 Stock Option Plan (the 2001
Plan), which provides for the issuance of incentive stock options and nonqualified options. Under the 2001
Plan the Board of Directors may grant stock options to purchase up to an aggregate of 4,000,000 shares of
common stock. At July 1, 2002 and July 1, 2003, the 2001 Plan will be expanded to cover an additional 5% of
the outstanding shares on the preceding June 30, rounded down to the neared number divisible by 10,000. In
no event, however, may the number of shares subject to incentive options under the 2001 Option Plan exceed
8,000,000 unless the 2001 Plan is amended, and approved, by the shareholders. As of June 30, 2003, there were
2,771,650 shares of common stock available for grant under the 2001 Plan.

In November 1995, the Board of Directors approved the establishment of the 1995 Stock Option Plan (the
1995 Plan) and the 1995 Directors Stock Option Plan (the 1995 Directors Plan), which provided for the
issuance of incentive stock options and nonqualified options. Under these plans, the Board of Directors may
grant stock options to purchase up to an aggregate of 3,827,687 (as adjusted) shares of common stock. In
December 1996, the shareholders of the Company approved the establishment of the 1996 Special Stock
Option Plan (the 1996 Plan). This plan provides for the issuance of incentive stock options and nonqualified
options to purchase up to 500,000 shares of common stock. The exercise price of options is granted at a price
not less than 100% of the fair market value of the common stock on the date of grant. Stock options become
exercisable over varying periods and expire no later than 10 years from the date of grant. As of June 30, 2003,
there were 1,204,530 shares of common stock available for grant under the 1995 Plan, and no shares available
for grant under the 1995 Directors Plan or the 1996 Plan.

In connection with the acquisition of Petrolsoft during fiscal 2000, the Company assumed the Petrolsoft
option plan (the Petrolsoft Plan). Under the Petrolsoft Plan, the Board of Directors of Petrolsoft was entitled
to grant either incentive or nonqualified stock options for a maximum of 264,110 shares of common stock to
eligible employees, as defined. No future grants are available under the Petrolsoft Plan.

The following is a summary of stock option activity under the 1995 Plan, the 1995 Directors Plan, the 1996
Plan, the Petrolsoft Plan (as converted into options to purchase the Company's stock) and the 2001 Plan in
fiscal 2001, 2002 and 2003:

58

Outstanding, June 30, 2000

Options granted
Options exercised
Options terminated
Outstanding, June 30, 2001

Options granted
Options exercised
Options terminated
Outstanding, June 30, 2002

Options granted
Options exercised
Options terminated

Outstanding, June 30, 2003
Exercisable, June 30, 2003

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Number of
Shares
6,320,808
1,649,666
(978,751)
(181,086)
6,810,637
707,210
(185,625)
(340,977)
6,991,245
3,158,555
(56,934)
(1,678,484)

8,414,382
5,372,666

Weighted
Average
Exercise
Price
$14.32
17.97
12.11
15.42
15.37
13.29
8.73
16.36
15.29
2.88
2.56
11.26

$11.35
$13.72

The following tables summarize information about stock options outstanding and exercisable under the 1995
Plan, the 1995 Directors' Plan, the 1996 Plan, the Petrolsoft Plan and the 2001 Plan at June 30, 2003:

Range of Exercise Prices
$2.67-$4.33
4.33-8.67
8.67-13.00
13.00-17.34
17.34-21.67
21.67-26.01
26.01-30.34
30.34-34.68
34.68-39.01
39.01-43.34

June 30, 2003
Exercisable, June 30, 2002
Exercisable, June 30, 2001

Options
Outstanding
at June 30,
2003
2,894,466
1,022,280
179,341
3,263,004
155,813
168,250
435,287
187,425
55,500
53,016

8,414,382

Weighted
Average
Remaining
Contractual
Life
8.7
6.0
5.3
5.6
4.1
5.5
4.5
5.4
6.9
5.6

6.6

Weighted
Average
Exercise
Price
$2.89
8.26
10.43
14.15
19.60
24.13
29.02
31.40
38.25
40.08

$11.35

Options
Exercisable
at June 30,
2003
810,601
961,786
163,566
2,556,781
103,031
146,000
380,905
153,769
54,093
42,134

5,372,666
4,544,779
3,257,982

Weighted
Average
Exercise
Price
$2.95
8.24
10.41
14.25
19.85
24.26
29.03
31.53
38.29
40.11

$13.72
$15.55
$15.76

In August 2003, all employee stock options, with the exception of certain executive options, vested in full and
became 100% exercisable, which resulted in a total of 8,356,882 exercisable shares immediately following the
acceleration (see Note 20).

(d) Employee Stock Purchase Plans
In October 1997, the Company's Board of Directors approved the 1998 Employee Stock Purchase Plan, under
which the Board of Directors may grant stock purchase rights for a maximum of 1,000,000 shares through
September 30, 2007. In December 2000, the shareholders voted to increase the number of shares eligible under
the 1998 Employee Stock Purchase Plan to 3,000,000 shares.

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Participants are granted options to purchase shares of common stock on the last business day of each semi-
annual payment period for 85% of the market price of the common stock on the first or last business day of
such payment period, whichever is less. The purchase price for such shares is paid through payroll deductions,
and the current maximum allowable payroll deduction is 10% of each eligible employee's compensation.
Under the plan, the Company issued 174,463, 313,337 and 759,771 shares during fiscal 2001, 2002 and 2003,
respectively. As of June 30, 2003, there were 1,103,065 shares available for future issuance under the 1998
Employee Stock Purchase Plan as amended. In addition, on July 1, 2003, the Company issued 519,790 shares
under the 1998 Employee Stock Purchase Plan.

(e) Stockholder Rights Plan

During fiscal 1998, the Board of Directors of the Company adopted a Stockholder Rights Agreement (the
Rights Plan) and distributed one Right for each outstanding share of Common Stock. The Rights were issued
to holders of record of Common Stock outstanding on March 12, 1998. Each share of Common Stock issued
after March 12, 1998 will also include one Right, subject to certain limitations. Each Right when it becomes
exercisable will initially entitle the registered holder to purchase from the Company one one-hundredth
(1/100th) of a share of Series A Preferred Stock at a price of $175.00 (the Purchase Price).

The Rights will become exercisable and separately transferable when the Company learns that any person or
group has acquired beneficial ownership of 15% or more of the outstanding Common Stock or on such other
date as may be designated by the Board of Directors following the commencement of, or first public disclosure
of an intent to commence, a tender or exchange offer for outstanding Common Stock that could result in the
offeror becoming the beneficial owner of 15% or more of the outstanding Common Stock. In such
circumstances, holders of the Rights will be entitled to purchase, for the Purchase Price, a number of
hundredths of a share of Series A Preferred Stock equivalent to the number of shares of Common Stock (or, in
certain circumstances, other equity securities) having a market value of twice the Purchase Price. Beneficial
holders of 15% or more of the outstanding Common Stock, however, would not be entitled to exercise their
Rights in such circumstances. As a result, their voting and equity interests in the Company would be
substantially diluted if the Rights were to be exercised.

The Rights expire in March 2008, but may be redeemed earlier by the Company at a price of $.01 per Right, in
accordance with the provisions of the Rights Plan.

The Company amended the Rights Plan in June 2003 so that the terms of the Rights Plan would not be
applicable to the securities issued as part of the Series D preferred financing or to any securities issued in the
future pursuant to the preemptive rights granted as part of this financing (see Note 20 for a description of the
financing).

(f) Restricted Stock

In fiscal 2001, restricted stock covering 94,500 shares of the Company's common stock was issued. The
restricted stock is subject to vesting terms whereby the entire amount will vest upon the earlier of seven years
from the date of grant or the attainment of certain performance goals, as defined.

Consideration of $3.00 per share was received for these shares, resulting in deferred compensation of $1.5
million based on the fair market value on the date of issuance of the restricted stock. Of this deferred
compensation, $0.1 million and $0.2 million was expensed in fiscal 2001 and fiscal 2002, respectively. The
consideration received was in the form of secured promissory notes from the holders of the restricted stock.
These notes are subject to interest at an annual rate of 5.07%, are due seven years from the date of issuance
and are secured by the restricted stock. The interest under these notes is subject to full recourse against the
personal assets of the holders of the restricted stock.

In May 2002, the holders of the restricted stock were terminated from their employment with the Company.
At the time of termination, the performance goals had not been attained, and none of the restricted stock had

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

vested. In accordance with the terms of the restricted stock agreements, the Company repurchased the stock at
the original purchase price of $3.00 per share. The Company recorded an entry to reverse the $1.2 million of
unamortized deferred compensation and $0.3 million of the previously recognized compensation expense
associated with the stock.

(g) Subsidiary Stock Options

In November 2001, the Board of Directors of PetroVantage, Inc. approved the establishment of the 2001 Stock
Incentive Plan of PetroVantage, Inc. (the PetroVantage Plan). In November 2002, the Board of Directors of the
Company elected to terminate the PetroVantage Plan and grant options to purchase the Company's common
stock under the Company's 2001 Plan. The options to purchase the Company's stock exchanged for the
PetroVantage options were granted at an exercise price of $2.21. In accordance with FASB Interpretation No.
44, “Accounting for Certain Transactions Involving Stock Compensation (an Interpretation of APB Opinion
No. 25),” the Company did not record any compensation expense, as the aggregate intrinsic value and the ratio
of the exercise price to the market value of the options remained unchanged. The terms of the new options
were substantially similar to the PetroVantage options.

(11) Income Taxes

The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income
Taxes.“ Under the liability method specified by SFAS No. 109, a deferred tax asset or liability is measured
based on the difference between the financial statement and tax bases of assets and liabilities, as measured by
the enacted tax rates.

Income (loss) before provision for (benefit from) income taxes consists of the following (in thousands):

Domestic
Foreign

Total

2001
$(26,757)
(2,350)

$(29,107)

Years Ended June 30

2002
$(56,597)
(18,164)

$(74,761)

2003
$ (92,488)
(68,345)

$(160,833)

The provisions for (benefit from) income taxes shown in the accompanying consolidated statements of
operations are composed of the following (in thousands):

Federal—
Current
Deferred

State—

Current
Deferred

Foreign—
Current
Deferred

2001

Years Ended June 30

2002

$  (3,433)
(5,255)

$        —
—

(219)
(1,035)

1,210
—

142
—

1,366
896

2003

$         —
—

—
—

—
—

$ (8,732)

$ 2,404

$         —

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The provision for (benefit from) income taxes differs from that based on the federal statutory rate due to the
following (in thousands):

Federal tax at statutory rate
State income tax, net of federal tax benefit
Tax effect resulting from foreign goodwill impairment
Tax effect resulting from foreign activities
Tax credits generated
Permanent differences, net
Acquisition costs
Valuation allowance

Provision for (benefit from) income taxes

2001
Benefit

$(9,896)
(828)
—
1,572
(2,871)
630
239
2,422

$(8,732)

Years Ended June 30

2002
Provision

$(25,419)
94
—
8,438
(3,660)
(234)
—
23,185

$ 2,404

2003

$(54,683)
—
17,129
6,108
(522)
48
—
31,920

$        —

The approximate tax effect of each type of temporary difference and carry forward is as follows
(in thousands)

Deferred tax assets:
Revenue related
US Income tax credits
US operating losses carryforward
Restructuring items
Nondeductible reserves and accruals
Intangible assets
Other temporary differences

Valuation allowance

Deferred tax liabilities:(1)
Revenue related
Nondeductible reserves and accruals
Intangible assets
Other temporary differences
Foreign losses carryforward

June 30

2002

2003

$  (8,106)
20,470
23,403
6,040
8,429
(4,736)
(45)
45,455
(26,950)
18,505

(21,534)
(1,226)
4,563
3,194
—

(15,003)
$ 3,502

$      248
19,028
20,942
27,056
12,839
2,140
10,756
93,009
(76,249)
16,760

(8,584)
(4,983)
—
—
309

(13,258)
$   3,502

(1)The Company recorded a $14.5 million deferred tax liability associated with the acquisition of Hyprotech.

The tax credits and net operating loss carryforwards expire at various dates from 2004 through 2024. The Tax
Reform Act of 1986 contains provisions that may limit the net operating loss and tax credit carryforwards
available to be used in any given year in the event of significant changes in ownership, as defined. Due to the
uncertainty surrounding the realization and timing of these tax attributes, the Company has recorded a valuation
allowance of approximately $27.0 million and $76.2 million as of June 30, 2002 and 2003, respectively.

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(12) Operating Leases

The Company leases its facilities and various office equipment under noncancelable operating leases with
terms in excess of one year. Rent expense charged to operations was approximately $10.5 million, $12.3
million and $13.9 million for the years ended June 30, 2001, 2002 and 2003, respectively. Future minimum
lease payments under these leases as of June 30, 2003 are as follows (in thousands):

Years Ending June 30, 2004
2005
2006
2007
2008
Thereafter

Amount
$  16,747
14,411
12,526
11,956
10,887
34,808

$101,335

(13) Sale of Installments Receivable

Installments receivable represent the present value of future payments related to the financing of
noncancelable term and perpetual license agreements that provide for payment in installments, generally over
a one- to five-year period. A portion of each installment agreement is recognized as interest income in the
accompanying consolidated statements of operations. The interest rates utilized for the years ended June 30,
2001, 2002, and 2003 ranged from 7.0% to 9.0%.

The Company has arrangements to sell certain of its installments receivable to two financial institutions. The
Company sold, with limited recourse, certain of its installment contracts for aggregate proceeds of $42.7
million and $66.7 million during fiscal 2002 and 2003, respectively. The financial institutions have certain
recourse to the Company upon nonpayment by the customer under the installments receivable. The amount
of recourse is determined pursuant to the provisions of the Company's contracts with the financial
institutions. Collections of these receivables reduce the Company's recourse obligations, as defined. Generally,
no gain or loss is recognized on the sale of the receivables due to the consistency of the discount rates used by
the Company and the financial institutions.

At June 30, 2003, there was approximately $45 million of additional availability under the arrangements. The
Company expects that there will be continued ability to sell installments receivable, as the collection of the
sold receivables will reduce the outstanding balance and the availability under the arrangements can be
increased. The Company's potential recourse obligation related to these contracts is within the range of $4.1
million to $5.7 million. In addition, the Company is obligated to pay additional costs to the financial
institutions in the event of default by the customer.

(14) Commitments and Contingencies

(a) FTC complaint

On August 7, 2003, the Federal Trade Commission, or FTC, announced that it has authorized its staff to file a
civil administrative complaint alleging that the acquisition of Hyprotech in May 2002 was anticompetitive and
seeking to declare the acquisition in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act. An
administrative law judge will adjudicate the complaint in a trial-type proceeding if the Company does not
reach a settlement with the FTC prior to the conclusion of this proceeding. Any decision of the administrative
law judge may be appealed to the commissioners of the FTC by either the FTC staff or the Company. Upon
appeal, the commissioners will issue their own decision and order after reviewing legal briefs and hearing oral
arguments. If the FTC commissioners rule against the Company, it may file a petition for review in a federal
circuit court of appeals. If the court of appeals affirms the FTC's ruling, then the court will enter its own order

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of enforcement. Any decision of the court of appeals may be appealed by either the FTC, or by the Company,
to the U.S. Supreme Court. The Company disagrees with the FTC that the acquisition of Hyprotech is
anticompetitive and intends to defend the proceedings vigorously.

It is too early to determine the likely outcome of the FTC's challenge. Because of the length of the appeals
process, the outcome of this matter may not be determined for several years. If the FTC were to prevail in this
challenge, it could seek to impose a wide variety of remedies, some of which would have a material adverse
effect on the Company's ability to continue to operate under its current business plan and on its results of
operations. These potential remedies include the divestiture of Hyprotech, as well as mandatory licensing of
Hyprotech software products and other engineering software products to one or more of the Company's
competitors. As of June 30, 2003, the Company had accrued $13.0 million to cover the cost of (1) professional
service fees associated with its cooperation in the FTC's investigation since its commencement on June 7,
2002, and (2) estimated future professional services fees relating to the initial administrative proceeding and
any subsequent appeals.

(b) Litigation

On May 31, 2002, the Company acquired the capital stock of Hyprotech from AEA Technology plc. AEA is
engaged in arbitration proceedings in England over a contract dispute with KBC Advanced Technologies PLC, an
English technology and consulting services company. The dispute remains in arbitration and concerns alleged
breaches by each party of an agreement to develop and market a product known as HYSYS.Refinery. The
Company indemnified AEA under the Sale and Purchase Agreement with AEA dated May 10, 2002 against any
costs, damages or expenses in respect of a claim brought by KBC alleging damages due to AEA's (a) failure to
comply with its contractual obligations after the acquisition, (b) breach of non-competition clauses with respect
to activities occurring after the acquisition, (c) breach of certain obligations to KBC under its agreement by
virtue of the acquisition, or (d) execution of the acquisition agreement. On March 31, 2003, the arbitrator
delivered a partial decision in the arbitration, as a result of which the Company has not received any request
under the indemnification agreement, nor does the Company expect to receive one. Subsequently, AEA and KBC
each issued a notice to the other terminating the contract between them. The Company expects that the
arbitrator will determine whether either party had proper grounds for such termination notice. The Company is
working with AEA in the resolution of this matter. It is too early to determine the likely outcome of this matter.

In addition, on September 11, 2002, KBC filed a separate complaint in state district court in Houston, Texas
against the Company and Hyprotech. KBC's claim alleges tortious interference with contract and existing
business relations, tortious interference with prospective business relationships, conversion of intellectual
property and civil conspiracy. KBC has requested actual and exemplary damages, costs and interest. The
Company has filed a counterclaim against KBC requesting actual and punitive damages and attorney fees. A
trial date has been set for January 19, 2004. On August 25, 2003, KBC filed an additional complaint in the state
district court in Houston, Texas against the Company and Hyprotech alleging breach of non-compete
provisions and requesting injunctive relief preventing sale of its product, Aspen.Refsys. The Company believes
the causes of action to be without merit and will defend the case vigorously. On September 15, 2003, the court
set aside the injunction pending resolution of the arbitration in London.

(c) Other

The Company has entered into agreements with two executive officers providing for the payment of cash and
other benefits in certain events of their voluntary or involuntary termination within three years following a
change of control. Payment under these agreements would consist of a lump sum equal to approximately
three times each executive's annual taxable compensation. The agreements also provide that the payments
would be increased in the event that it would subject the officer to excise tax as a parachute payment under
the federal tax code. The increase would be equal to the additional tax liability imposed on the executive as a
result of the payment. The Company has entered into a substantially similar agreement with a third executive
officer, except that payment under this agreement would consist of a lump sum equal to approximately (i)

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

twice this executive's annual taxable compensation if he is terminated within the first year following a change
of control and (ii) this executive's annual taxable compensation if he is terminated within the second or third
year following a change of control.

The Company has also entered into agreements with four executive officers, providing for severance payments
in the event that the executive is terminated by the Company other than for cause. Payments under one of
these agreements consist of continuation of base salary for a period of 18 months, payments under two of
these agreements consist of continuation of base salary for a period of 12 months, and payments under the
fourth agreement consist of continuation of base salary for a period of six months.

(15) Retirement and Profit Sharing Plans

The Company maintains a defined contribution retirement plan under Section 401(k) of the Internal Revenue
Code covering all eligible employees, as defined. Under the plan, a participant may elect to defer receipt of a
stated percentage of his or her compensation, subject to limitation under the Internal Revenue Code, which
would otherwise be payable to the participant for any plan year. The Company may make discretionary
contributions to this plan, including making matching contributions equal to 25% of pretax employee
contributions up to a maximum of 6% of an employee's salary. During the fiscal years ended June 30, 2001,
2002 and 2003, the Company made matching contributions of approximately $1.3 million, $1.3 million and
$0.1 million, respectively.

(16) Joint Ventures and Other Investments

In May 1993, the Company entered into an Equity Joint Venture agreement with China Petrochemical
Technology Company to form a limited liability company governed by the laws of the People's Republic of
China. This joint venture has the nonexclusive right to distribute the Company's products within the People's
Republic of China. The Company invested $0.3 million on August 6, 1993, which represents a 25% equity
interest in the joint venture as of June 30, 2003.

In November 1993, the Company invested approximately $0.1 million in a Cyprus-based company,
representing approximately a 14% equity interest. In December 1995, the Company exercised its option to
increase its equity interest to 22.5%, acquiring additional shares for approximately $0.1 million. In fiscal 2001,
a third party invested in the entity and purchased a portion of the existing shareholders' equity interests. As a
result of this transaction, the Company's equity interest increased to 31.58% and the Company recorded a
gain on the sale of a portion of its interest of $0.2 million.

In August 2001, the Company entered into a joint venture in Japan with a third party. The joint venture
operates in Japan and Korea and is designed to allow the Company to penetrate those markets more quickly
than it could on its own, by using joint resources to sell licenses and to deploy those licenses using the local
based services of the joint venture employees. The Company has a 50% ownership in this joint venture and
has invested $0.9 million as of June 30, 2003. In fiscal 2003, the Company decided that it will not continue to
invest in this joint venture, and wrote-off the remaining value of the investment.

The Company is accounting for the above three investments using the equity method. The net investments of
approximately $1.2 million and $0.7 million are included in other assets in the accompanying consolidated
balance sheets as of June 30, 2002 and 2003, respectively. In the accompanying consolidated statements of
operations for the years ended June 30, 2001, 2002, and 2003, the Company has recognized income of
approximately $0.2 million, and losses of approximately $0.2 million and $0.5 million, respectively, as its
portion of the income (loss) from these joint ventures. The Company does not have any commitments to
provide additional funding to these entities.

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In March 2000, the Company and e-Chemicals entered into a Stock Purchase Agreement whereby the
Company acquired 833,333 shares of e-Chemicals non-voting Series E Preferred Stock for $6.00 per share.
This $5.0 million investment entitled the Company to a minority interest in e-Chemicals and was accounted
for using the cost method. During the second quarter of fiscal 2001, the Company deemed this investment in
the stock of e-Chemicals to be worthless and, as a result, this investment was written off. This impairment is
included in the accompanying consolidated statement of operations for fiscal 2001.

In November 2000, the Company invested $0.6 million in a global chemical B2B e-commerce site supporting
major chemical companies in Asia. This investment entitles the Company to a minority interest in the B2B
company and is accounted for using the cost method and, accordingly, is being valued at cost unless a
permanent impairment in its value occurs or the investment is liquidated. As of June 30, 2003, the Company
has determined that an other than temporary impairment has not occurred. This investment is included in
other assets in the accompanying consolidated balance sheet as of June 30, 2002 and 2003.

In December 2000, the Company made a $3.0 million investment in e-Catalysts, Inc. (e-Catalysts). This
investment entitled the Company to a 33% interest in e-Catalysts and had been accounted for using the equity
method. In connection with the restructuring plan in the fourth quarter of fiscal 2001 (see Note 3(d)), the
Company determined that an other than temporary impairment in the value of the asset had occurred. The
amount of such impairment was included in the restructuring charge recorded by the Company in the fourth
quarter of fiscal 2001.

In March 2001, the Company made an initial $8.3 million investment in Optimum Logistics Ltd. (Optimum),
an internet-based open logistics system for bulk materials. This investment consisted of 219,515 shares of the
Company's stock, valued at $5.7 million on the date of the transaction, plus $5.0 million in cash. This
investment entitled the Company to a minority interest in Optimum and was accounted for using the cost
method. In March 2002, due to Optimum's failure to achieve a third-party financing milestone, 58,540 shares
of stock, valued at $2.1 million, were released from escrow and returned to the Company. In June 2002, the
Company determined that an other than temporary impairment in the value of the asset had incurred, and
the remaining investment of $8.7 million was written-off.

(17) Accrued Expenses and Other Liabilities

Accrued expenses in the accompanying consolidated balance sheets consist of the following (in thousands):

Royalties and outside commissions
Acquisition-related
Payroll and payroll-related
Restructuring and other charges
Payable to financing companies
Income taxes
Amount owed to AEA Technology plc (former parent of Hyprotech)
Other

2002
$ 4,034
8,180
15,920
6,056
9,923
4,914
3,142
18,957

$71,126

June 30

2003
$14,677
13,005
12,998
12,257
4,332
536
—
15,667

$73,472 

Other liabilities in the accompanying consolidated balance sheets consist of the following (in thousands):

Restructuring and other charges
Royalties and outside commissions

66

2002
$ 7,009
5,031

$12,040

June 30

2003
$13,009
3,000

$16,009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(18) Related Party Transactions
A director of the Company provided advisory services to the Company as a director of PetroVantage during
fiscal 2002 and 2003. The Company made payments of $32,000 to the director as compensation for services
rendered during fiscal 2002 and no payments in fiscal 2003. Separately, during fiscal 2003, the director
provided general consulting services to the Company, for which the Company made payments totaling
approximately $230,000 during the year.

(19) Segment and Geographic Information
The Company follows the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and
related Information,” which establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating segments in interim financial
reports issued to stockholders. It also established standards for disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief operating decision maker, or decision
making group, in deciding how to allocate resources and in assessing performance. The Company's chief
operating decision maker is the Chief Executive Officer of the Company.

The Company is organized geographically and by line of business. The Company has three major line of
business operating segments: license, consulting services and maintenance and training. The Company also
evaluates certain subsets of business segments by vertical industries as well as by product categories. While the
Executive Management Committee evaluates results in a number of different ways, the line of business
management structure is the primary basis for which it assesses financial performance and allocates resources.

The license line of business is engaged in the development and licensing of software. The consulting services
line of business offers implementation, advanced process control, real-time optimization and other consulting
services in order to provide its customers with complete solutions. The maintenance and training line of
business provides customers with a wide range of support services that include on-site support, telephone
support, software updates and various forms of training on how to use the Company's products.

The accounting policies of the line of business operating segments are the same as those described in the
summary of significant accounting policies. The Company does not track assets or capital expenditures by
operating segments. Consequently, it is not practical to show assets, capital expenditures, depreciation or
amortization by operating segments.

The following table presents a summary of operating segments (in thousands):

Year ended June 30, 2001—

Revenues from unaffiliated customers
Controllable expenses

Controllable margin(1)
Year ended June 30, 2002—

License

Consulting
Services

Maintenance
and Training

Total

$147,448
55,059

$122,821
88,860

$56,655
13,438

$326,924
157,357

$  92,389

$  33,961

$43,217

$169,567

Revenues from unaffiliated customers
Controllable expenses

$133,913
60,869

$127,719
90,421

$58,972
11,602

$320,604
162,892

Controllable margin(1)
Year ended June 30, 2003—

$  73,044

$  37,298

$47,370

$157,712

Revenues from unaffiliated customers
Controllable expenses

$139,859
65,394

$103,741
81,943

$79,121
12,361

$322,721
159,698

Controllable margin(1)

$  74,465

$  21,798

$66,760

$163,023

(1) The Controllable Margins reported reflect only the expenses of the line of business and do not represent the actual margins for each operating segment
since they do not contain an allocation for selling and marketing, general and administrative, development and other corporate expenses incurred in
support of the line of business.

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Profit Reconciliation:

(In thousands)
Total controllable margin for reportable segments
Selling and marketing
Research and development
General and administrative and overhead
Goodwill impairment charge
Restructuring and other charges
Charges for in-process research and development
Interest and other income and expense
Write-off of investments

Income (loss) before provision for (benefit from)
income taxes

2001

Years Ended June 30

2002

$169,567
(96,467)
(12,587)
(73,204)
—
(6,969)
(9,915)
5,468
(5,000)

$157,712
(89,953)
(20,248)
(82,650)
—
(16,083)
(14,900)
284
(8,923)

2003

$163,023
(91,357)
—
(77,379)
(74,715)
(81,162)
—
757
—

$(29,107)

$(74,761)

$(160,833)

Geographic Information:
Domestic and export sales as a percentage of total revenues are as follows:

United States
Europe
Japan
Other

2001
51.2%
27.7
5.3
15.8

100.0%

Years Ended June 30

2002
54.2%
28.4
5.1
12.3

2003
46.6%
30.2
3.9
19.3

100.0%

100.0%

During the years ended June 30, 2001, 2002 and 2003 there were no customers that individually represented
greater than 10% of the Company's total revenue.

Revenues, income (loss) from operations and identifiable assets for the Company's North American, European
and Asian operations are as follows (in thousands). The Company has intercompany distribution
arrangements with its subsidiaries. The basis for these arrangements, disclosed below as transfers between
geographic locations, is cost plus a specified percentage for services and a commission rate for sales generated
in the geographic region.

Year ended June 30, 2001—

Revenues
Identifiable assets

Year ended June 30, 2002—

Revenues
Identifiable assets

Year ended June 30, 2003—

Revenues
Identifiable assets

North
America

$280,499
$400,794

$272,776
$479,454

Europe

Asia

Eliminations

Consolidated

$  72,332
$  49,907

$  77,865
$  97,561

$22,148
$16,956

$18,504
$12,943

$  (48,055)
$(113,691)

$326,924
$353,966

$  (48,541)
$(176,014)

$320,604
$413,944

$235,373
$528,304

$106,725
$  64,917

$12,876
$(6,959)

$  (32,253)
$(266,789)

$322,721
$319,473

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(20) Subsequent Events—Preferred Stock Financing and Shareholder Vote

In August 2003, the Company issued and sold 300,300 shares of Series D-1 convertible preferred stock (Series
D-1 Preferred), along with warrants to purchase up to 6,006,006 shares of common stock at a price of $3.33
per share, in a private placement to several investment partnerships managed by Advent International
Corporation for an aggregate purchase price of $100.0 million. Concurrently, the Company paid cash of $30.0
million and issued 63,064 shares of Series D-2 convertible preferred stock (Series D-2 Preferred), along with
warrants to purchase up to 1,261,280 shares of common stock at a price of $3.33 per share, to repurchase all of
the outstanding Series B-I and B-II convertible preferred stock. In addition the Company exchanged existing
warrants to purchase 791,044 shares of common stock at an exercise price ranging from $20.64 to $23.99 held
by the Series B Preferred holders, for new warrants to purchase 791,044 shares of common stock at an exercise
price of $4.08.

Each share of Series D-1 and D-2 Preferred (together the Series D Preferred) is entitled to vote on all matters
in which holders of common stock are entitled to vote, receiving a number of votes equal to the number of
shares of common stock into which it is then convertible. In addition, holders of Series D-1 Preferred, as a
separate class, are entitled to elect a certain number of directors, based on a formula as defined. Initially, the
Series D-1 Preferred holders are entitled to elect two directors.

The Series D Preferred earns cumulative dividends at an annual rate of 8%, that are payable when and if
declared by the Board of Directors, in cash or, subject to certain conditions, common stock.

Each share of Series D Preferred is initially convertible at any time into a number of shares of common stock
equal to its stated value divided by the then-effective conversion price. The stated value is initially $333.00 per
share and is subject to adjustment in the event of any stock dividend, stock split, reverse stock split,
recapitalization, or any like occurrences. The initial conversion price is $3.33 per share. As a result, each share
of Series D Preferred initially is convertible into 100 shares of common stock, and in the aggregate, the Series
D Preferred are convertible into 36,336,400 shares of common stock. The Series D Preferred have anti-dilution
rights that will adjust the conversion ratio downwards in the event that the Company issues certain additional
securities at a price per share less than the conversion price then in effect.

The Series D Preferred is subject to redemption at the option of the holders as follows: 50% on or after August
14, 2009 and 50% on or after August 14, 2010. The shares will be redeemed for cash at a price of $333.00 per
share, plus accumulated but unpaid dividends.

As a result of the Series D Preferred financing, anti-dilution provisions were triggered on the warrants to
purchase shares of common stock that had been issued in connection with the May 2002 sale of common
stock to private investors. These warrants initially provided for the purchase of 750,000 shares of common
stock at an exercise price of $15.00, and now have been amended to purchase 1,152,665 shares at an exercise
price of $9.76 per share.

As a result of the Series D Preferred financing, certain provisions were triggered in the employee stock option
plans, resulting in full vesting of all employee stock options, with the exception of certain executives who
waived this acceleration for options less than $10.00. Immediately following the acceleration there were a total
of 8,356,882 exercisable and outstanding options.

At the August 2003 stockholder meeting, it was voted to: 1) give the board of directors discretion to effect a
one-for-two or a one-for-three reverse stock split at any time prior to January 31, 2004, 2) increase the
number of authorized shares of common stock to 210,000,000 shares, 3) reduce the per share par value of the
common stock to $0.001 per share, and 4) increase the number of shares of common stock reserved under the
Company's 1995 Director Stock Option Plan to 800,000 shares.

69

GAAP EARNINGS RECONCILIATION

(In Thousands)
Net income (loss) 

Adjustments to net loss:

September 30,
2002
$(12,967)

December 30,
2002
$(136,888)

March 31,
2003
$(1,960)

June 30,
2003
$(18,202)

Restructuring charge, net of tax effect 

— 

2,234 

$(10,733)
37,994

135,244

2,287

643
39,560

($0.28)

$0.02

2,100

2,291

2,431
40,938

$0.06

18,533

2,372

2,703
41,051

$0.07

Preferred stock
discount and dividend accretion

Pro forma net income (loss) 
Weighted average shares
outstanding - basic and diluted
Earnings Per Share

70

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Aspen
Technology, Inc.'s filing on Form 10-K for the year ended June 30, 2001. This audit report has not been
reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. The consolidated balance
sheets as of June 30, 2000 and 2001 and the consolidated statements of operations, stockholders' equity and
cash flows for the years ended June 30, 1999 and 2000 referred to in this report have not been included in the
accompanying financial statements or schedule.

Report of Independent Public Accountants

To Aspen Technology, Inc.:

We have audited the accompanying consolidated balance sheets of Aspen Technology, Inc. (a Delaware
corporation) and subsidiaries as of June 30, 2000 and 2001, and the related consolidated statements of
operations, stockholders' equity and comprehensive income (loss) and cash flows for each of the three years in
the period ended June 30, 2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Aspen Technology, Inc. and subsidiaries as of June 30, 2000 and 2001, and the results
of their operations and their cash flows for each of the three years in the period ended June 30, 2001 in
conformity with accounting principles generally accepted in the United States.

Arthur Andersen LLP

Boston, Massachusetts
August 3, 2001

71

INDEPENDENT AUDITOR’S REPORT

Independent Auditor’s Report

To the Board of Directors and Stockholders of Aspen Technology, Inc.:

We have audited the accompanying balance sheets of Aspen Technology, Inc. and subsidiaries (the
“Company”) as of June 30, 2003 and 2002, and the related statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.
The financial statements of Aspen Technology, Inc. and subsidiaries as of June 30, 2001 and for the year in the
period then ended were audited by other auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those financial statements in their report dated August 3, 2001.

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

In our opinion, such financial statements present fairly, in all material respects, the financial position of the
Company as of June 30, 2003 and 2002 and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2(n) to the consolidated financial statements, the Company changed its method of
accounting for goodwill and intangible assets in 2002 to conform to Statement of Financial Accounting
Standards No. 142, “Goodwill and Other Intangible Assets.”

As discussed above, the financial statements of Aspen Technology, Inc. and subsidiaries as of June 30, 2001 and
for the year then ended were audited by other auditors who have ceased operations. As described in Note 2(g),
those financial statements have been reclassified to reflect reimbursements from customers for out-of-pocket
expenses incurred as revenue rather than as a reduction of expenses. We audited the adjustments described in
Note 2(g) that were applied to reclassify the 2001 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied. However, we were not engaged to audit, review or apply any
procedures to the 2001 financial statements of the Company other than with respect to such adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements
taken as a whole.

Deloitte & Touche LLP

Boston, Massachusetts
September 29, 2003

72

Officers, Board of Directors and Corporate Information

Executive Officers

David L. McQuillin
President & Chief Executive Officer
Wayne Sim
Senior Vice President
Worldwide Sales
Charles Kane
Senior Vice President
Chief Financial Officer
Stephen Doyle
General Counsel
Chief Strategy Officer
Helen Moye
Senior Vice President
Human Resources
Manolis Kotzabasakis
Senior Vice President
Engineering
Steve Pringle
Senior Vice President
Manufacturing/Supply Chain

Board of Directors

Lawrence B. Evans
Chairman
David L. McQuillin
President & Chief Executive Officer
Gresham T. Brebach, Jr.
Managing Director
The Brebach Group, LLC.
Douglas R. Brown
President & Chief Executive Officer
Ionics, Inc.
Stephen L. Brown
Retired Chairman &
Chief Executive Officer
John Hancock Financial Services
Stephen M. Jennings
Director
Monitor Group
Douglas A. Kingsley
Managing Director
Advent International
Joan C. McArdle
Senior Vice President
Massachusetts Capital Resource Co.
Michael Pehl
Operating Partner
Advent International

Corporate Offices

Headquarters
Aspen Technology, Inc.
Cambridge MA
T 617 949 1000

Aspen Technology, Inc.
Houston TX
T 281 584 1000

Aspen Technology, Inc.
New Providence NJ
T 908 516 9500

Aspen Technology, Inc.
Bothell WA
T 425 492 2000

Aspen Technology, Inc.
Rockville MD
T 301 795 6800

Aspen Technology, Inc.
San Diego CA
T 858 703 4800

Aspen Technology, Inc.
Calgary Canada
T 403 303 1000

AspenTech Europe S.A./N.V.
Brussels Belgium
T + 32 2 701 9450

AspenTech Ltd.
Cambridge United Kingdom
T + 44 1223 819 700

Aspen Technology España, S.A.
Barcelona Spain
T + 34 93 215 6884

AspenTech Japan Co., Ltd.
Tokyo Japan
T + 81 33 262 1710

AspenTech Inc.
Keypoint Singapore
T + 65 6395 3900

Independent Public Accountants
Deloitte & Touche
200 Berkeley Street
Boston, MA 02116

Legal Counsel
Hale and Dorr LLP
60 State Street
Boston, MA 02109

Corporate Information

Questions regarding taxpayer
identification numbers, transfer
procedures and other stock 
account matters should be 
addressed to the Transfer Agent
& Registrar at:
American Stock Transfer & Trust Co.
6201 15th Avenue
Brooklyn, NY 11219
T 800 937 5449
http://www.amstock.com
info@amstock.com

The Annual Meeting of Shareholders
will be held on December 09, 2003
at the offices of:
Hale and Dorr LLP
26th Floor
60 State Street
Boston, MA 02109

Shareholders may obtain a copy
of the Company’s annual report on
Form 10K, filed with the Securities &
Exchange Commission, by sending
a written request to:
Investor Relations
Aspen Technology, Inc.
Ten Canal Park
Cambridge, MA 02141-2201
T 617 949 1274

Projections, estimates and business
plans in this publication are forward-
looking statements that involve risks
and uncertainties. Actual future
market growth, capital expenditures,
costs, earnings, events, financial
performance and plans could differ
materially due to, for example,
changes in market conditions, the
outcome of commercial negotiations,
changes in operating conditions and
costs, technology developments
and other factors discussed in this
document and in Item 1A of the
Company’s Form 10K for the year
ended June 30, 2003.

AspenTech, Aspen Enterprise Platform,
Plantelligence and Aspen Engineering
Suite are trademarks or registered
trademarks of Aspen Technology, Inc.,
Cambridge, MA, USA.
Copyright © 2003
Aspen Technology, Inc.
All rights reserved.

Worldwide Headquarters

Aspen Technology, Inc.
Ten Canal Park
Cambridge, MA
02141-2201
USA

phone  617.949.1000
fax  617.949.1030

www.aspentech.com
info@aspentech.com