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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

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

FORM 10-Q

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

For the quarterly period ended July 31, 2001

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

Commission File Number: 0-22369

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BEA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Delaware 77-0394711
(State or other (I. R. S. Employer
jurisdiction of Identification No.)
incorporation or
organization)

2315 North First Street
San Jose, California 95131
(Address of principal executive offices)

(408) 570-8000
(Registrant's telephone number, including area code)

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

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

As of August 31, 2001, there were approximately 397,596,061 shares of the
Registrant's common stock outstanding.

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BEA SYSTEMS, INC.

INDEX

Page
No.
----

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited):

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the
three and six months ended July 31, 2001 and 2000.................................... 3

Condensed Consolidated Balance Sheets as of July 31, 2001 and January 31, 2001......... 4

Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 2001
and 2000............................................................................. 5

Notes to Condensed Consolidated Financial Statements................................... 6

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 12

ITEM 3. Quantitative and Qualitative Disclosure about Market Risks............................. 30

PART II. OTHER INFORMATION

ITEM 2. Changes in Securities and Use of Proceeds.............................................. 34

ITEM 4. Submission of Matters to a Vote of Security Holders.................................... 34

ITEM 6. Exhibits and Reports on Form 8-K....................................................... 34

Signatures...................................................................................... 35

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BEA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(Unaudited)

Three months ended Six months ended
July 31, July 31,
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------

Revenues:
License fees.................................................. $172,211 $104,195 $333,404 $189,434
Services...................................................... 95,553 81,826 191,523 150,269
-------- -------- -------- --------
Total revenues............................................ 267,764 186,021 524,927 339,703
Cost of revenues:
Cost of license fees.......................................... 6,041 4,503 11,692 8,278
Cost of services.............................................. 47,675 47,891 98,421 88,304
Amortization of certain acquired intangible assets............ 6,003 10,184 12,416 20,167
-------- -------- -------- --------
Total cost of revenues.................................... 59,719 62,578 122,529 116,749
-------- -------- -------- --------
Gross profit..................................................... 208,045 123,443 402,398 222,954
Operating expenses:
Sales and marketing........................................... 105,067 76,969 213,223 145,664
Research and development...................................... 31,525 21,574 61,050 40,453
General and administrative.................................... 19,954 12,619 38,136 23,483
Amortization of goodwill...................................... 15,109 14,309 31,118 26,504
Acquisition-related charges................................... -- -- -- 2,200
-------- -------- -------- --------
Total operating expenses.................................. 171,655 125,471 343,527 238,304
-------- -------- -------- --------
Income (loss) from operations.................................... 36,390 (2,028) 58,871 (15,350)
Interest income and other, net................................... 4,241 5,547 17,958 9,693
-------- -------- -------- --------
Income (loss) before provision for income taxes.................. 40,631 3,519 76,829 (5,657)
Provision for income taxes....................................... 16,676 1,250 32,250 4,457
-------- -------- -------- --------
Net income (loss)................................................ 23,955 2,269 44,579 (10,114)
Other comprehensive income (loss):
Foreign currency translation adjustments...................... (1,326) (444) (2,981) (302)
Unrealized gain (loss) on available-for-sale investments, net
of income taxes............................................. (29) (265) 57 (505)
-------- -------- -------- --------
Comprehensive income (loss)...................................... $ 22,600 $ 1,560 $ 41,655 $(10,921)
======== ======== ======== ========
Net income (loss) per share:
Basic and diluted net income (loss) per share................. $ 0.06 $ 0.01 $ 0.11 $ (0.03)
======== ======== ======== ========
Number of shares used in per share calculations:
Basic......................................................... 394,910 374,440 393,305 370,699
======== ======== ======== ========
Diluted....................................................... 423,570 421,640 424,095 370,699
======== ======== ======== ========

See accompanying notes.

BEA SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)

July 31, January 31,
2001 2001
---------- -----------

ASSETS
------
Current assets:
Cash and cash equivalents.............................. $ 757,761 $ 907,635
Restricted cash........................................ 6,903 4,998
Short-term investments................................. 207,145 33,294
Accounts receivable, net............................... 225,654 214,706
Deferred tax assets.................................... 1,983 20,035
Other current assets................................... 27,203 26,223
---------- ----------
Total current assets............................... 1,226,649 1,206,891
Property and equipment, net............................... 67,021 51,223
Goodwill, net............................................. 116,215 138,404
Acquired intangible assets, net........................... 47,170 52,288
Deferred tax assets....................................... -- 9,915
Long-term restricted cash................................. 120,129 --
Other long-term assets.................................... 134,167 133,615
---------- ----------
Total assets....................................... $1,711,351 $1,592,336
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable....................................... $ 12,327 $ 15,233
Accrued liabilities.................................... 164,012 133,092
Accrued income taxes................................... 31,470 24,307
Deferred revenues...................................... 206,296 203,947
Current portion of notes payable and other obligations. 9,435 13,321
---------- ----------
Total current liabilities.......................... 423,540 389,900
Deferred tax liabilities.................................. 4,383 32,350
Notes payable and other long-term obligations............. 3,119 2,661
Convertible subordinated notes............................ 561,421 561,421

Commitments and contingencies

Stockholders' equity:
Common stock........................................... 397 390
Additional paid-in capital............................. 871,173 793,729
Accumulated deficit.................................... (141,294) (185,873)
Notes receivable from stockholders..................... (146) (198)
Deferred compensation.................................. (6,797) (523)
Accumulated other comprehensive loss................... (4,445) (1,521)
---------- ----------
Total stockholders' equity......................... 718,888 606,004
---------- ----------
Total liabilities and stockholders' equity......... $1,711,351 $1,592,336
========== ==========

See accompanying notes.

BEA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

Six months ended July 31,
------------------------
2001 2000
--------- ---------

Operating activities:
Net income (loss)................................................................... $ 44,579 $ (10,114)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization................................................... 10,045 4,934
Amortization of deferred compensation........................................... 231 367
Amortization of certain acquired intangible assets and acquisition-related
charges....................................................................... 43,534 48,871
Amortization of debt issuance costs............................................. 1,088 1,108
Debt conversion premium......................................................... -- 236
Net gain on sale of WebGain preferred stock and convertible note receivable..... (17,374) --
Write-down of equity investments................................................ 11,155 1,000
Changes in operating assets and liabilities..................................... 35,436 19,274
Other........................................................................... 3,312 2,474
--------- ---------
Net cash provided by operating activities.............................................. 132,006 68,150
--------- ---------
Investing activities:
Purchases of property and equipment................................................. (25,760) (19,471)
Payments for acquisitions and equity investments, net of cash acquired.............. (8,972) (75,052)
Proceeds from the maturity of a long-term investment security....................... 14,908 --
Increase in restricted cash for guarantees.......................................... (1,000) (358)
Purchases of available-for-sale short-term investments.............................. (214,887) (97,357)
Proceeds from maturities of available-for-sale short-term investments............... 43,641 40,202
--------- ---------
Net cash used in investing activities.................................................. (192,070) (152,036)
--------- ---------
Financing activities:
Net proceeds (payments) on notes payable, lines of credit and other obligations..... 282 (8,949)
Debt conversion premium............................................................. -- (236)
Increase in restricted cash for collateral on land lease transaction................ (120,129) --
Net proceeds received for employee stock purchases.................................. 37,858 33,559
Other............................................................................... (1,107) 1,191
--------- ---------
Net cash provided by (used in) financing activities.................................... (83,096) 25,565
--------- ---------
Net decrease in cash and cash equivalents.............................................. (143,160) (58,321)
Effect of exchange rate changes on cash................................................ (6,714) (2,745)
Cash and cash equivalents at beginning of period....................................... 907,635 763,294
--------- ---------
Cash and cash equivalents at end of period............................................. $ 757,761 $ 702,228
========= =========

See accompanying notes.

BEA SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The condensed consolidated financial statements included herein are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows
for the interim periods. Certain amounts reported in prior periods have been
reclassified to conform to the presentation adopted in the current period. Such
reclassifications did not change the previously reported operating income
(loss) or net income (loss) amounts. These condensed consolidated financial
statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto, together with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the BEA
Systems, Inc. ("BEA" or the "Company") Annual Report on Form 10-K for the
fiscal year ended January 31, 2001. The results of operations for the three and
six months ended July 31, 2001 are not necessarily indicative of the results
for the entire fiscal year ending January 31, 2002.

The condensed consolidated balance sheet at January 31, 2001 has been
derived from the audited financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.

Revenue recognition

The Company recognizes revenues in accordance with the American Institute of
Certified Public Accountants ("AICPA") Statement of Position 97-2, Software
Revenue Recognition, as amended. Revenue from software license agreements is
recognized when persuasive evidence of an agreement exists, delivery of the
product has occurred, the fee is fixed or determinable, and collectibility is
probable. The Company uses the residual method to recognize revenue when a
license agreement includes one or more elements to be delivered at a future
date and evidence of the fair value of all undelivered elements exists. Under
the residual method, the fair value of the undelivered elements is deferred and
the remaining portion of the arrangement fee is recognized as revenue. If
evidence of the fair value of one or more undelivered elements does not exist,
revenue is deferred and recognized when delivery of those elements occurs or
when fair value can be established. When the Company enters into a license
agreement requiring that the Company provide significant customization of the
software products, the license and related consulting services revenue is
recognized in accordance with AICPA Statement of Position 81-1, Accounting for
Performance of Construction-Type and Certain Production-Type Contracts. If the
fee due from the customer is not fixed or determinable, revenue is recognized
as payments become due from the customer, assuming all other revenue
recognition criteria have been met. Generally, the Company considers all
arrangements with extended payment terms not to be fixed or determinable.
Revenue arrangements with resellers are recognized on a sell-through basis.

Service revenues include consulting services, post-contract customer support
and training. Consulting revenues and the related cost of services are
recognized on a time and materials basis; however, revenues from certain
fixed-price contracts are recognized on the percentage of completion basis,
which involves the use of estimates. Actual results could differ from those
estimates and, as a result, future gross margin on such contracts may be more
or less than anticipated. The amount of consulting fixed-price contracts
recognized on a percentage of completion basis has not been material to date.
Software maintenance agreements provide technical support and the right to
unspecified upgrades on an if-and-when-available basis. Post-contract customer
support revenues are recognized ratably over the term of the support period
(generally one year) and training and other service revenues are recognized as
the related services are provided. The unrecognized portion of amounts billed
in advance for licenses and services is recorded as deferred revenues.

BEA SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Investments in equity securities

As of July 31, 2001 and January 31, 2001, the Company's net equity
investments in privately-held companies, including the investment in WebGain,
Inc., totaled $39.3 million and $50.9 million, respectively. These investments
are accounted for under the cost method, as ownership is less than 20 percent
and/or the Company does not have the ability to exercise significant influence
over the operations of the investee companies. In accordance with agreements
regarding the sale of the Company's investment in WebGain, Inc. to WP Equity
Partners, Inc., a related party, the Company recorded a net gain of $17.4
million during the first quarter of fiscal 2002, which is included in interest
income and other, net. The Company regularly reviews its portfolio of equity
investments in private companies for impairment. During the six months ended
July 31, 2001, the Company concluded that a decline in value of the portfolio
had occurred that was other than temporary. Accordingly, write-downs of these
investments of approximately $11.2 million were recorded in interest income and
other, net. During the six months ended July 31, 2001, the Company derived
revenues from several of these companies representing in aggregate less than 1
percent of total revenues.

Effect of new accounting pronouncements

In June 1998, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133 establishes the
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognizes all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
In July 1999, Statement of Financial Accounting Standards No. 137, Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement 133 ("FAS 137") was issued. FAS 137 deferred the
effective date of FAS 133 until the first fiscal quarter of fiscal years
beginning after June 15, 2000. The Company was required to adopt the provisions
of FAS 133 effective February 1, 2001. The adoption of FAS 133 did not have a
material impact on the Company's financial position or results of operations.

In June 2001, the FASB released Statements of Financial Accounting Standards
No. 141, Business Combinations ("FAS 141") and No. 142, Goodwill and Other
Intangible Assets ("FAS 142"). These statements become effective for fiscal
years beginning after December 15, 2001. Beginning in the first quarter of the
fiscal year ended January 31, 2003, goodwill will no longer be amortized but
will be subject to annual impairment tests. Most other intangible assets will
continue to be amortized over their estimated useful lives. The new rules also
require business combinations initiated after June 30, 2001 to be accounted for
using the purchase method of accounting and goodwill acquired after June 30,
2001 will not be amortized. Goodwill existing at June 30, 2001, will continue
to be amortized through the end of the fiscal year ended January 31, 2002.

In connection with the transitional goodwill impairment evaluation under FAS
142, the Company will perform an assessment of goodwill impairment as of the
date of adoption - February 1, 2002. To accomplish this, the Company must
identify its reporting units and determine the carrying value of each reporting
unit by assigning the assets and liabilities, including the existing goodwill
and intangible assets, to those reporting units as of the date of adoption. The
Company will then have up to six months from the date of adoption to determine
the fair value of each reporting unit and compare it to the reporting unit's
carrying amount. To the extent that a reporting unit's carrying amount exceeds
its fair value, an indication exists that the reporting unit's goodwill may be
impaired and the Company must perform the second step of the transitional
impairment test. In the second step, the Company must compare the implied fair
value of the reporting unit's goodwill, determined by allocating the reporting
unit's fair value to all of its assets (recognized and unrecognized) and
liabilities in a manner similar to a purchase price allocation in accordance
with FAS 141, to its carrying amount, both of which would be

BEA SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the statement of operations.

As of the date of adoption of FAS 142 on February 1, 2002, the Company
expects to have an unamortized goodwill balance of approximately $104.0
million, which includes the estimated amount of assembled workforce to be
reclassified to goodwill of approximately $12.3 million, and unamortized
acquired intangible assets of approximately $22.8 million, all of which will be
subject to the transition provisions of FAS 141 and 142. Transitional
impairment losses that will be required to be recognized upon adoption of FAS
141 and 142 are indeterminable at this time.

Note 2. Supplemental Cash Flow Disclosures and Related Party Receivables

During the six months ended July 31, 2001, the Company sold shares of
WebGain, Inc. Series A Preferred Stock to WP Equity Partners, Inc., a related
party, in exchange for notes receivable due from WP Equity Partners, Inc.
totaling approximately $24.6 million, for which the Company recorded a net gain
of $17.4 million. As of July 31, 2001 and January 31, 2001, the balance due
from WP Equity Partners, Inc. was $74.6 million and $50.0 million,
respectively. For the six months ended July 31, 2000, convertible debt holders
converted approximately $10.5 million of the 4% Convertible Subordinated Notes
due June 15, 2005 ("2005 Notes") into common stock. The value of stock issued
in business combinations for the six months ended July 31, 2001 and 2000 was
approximately $14.3 million and $23.2 million, respectively. The Company
recorded a tax benefit from stock options of $23.4 million and $0 during the
six months ended July 31, 2001 and 2000, respectively.

Note 3. Net Income (Loss) Per Share

Basic net income (loss) per share is computed based on the weighted average
number of shares of the Company's common stock outstanding less shares subject
to the Company's right to repurchase. Diluted net income (loss) per share is
computed based on the weighted average number of shares of the Company's
outstanding common stock and common equivalent shares (stock options and
convertible notes), if dilutive. The treasury stock method is used to calculate
the dilution effect of stock options. The as-if-converted method is used to
calculate the dilution effect of the 2005 Notes and the $550 million 4%
Convertible Subordinated Notes due December 15, 2006 ("2006 Notes").

BEA SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following is a reconciliation of the numerators and denominators of the
basic and diluted net income (loss) per share computations (in thousands,
except per share data):

Three months ended Six months ended
July 31, July 31,
------------------ ------------------
2001 2000 2001 2000
-------- -------- -------- --------

Numerator:
Numerator for basic net income (loss) per share:
Net income (loss)............................................ $ 23,955 $ 2,269 $ 44,579 $(10,114)
Numerator for diluted net income (loss) per share:
Interest and amortization charges for 2005 Notes, net of
taxes...................................................... 76 125 152 --
-------- -------- -------- --------
Net income (loss) available to common shareholders........... $ 24,031 $ 2,394 $ 44,731 $(10,114)
======== ======== ======== ========
Denominator:
Denominator for basic net income (loss) per share:
Weighted average shares outstanding.......................... 394,979 375,717 393,394 372,371
Weighted average shares subject to repurchase................ (69) (1,277) (89) (1,672)
-------- -------- -------- --------
Denominator for basic net income per share, weighted
average shares outstanding ................................ 394,910 374,440 393,305 370,699
Weighted average dilutive potential common shares:
Options and shares subject to repurchase.................. 26,930 45,390 29,060
Convertible shares on the 2005 Notes...................... 1,730 1,810 1,730 --
-------- -------- -------- --------
Denominator for diluted net income (loss) per share.............. 423,570 421,640 424,095 370,699
======== ======== ======== ========
Basic and diluted net income (loss) per share.................... $ 0.06 $ 0.01 $ 0.11 $ (0.03)
======== ======== ======== ========

The computation of diluted net income per share for the three and six months
ended July 31, 2001 excludes the impact of options to purchase approximately
16.9 million and 12.2 million shares of common stock, respectively, and the
conversion of the 2006 Notes, which are convertible into approximately 15.9
million shares of common stock, as the impact would be antidilutive.

The computation of diluted net income per share for the three months ended
July 31, 2000 excludes the impact of options to purchase approximately 1.4
million shares of common stock and the conversion of the 2006 Notes, which are
convertible into approximately 15.9 million shares of common stock, as the
impact would be antidilutive.

The computation of basic and diluted net loss per share for the six months
ended July 31, 2000 excludes the impact of options to purchase approximately
47.0 million shares of common stock, approximately 1.7 million shares of common
stock subject to repurchase and the conversion of the 2006 Notes and the 2005
Notes, which are convertible into approximately 15.9 million and approximately
1.8 million shares of common stock, respectively, as such impact would be
antidilutive for the period presented.

Note 4. Business Combinations

In July 2001, the Comp any acquired 100 percent of the equity of Crossgain
Corporation ("Crossgain") for total consideration of $24.7 million, comprising
$10.4 million in cash and $14.3 million in common stock and replacement stock
options. Approximately $6.5 million of consideration is contingent upon the
continued

BEA SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

employment of certain employees. These amounts, if earned, will be recorded as
compensation expense. The Company recorded the business combination in
accordance with the accounting guidance set out in FAS 141 and 142.

The following is a summary of the purchase price (in thousands):

Goodwill............................................................. $15,262
Deferred compensation................................................ 6,505
Intangible assets.................................................... 4,800
Net working capital and other........................................ 2,080
Deferred tax liability............................................... (3,922)
-------
$24,725
=======

The operating results of Crossgain prior to the acquisition were immaterial
and would not have materially altered the results of the Company if presented
on a pro forma basis. The operating results of Crossgain subsequent to the
acquisition date of July 17, 2001 are included in the Company's condensed
consolidated statements of operations and comprehensive income (loss).

Note 5. Long-Term Restricted Cash

During the first quarter of fiscal 2002, the Company entered into a lease
agreement for the lease of approximately 40 acres of land adjacent to the
Company's San Jose, California headquarters to construct additional corporate
offices and research and development facilities. The lease has an initial term
of five years with renewal options. Rent obligations commence approximately at
the beginning of the third year. The total approximate minimum lease payments
for the next five years are currently estimated to be approximately $0 in
fiscal 2002 and 2003 and $12.8 million in fiscal 2004, 2005 and 2006,
respectively. The minimum lease payments will fluctuate from time to time
depending on short-term interest rates. The Company has an option to purchase
the land at the end of the term of the lease for the lesser of $331 million,
the outstanding lease balance, or prior to the end of the lease, to arrange for
the sale of the property to a third party with the Company retaining an
obligation to the owner for the difference between the sales price and the
guaranteed residual value up to $328.7 million if the sales price is less than
this amount, subject to certain provisions of the lease.

As part of the lease agreement, the Company must maintain a minimum
restricted cash balance consisting of United States government securities as
defined in the lease which was $120.1 million as of July 31, 2001. This amount
represents collateral for specified obligations to the lessor under the lease.
The cash is restricted as to withdrawal and is managed by a third party subject
to certain limitations. The Company must maintain certain covenants, as defined
in the lease.

Note 6. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows (in
thousands):

July 31, January 31,
2001 2001
-------- -----------

Foreign currency translation adjustment.................... $(4,156) $(1,175)
Unrealized loss on available-for-sale investments, net of
tax...................................................... (289) (346)
------- -------
Total accumulated other comprehensive loss................. $(4,445) $(1,521)
======= =======

BEA SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 7. Common Stock

During the first six months of fiscal 2002, the Company issued $14.3 million
of common stock and replacement stock options in connection with the
acquisition of Crossgain (see note 4.), received $22.3 million in proceeds
resulting from the exercise of employee stock options, received $17.5 million
from purchases under the Company's employee stock purchase plan and recorded a
tax benefit on stock options of $23.4 million.

Note 8. Commitments and Contingencies

Litigation and other claims

The Company is subject to legal proceedings and other claims that arise in
the ordinary course of its business. While management currently believes the
amount of ultimate liability, if any, with respect to these actions will not
materially affect the financial position, results of operations, or liquidity
of the Company, the ultimate outcome of any litigation or claim is uncertain,
and the impact of an unfavorable outcome could be material to the Company.

Employer Payroll Taxes

The Company is subject to employer payroll taxes when employees exercise
stock options. These payroll taxes are assessed on the stock option gain, which
is the difference between the common stock price on the date of exercise and
the exercise price. The tax rate varies depending upon the employees' taxing
jurisdiction. The timing and amount of employer payroll taxes is directly
related to the timing and number of options exercised by employees, the gain
thereon and the tax rate in the applicable jurisdiction. For the three and six
months ended July 31, 2001, the Company recorded employer payroll taxes related
to stock option exercises of approximately $1.0 million and $2.1 million,
respectively. For the three and six months ended July 31, 2000, the Company
recorded employer payroll taxes related to stock option exercises of
approximately $3.2 million and $5.5 million, respectively. Because the Company
is unable to predict these employer payroll taxes, the Company is unable to
predict what, if any, expense will be recorded in a future period.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of the financial condition and results of
operations of BEA Systems, Inc. ("BEA" or the "Company") should be read in
conjunction with the Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
and the Notes thereto included in the Company's Annual Report on Form 10-K for
the year ended January 31, 2001. This quarterly report on Form 10-Q contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, including statements using terminology such as "may," "will,"
"expects," "plans," "anticipates," "estimates," "potential," or "continue," or
the negative thereof or other comparable terminology regarding beliefs, plans,
expectations or intentions regarding the future. Forward-looking statements
include statements regarding future operating results, the extension of
computer systems to the Internet, opportunity for expansion of our business,
additional acquisitions or licensing of technology, seasonality of orders,
continuation of certain products and services accounting for a majority of
revenues, continued investment in product development, product releases, growth
in markets, consolidation among companies, investing in sales channels and
marketing programs, increases in sales and marketing expenses and research and
development expenses, devoting substantial resources to product development,
continued hiring, expected amortization of goodwill, continuing to make
additional acquisitions, satisfaction of cash requirements, the effects of the
adoption of new accounting pronouncements, the establishment of product
distribution arrangements, the improvement in financial reporting and controls,
the fluctuation of lease payments, the commencement of construction and the
obtaining of financing and the evaluation of realizability of deferred tax
assets. These forward-looking statements involve risks and uncertainties and
actual results could differ materially from those discussed in the
forward-looking statements. These risks and uncertainties include, but are not
limited to, those described under the headings "Effect of New Accounting
Pronouncements" and "Factors That May Impact Future Operating Results", as well
as risks described immediately prior to or following some forward-looking
statements. All forward-looking statements and risk factors included in this
document are made as of the date hereof, based on information available to BEA
as of the date thereof, and BEA assumes no obligation to update any
forward-looking statement or risk factors.

Overview

BEA is a leading provider of e-business infrastructure software that helps
companies of all sizes build e-business systems that extend investments in
existing computer systems and provide the foundation for running a successful
integrated e-business. Our products are marketed and sold worldwide primarily
through our direct sales force, and also through systems integrators ("SIs"),
independent software vendors ("ISVs") and hardware vendors that are our allies
and distributors. Our products have been adopted in a wide variety of
industries, including commercial and investment banking, securities trading,
telecommunications, software, airlines, services, retail, manufacturing,
package delivery, insurance and government. The BEA WebLogic E-Business
Platform(TM) provides infrastructure for building an integrated e-business,
allowing customers to integrate private client/server networks, the Internet,
intranets, extranets, and mainframe and legacy systems as system components.
Our products serve as a platform or integration tool for applications such as
billing, provisioning, customer service, electronic funds transfers, ATM
networks, securities trading, Web-based banking, Internet sales, supply chain
management, scheduling and logistics, and hotel, airline and rental car
reservations. Licenses for our products are typically priced on a per-central
processing unit basis, but we also offer licenses priced on a per-user basis.

Our core business has been providing infrastructure for e-business systems
and high-volume transaction systems, such as Web-based retail sites, inventory
systems, telecommunications billing applications, commercial bank ATM networks
and account management systems, credit card billing systems and securities
trading account management systems. These Web-based and distributed systems
must be highly available, scale to process high transaction volumes and
accommodate large numbers of users. As the Internet and e-commerce continue to
develop and become more richly integrated, systems that historically had been
strictly internal are now being extended to the Internet, such as enterprise
resource planning, inventory, and sales force automation systems.

We provide the BEA WebLogic E-Business Platform, which is designed to
address this demand and allow companies to quickly connect business processes,
link enterprise and e-commerce applications, and share information across the
enterprise and the Internet. TheBEA WebLogic E-Business Platform combines
application server, Web Services, integration, and portal technologies into a
powerful single, integrated, standards-based e-infrastructure solution. The BEA
WebLogic E-Business Platform is currently composed of BEA WebLogic Server(TM),
BEA WebLogic Integration and BEA WebLogic Portal. BEA WebLogic Server is the
market-leading web application server, providing J2EE services to Web-based
applications and also supporting Web services. Web Services are a set of
software components that allow companies to share applications, business logic,
and syndication services from multiple sources without having to develop the
applications themselves or "hard wire" connections to trading partners who host
these applications. BEA WebLogic Server 6.1 seamlessly bridges J2EE and Web
Services by enabling developers to automatically deploy Enterprise JavaBeans
("EJBs") as Web Services with no additional programming. BEA WebLogic Server
6.1, which became generally available in July 2001, supports key Web Services
standards, including Simple Object Access Protocol ("SOAP"), Web Services
Description Language ("WSDL") and Universal Description, Discovery and
Integration ("UDDI"). BEA WebLogic Integration, which became generally
available in July 2001, supports the J2EE Connection Architecture, ebXML,
RosettaNet, and Java Messaging Services, bringing a standards-based approach to
the integration market. BEA WebLogic Integration is the industry's first
product that delivers application server, enterprise application integration
("EAI"), data integration, business process management, and B2B integration
functionality in a single product.

Seasonality. As is common in the software industry, we believe that our
fourth quarter orders are favorably impacted by a variety of factors including
year-end capital purchases by larger corporate customers and the commission
structure for our sales force. This increase typically results in first quarter
customer orders being lower than orders received in the immediately preceding
fourth quarter. We anticipate that this seasonal impact on the first quarter is
likely to continue. However, it is likely that seasonal patterns will be
disrupted by the current slowdown in the economy generally and IT spending. In
particular we believe that given this slowdown, the favorable impact of these
factors on our fiscal 2002 fourth quarter may be less than in the past. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors That May Impact Future Operating Results--Significant
unanticipated fluctuations in our actual or anticipated quarterly revenues and
operating results may prevent us from meeting securities analysts' or
investors' expectations and may result in a decline in our stock price."

Investment in Distribution Channels. We are currently expanding our direct
sales capacity by hiring sales and technical sales support personnel. In
addition, in August 2000, we announced a major planned investment in expansion
of our indirect distribution network through stronger relationships with SIs,
ISVs, application service providers ("ASPs"), system platform companies,
independent consultants, and distributors. These investments have resulted in,
and should continue to result in, an immediate increase in expenses, especially
in cost of service revenue and sales and marketing.

Service Revenues as a Percentage of Total Revenues. Since the quarter ended
April 30, 2000, service revenues as a percentage of total revenues have
steadily declined as a percentage of revenues. In early 2000, we believed that
our customer base was in the process of transitioning to mission-critical
applications based on Java, EJB, and CORBA programming models, but that
customers and consultants typically did not have sufficient numbers of system
architects and application developers experienced in building large, reliable
systems on these programming models. Although our long term strategy was to
partner with systems integrators to provide these services to customers and to
train customers' information technology departments, we adopted a temporary
strategy of providing these consulting services ourselves. We believed that by
providing our customers with additional services, especially in architecting,
building and deploying Java, EJB and CORBA systems, we could help facilitate
customers' deployment of systems based on our platform products. An important
element of our strategy of investing in an indirect distribution channel,
announced in Summer 2000, is to supplement our service offerings through
relationships with SIs and other strategic partners, allowing us to focus on
architecture services and increase the number of projects available for
licensing our products through SIs' application development

efforts. As a result of this strategy, we and our partners have trained 6,000
developers on our technologies since August 2000. In addition, we believe that
our customer base has increased the number of developers skilled in Java, EJB
and CORBA technologies. Due to the increased number of trained developers at
partners and customers, as well as decreased demand for consulting services due
to both the economic slowdown and the increase in customer capabilities,
service revenues as a percentage of total revenues have decreased each quarter
since the April 30, 2000 quarter. We intend to continue investing in these
indirect distribution channel programs. Investment in these efforts results in
an immediate increase in expenses, although the return on such investment, if
any, is not anticipated to occur until future periods. These expenses adversely
affect our operating results in the short-term, and also in the long-term if
the anticipated benefits of such investments do not materialize.

Product Development. In the first two quarters of fiscal 2002, we continued
to invest in product development, including in the areas of integration, portal
and Web services, and new releases of our BEA WebLogic Server. Our planned
investment in product development and enhancements may affect our anticipated
overall financial results, particularly research and development expense as a
percentage of total revenues, and may create product transition concerns in our
customer base. In addition, investment in these projects results in an
immediate increase in expenses, especially in research and development,
although the return on such investment, if any, is not anticipated to occur
until future periods. These expenses adversely affect our operating results in
the short-term, and also in the long-term if the anticipated benefits of such
investments do not materialize.

Acquisitions. Since our inception, we have acquired several companies and
products, as well as distribution rights to products. Through these
acquisitions, we have added additional product lines, additional functionality
to our existing products, additional direct distribution capacity and
additional service capacity. These acquisitions have resulted in significant
charges to our operating results in the periods in which the acquisitions were
completed and have added intangible assets to our balance sheet, the values of
which are being amortized and charged to our operating results over periods
ranging from two to five years after completion of the acquisitions. Our
management views the markets for our products as growing and evolving, and that
companies serving those markets are consolidating. This presents an opportunity
for us to further expand our products and functionality, distribution capacity
and service offerings and to add new products. We anticipate that we may make
additional, perhaps material, acquisitions in the future. The timing of any
such acquisition is impossible to predict and the charges associated with any
such acquisition could materially adversely affect our results of operations,
beginning in the periods in which any such acquisition is completed.

Employer Payroll Taxes. We are subject to employer payroll taxes when
employees exercise stock options. These payroll taxes are assessed on the stock
option gain, which is the difference between the common stock price on the date
of exercise and the exercise price. The tax rate varies depending upon the
employees' taxing jurisdiction. The timing and amount of employer payroll taxes
is directly related to the timing and number of options exercised by employees,
the gain thereon and the tax rate in the applicable jurisdiction. Employer
payroll tax expense incurred by us resulting from employee exercises of stock
options totaled $3.2 million and $5.5 million, respectively, for the three and
six months ended July 31, 2000 and $1.0 million and $2.1 million, respectively,
for the three and six months ended July 31, 2001. Because we are unable to
predict how many stock options will be exercised, at what price and in which
country, we are unable to predict what, if any, expense will be recorded in a
future period.

Results of Operations

Three and six months ended July 31, 2001 and 2000

Revenues

Our revenues are derived from fees for software licenses, and services,
which includes customer support, education and consulting. Total revenues
increased 43.9 percent to $267.8 million in the quarter ended July 31, 2001
from $186.0 million in the same quarter of the prior fiscal year. Total
revenues also increased 54.5 percent

to $524.9 million in the six months ended July 31, 2001 from $339.7 million in
the same period of the prior fiscal year. This growth reflects significant
increases in sales of our WebLogic(TM) products and growth in our customer
support revenues.

License Revenues. License revenues increased 65.3 percent to $172.2 million
in the quarter ended July 31, 2001 from $104.2 million in the same quarter of
the prior fiscal year. License revenues also increased 76.0 percent to $333.4
million in the six months ended July 31, 2001 from $189.4 million in the same
period of the prior fiscal year. This increase was mainly due to the continued
adoption of our BEA WebLogic Server as well as the adoption of other products
in our WebLogic E-Business Platform, expansion of our direct sales force,
introduction of new products and new versions of existing products, and
expansion of our partner programs. License revenues as a percentage of total
revenues increased from 56.0 percent in the second quarter of fiscal 2001 to
64.3 percent in the second quarter of fiscal 2002 and increased from 55.8
percent in the six months ended July 31, 2000 to 63.5 percent in the six months
ended July 31, 2001. This percentage increase was attributable to increased
sales of software licenses and a decline in consulting service revenues, offset
by increases in support revenues.

Service Revenues. Service revenues increased 16.8 percent to $95.6 million
in the quarter ended July 31, 2001 from $81.8 million in the same quarter of
the prior fiscal year. Service revenues also increased 27.5 percent to $191.5
million in the six months ended July 31, 2001 from $150.3 million in the same
period of the prior fiscal year. The increase in revenues was mainly
attributable to the growth in the customer support portion of our service
business. Customer support revenues increased to $58.7 million for the quarter
ended July 31, 2001 from $29.5 million in the same quarter of the prior fiscal
year. Customer support revenues also increased to $111.3 million in the six
months ended July 31, 2001 from $52.6 million in the same period of the prior
fiscal year. This was driven by maintenance renewals on our existing installed
base of software licenses as well as new maintenance contracts sold together
with our increased sales of software licenses. Service revenues as a percentage
of total revenues decreased from 44.0 percent in the second quarter of fiscal
2001 to 35.7 percent in the second quarter of fiscal 2002 and decreased from
44.2 percent in the six months ended July 31, 2000 to 36.5 percent in the six
months ended July 31, 2001, as we executed our strategy to increase our focus
on using strategic partners to provide services related to the deployment and
use of our software products. As a result of the increased focus on strategic
partners and the impact of the general worldwide economic slowdown, we
experienced a slowdown in the growth rate of our service revenues, particularly
revenue derived from our lower-margin consulting services. Consulting and
education revenues decreased to $36.9 million for the quarter ended July 31,
2001 from $52.3 million in the same quarter of the prior fiscal year.
Consulting and education revenues also decreased to $80.2 million in the six
months ended July 31, 2001 from $97.6 million in the same period of the prior
fiscal year.

International Revenues. International revenues accounted for $120.4 million
or 45.0 percent of total revenue in the quarter ended July 31, 2001 compared
with $77.2 million or 41.5 percent in the same quarter of the prior fiscal
year. For the six months ended July 31, 2001 and 2000, international revenues
accounted for $230.8 million or 44.0 percent of total revenues and $141.9
million or 41.8 percent of total revenues, respectively. Revenues from the
European, Middle East and Africa region ("EMEA") and Asia/Pacific region
("APAC") increased in the second quarter of fiscal 2002 to $78.8 million and
$35.0 million, respectively, from $54.5 million and $20.2 million in the same
quarter of the prior fiscal year. For the six months ended July 31, 2001,
revenues from EMEA and APAC increased to $153.9 million and $65.3 million,
respectively, from $102.8 million and $35.6 million, respectively, in the same
period of the prior fiscal year. Revenues from EMEA represented 29.4 percent of
total revenues in the second quarter of fiscal 2002, compared with 29.3 percent
in the same quarter of the prior fiscal year. For the six months ended July 31,
2001 and 2000, revenues for EMEA represented 29.3 percent and 30.3 percent,
respectively, of total revenues. Revenues from APAC represented 13.1 percent of
total revenues in the second quarter of fiscal 2002, compared with 10.9 percent
in the same quarter of the prior fiscal year. For the six months ended July 31,
2001 and 2000, revenues for APAC represented 12.4 percent and 10.5 percent,
respectively, of total revenues. The overall increases in international
revenues were the result of expansion of our international sales force and
expansion into new territories.

Cost of Revenues

Total cost of revenues decreased 4.6 percent to $59.7 million in the quarter
ended July 31, 2001 from $62.6 million in the same quarter of the prior fiscal
year. Total cost of revenues increased 5.0 percent to $122.5 million in the six
months ended July 31, 2001 from $116.7 million in the same period in the prior
fiscal year. Total cost of revenues as a percentage of total revenues decreased
from 33.6 percent in the quarter ended July 31, 2000 to 22.3 percent in the
quarter ended July 31, 2001. For the six months ended July 31, 2001 total cost
of revenues as a percentage of total revenues decreased to 23.3 percent from
34.4 percent in the same period in the prior fiscal year. These decreases were
primarily due to the decreases in our lower margin consulting service revenues.
As a result, service revenues have decreased as a percentage of total revenues
and also consulting revenues have decreased as a percent of total service
revenues. A decrease in amortization charges included in cost of revenues also
contributed to the decrease in cost of revenues as a percentage of total
revenues.

Cost of Licenses. Cost of licenses includes royalties and license fees paid
to third parties, expenses related to the purchase of compact discs, costs
associated with transferring our software to electronic media, the printing of
user manuals, packaging and distribution costs and localization costs. Cost of
licenses increased by $1.5 million to $6.0 million in the quarter ended July
31, 2001 from $4.5 million in the same quarter of the prior fiscal year. Cost
of licenses also increased by $3.4 million to $11.7 million in the six months
ended July 31, 2001 from $8.3 million in the same period in the prior fiscal
year. Cost of licenses represented 3.5 percent and 4.3 percent of license
revenues in the second quarter of fiscal 2002 and 2001, respectively. For the
six months ended July 31, 2001 and 2000, cost of licenses represented 3.5
percent and 4.4 percent, respectively, of revenues. These decreases as a
percentage of revenues are primarily due to a decline in third party royalties
and license fees.

Cost of Services. Cost of services consists primarily of salaries and
benefits for consulting, education and product support personnel. Cost of
services decreased 0.5 percent to $47.7 million in the quarter ended July 31,
2001 from $47.9 million in the same quarter of the prior fiscal year. For the
six months ended July 31, 2001, cost of services increased 11.5 percent to
$98.4 million from $88.3 million in the same period in the prior fiscal year.
Cost of services represented 49.9 percent and 58.5 percent of service revenues
in the second quarters of fiscal 2002 and 2001, respectively. For the six
months ended July 31, 2001 and 2000, cost of services represented 51.4 percent
and 58.8 percent, respectively, of service revenues. Cost of services as a
percentage of service revenues has decreased due to spreading costs over a
higher mix of higher margin support revenues versus lower margin consulting and
education revenues. Consulting and education revenues were 38.6 percent of
total service revenues for the quarter ended July 31, 2001, down from 64.0
percent in the same quarter of the prior fiscal year. For the six months ended
July 31, 2001 and 2000, consulting and education revenues were 41.9 percent and
64.9 percent, respectively, of service revenues.

Amortization of Certain Acquired Intangible Assets included in Cost of
Revenues. The amortization of certain acquired intangible assets, consisting
primarily of developed technology, non-compete agreements, distribution rights,
trademarks and tradenames, totaled $6.0 million and $10.2 million in the second
quarter of fiscal 2002 and 2001, respectively. For the six months ended July
31, 2001 and 2000, amortization of certain acquired intangible assets totaled
$12.4 million and $20.2 million, respectively. These decreases were primarily
due to a portion of our acquired intangible assets becoming fully amortized in
fiscal 2001. In the future, amortization expense associated with intangible
assets recorded prior to July 31, 2001 is currently expected to total
approximately $6.4 million and $5.6 million for the third and fourth quarters
of fiscal 2002, respectively, and $13.7 million, $8.6 million and $517,000 for
the fiscal years ending January 31, 2003, 2004 and thereafter, respectively.
The expected amortization subsequent to January 31, 2002 excludes assembled
workforce amortization which will no longer be amortized effective February 1,
2002 (see Effect of New Accounting Pronouncements below). We periodically
review the estimated remaining useful lives of our intangible assets. A
reduction in our estimate in remaining useful lives, if any, could result in
increased amortization expense in future periods.

Operating Expenses

Sales and Marketing. Sales and marketing expenses include salaries,
benefits, sales commissions, travel, information technology and facility costs
for our sales and marketing personnel. These expenses also include programs
aimed at increasing revenues, such as advertising, public relations, trade
shows and user conferences. Sales and marketing expenses increased 36.5 percent
to $105.1 million in the second quarter of fiscal 2002 from $77.0 million in
the same quarter of the prior fiscal year. In addition, sales and marketing
expenses increased 46.4 percent to $213.2 million in the six months ended July
31, 2001 from $145.7 million in the same period of the prior fiscal year. This
increase was due to the expansion of our direct sales force, increased
commissions on our increased revenue base, and an increase in marketing
personnel and advertising campaigns to build brand awareness. Sales and
marketing expenses decreased as a percentage of total revenues to 39.2 percent
in the second quarter of fiscal 2002 from 41.4 percent in the second quarter of
fiscal 2001 and decreased to 40.6 percent in the six months ended July 31, 2001
from 42.9 percent in the six months ended July, 31, 2000. We expect to continue
to invest in the expansion of the direct and indirect sales channels, as well
as marketing programs to promote our products and brand. Accordingly, we expect
sales and marketing expenses to continue to increase in absolute dollars.

Research and Development. Research and development expenses consist
primarily of salaries and benefits for software engineers, contract development
fees, costs of computer equipment used in software development, information
technology and facilities expenses. Total expenditures for research and
development increased 46.1 percent to $31.5 million in the second quarter of
fiscal 2002 from $21.6 million in the same quarter of the prior fiscal year.
Research and development expenses also increased 50.9 percent to $61.1 million
in the six months ended July 31, 2001 from $40.5 million in the same period of
the prior fiscal year. This increase was due to an increase in product
development personnel and expenses associated with the development and release
of several new products and product versions. Research and development expenses
represented 11.8 percent and 11.6 percent of total revenues in the second
quarter of fiscal 2002 and 2001, respectively. For the six months ended July
31, 2001 and 2000, research and development expenses represented 11.6 percent
and 11.9 percent of total revenues, respectively. We believe that a significant
level of research and development is required to remain competitive and expect
to continue to commit substantial resources to product development and
engineering in future periods. As a result, we expect research and development
expenses to continue to increase in absolute dollars in future periods.
Additionally, management intends to continue recruiting and hiring experienced
software development personnel and to consider the licensing and acquisition of
technologies complementary to our business.

General and Administrative. General and administrative expenses include
costs for our human resources, finance, legal, information technology,
facilities and general management functions. General and administrative
expenses increased 58.1 percent to $20.0 million in the second quarter of
fiscal 2002, up from $12.6 million in the same quarter of the prior fiscal
year. For the six months ended July 31, 2001, general and administrative
expenses increased 62.4 percent to $38.1 million up from $23.5 million from the
same period of the prior fiscal year. This increase was due to the expansion of
our infrastructure, including information systems and associated expenses
necessary to manage our growth. General and administrative expenses represented
7.5 percent and 6.8 percent of total revenues in the second quarter of fiscal
2002 and 2001, respectively. For the six months ended July 31, 2001 and 2000,
general and administrative expenses represented 7.3 percent and 6.9 percent of
total revenues, respectively.

Amortization of Goodwill. Amortization of goodwill increased in the second
quarter of fiscal 2002 compared to the second quarter of fiscal 2001, due to
goodwill resulting from various acquisitions completed in fiscal 2001.
Amortization of goodwill totaled $15.1 million and $14.3 million in the second
quarters of fiscal 2002 and 2001, respectively. For the six months ended July
31, 2001 and 2000, amortization of goodwill totaled $31.1 million and $26.5
million, respectively. In the future, amortization of goodwill recorded prior
to July 1, 2001 is currently expected to total approximately $12.3 million and
$12.2 million for the third and fourth quarters of fiscal 2002, respectively.
Commencing February 1, 2002, amortization of the net goodwill balance recorded
as of January 31, 2002 will cease in accordance with Statement of Financial
Accounting Standards No. 142 (see Effect of New Accounting Pronouncements
below).

Acquisition Related Charges. In connection with the acquisition of The
Workflow Automation Corporation in the first quarter of fiscal 2001, we
acquired and expensed the cost of a number of research projects that were in
process on the acquisition date, which amounted to $2.2 million.

Interest Income and Other, Net. Interest income and other, net decreased
23.5 percent to $4.2 million in the second quarter of fiscal 2002, down from
$5.5 million in the same quarter of the prior fiscal year. For the six months
ended July 31, 2001, interest income and other, net increased 85.3 percent to
$18.0 million, up from $9.7 million for the same period of the prior fiscal
year. For the second quarter of fiscal 2002, interest income and other, net
includes interest income of $12.3 million, offset by interest expense of $5.6
million and net other expense of $2.5 million. For the second quarter of fiscal
2001, interest income and other, net includes interest income of $13.1 million,
offset by interest expense of $5.6 million and net other expense of $2.0
million. For the six months ended July 31, 2001, interest income and other, net
includes interest income of $24.9 million, plus net other income of $4.4
million, offset by interest expense of $11.3 million. For the six months ended
July 31, 2000, interest income and other, net includes interest income of $21.6
million, offset by interest expense of $11.6 million and net other expense of
$309,000. Net other income of $4.4 million for the six months ended July 31,
2001 related primarily to a net gain of $17.4 million recorded by us in
accordance with agreements regarding the sale of our investment in WebGain,
Inc. to WP Equity Partners, Inc., a related party. This net gain was offset by
the write-down of approximately $11.2 million of certain equity investments in
privately-held companies, which were determined to be other than temporarily
impaired.

Provision for Income Taxes. We have provided for income taxes of $16.7
million and $1.3 million for the second quarter of fiscal 2002 and 2001,
respectively. For the six months ended July 31, 2001 and 2000, we have provided
for income taxes of $32.3 million and $4.5 million, respectively. The effective
tax rate for the first six months of fiscal 2002 is 42 percent, which is
greater than the statutory tax rate of 35 percent primarily due to
non-deductible goodwill amortization, partially offset by the benefits of low
taxed foreign earnings. The income tax expense provided on pre-tax book losses
through the first two quarters of fiscal 2001 consisted primarily of domestic
minimum taxes, foreign withholding taxes and foreign income tax expense
incurred as a result of local country profits.

Under Statement of Financial Accounting Standards No. 109 Accounting for
Income Taxes ("FAS 109"), deferred tax assets and liabilities are determined
based on the difference between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. FAS 109 provides for
the recognition of deferred tax assets if realization of such assets is more
likely than not. Based upon the available evidence, which includes our
historical operating performance and the reported cumulative net losses from
prior years, we have provided a valuation allowance against our net deferred
tax assets to the extent that they are dependent upon future taxable income for
realization. We intend to evaluate the realizability of the deferred tax assets
on a quarterly basis.

Liquidity and Capital Resources

Cash, cash equivalents (excluding all restricted cash) and short-term
investments totaled $964.9 million, which increased from $940.9 million at
January 31, 2001.

Cash generated from operating activities rose to $132.0 million in the six
months ended July 31, 2001, compared with $68.2 million in the same period in
the prior year. The increase was primarily due to net income of $44.6 million
for the six months ended July 31, 2001, which was an increase of $54.7 million
from the net loss of $10.1 million for the same period in the prior fiscal
year.

Investing activities used $192.1 million of cash during the six months ended
July 31, 2001, compared with $152.0 million of cash used in the same period of
the prior fiscal year. Cash used for investing activities in the six months
ended July 31, 2001 was primarily for net purchases of short-term investments
of $171.2 million and capital expenditures of $25.8 million. Cash used for
investing activities in the six months ended July 31, 2000

was primarily for strategic acquisitions and equity investments in
privately-held companies amounting to an aggregate of $75.1 million, capital
expenditures of $19.5 million and net purchases of short-term investments of
$57.2 million.

We used $83.1 million of cash in financing activities in the six months
ended July 31, 2001, compared with $25.6 million of cash generated in the same
period in the prior fiscal year. Cash used in financing activities in the six
months ended July 31, 2001 primarily related to the increase of restricted cash
of $120.1 million, which was offset by proceeds received from employee stock
purchases and the issuance of common stock by us pursuant to stock option
exercises of $37.9 million. The primary source of cash from financing
activities in the six months ended July 31, 2000 was proceeds received from
employee stock purchases and the issuance of common stock by us pursuant to
stock option exercises of $33.6 million.

As of July 31, 2001, our outstanding short and long-term obligations were
$574.0 million, down from $577.4 million at January 31, 2001. At July 31, 2001,
our outstanding obligations consisted of $561.4 million of convertible notes
and $12.6 million of other short-term and long-term obligations. At January 31,
2001, our outstanding obligations consisted of $561.4 million of convertible
notes and $16.0 million of other short-term and long-term obligations.

During the first quarter of fiscal 2002, we entered into a lease agreement
for the lease of approximately 40 acres of land adjacent to our San Jose,
California headquarters to construct additional corporate offices and research
and development facilities. The lease has an initial term of five years with
renewal options. Rent obligations commence approximately at the beginning of
the third year. The total approximate minimum lease payments for the next five
years are currently estimated to be approximately $0 in fiscal 2002 and 2003
and $12.8 million in fiscal 2004, 2005 and 2006, respectively. The minimum
lease payments will fluctuate from time to time depending on short-term
interest rates. We have an option to purchase the land at the end of the term
of the lease for the lesser of $331 million, the outstanding lease balance, or
prior to the end of the lease, to arrange for the sale of the property to a
third party with us retaining an obligation to the owner for the difference
between the sales price and the guaranteed residual value up to $328.7 million
if the sales price is less than this amount, subject to certain provisions of
the lease. As part of the lease agreement, we must maintain a minimum
restricted cash balance consisting of United States government securities as
defined in the lease which was $120.1 million as of July 31, 2001. This amount
represents collateral for specified obligations to the lessor under the lease.
The cash is restricted as to withdrawal and is managed by a third party subject
to certain limitations. We must maintain certain covenants, as defined in the
lease. When construction commences on the land, we plan to obtain financing
pursuant to an arrangement similar to that for the land lease, which may
require us to commit additional cash resources. There can be no assurance that
additional financing for the construction will be available, at all, or on
terms favorable to us.

In addition to normal operating expenses, cash requirements are anticipated
for financing anticipated growth, payment of outstanding debt obligations and
the acquisition or licensing of products and technologies complementary to our
business. We believe that our existing cash, cash equivalents, short-term
investments and cash generated from operations, if any, will be sufficient to
satisfy our currently anticipated cash requirements through July 31, 2002.
However, we may make additional acquisitions and may need to raise additional
capital through future debt or equity financings to the extent necessary to
fund any such acquisitions. There can be no assurance that additional financing
will be available, at all, or on terms favorable to us.

Effect of New Accounting Pronouncements

financial position and measures those instruments at fair value. In July 1999,
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement 133 ("FAS 137") was issued. FAS 137 deferred the effective date of
FAS 133 until the first fiscal quarter of fiscal years beginning after June 15,
2000. We were required to adopt the provisions of FAS 133 effective February 1,
2001. The adoption of FAS 133 did not have a material impact on our financial
position or results of operations.

In connection with the transitional goodwill impairment evaluation under FAS
142, we will perform an assessment of goodwill impairment as of the date of
adoption--February 1, 2002. To accomplish this, we must identify our reporting
units and determine the carrying value of each reporting unit by assigning the
assets and liabilities, including the existing goodwill and intangible assets,
to those reporting units as of the date of adoption. We will then have up to
six months from the date of adoption to determine the fair value of each
reporting unit and compare it to the reporting unit's carrying amount. To the
extent that a reporting unit's carrying amount exceeds its fair value, an
indication exists that the reporting unit's goodwill may be impaired and we
must perform the second step of the transitional impairment test. In the second
step, we must compare the implied fair value of the reporting unit's goodwill,
determined by allocating the reporting unit's fair value to all of its assets
(recognized and unrecognized) and liabilities in a manner similar to a purchase
price allocation in accordance with FAS 141, to its carrying amount, both of
which would be measured as of the date of adoption. This second step is
required to be completed as soon as possible, but no later than the end of the
year of adoption. Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in the statement of
operations.

As of the date of adoption of FAS 142 on February 1, 2002, we expect to have
an unamortized goodwill balance of approximately $104.0 million, which includes
the reclassification of assembled workforce to goodwill of approximately $12.3
million, and unamortized acquired intangible assets of approximately $22.8
million, all of which will be subject to the transition provisions of FAS 141
and 142. Transitional impairment losses that will be required to be recognized
upon adoption of FAS 141 and 142 are indeterminable at this time.

Factors That May Impact Future Operating Results

We operate in a rapidly changing environment that involves numerous risks
and uncertainties. The following section lists some, but not all, of these
risks and uncertainties which may have a material adverse effect on our
business, financial condition or results of operations. Investors should
carefully consider the following risk factors in evaluating an investment in
our common stock.

Significant unanticipated fluctuations in our actual or anticipated quarterly
revenues and operating results may prevent us from meeting securities
analysts' or investors' expectations and may result in a decline in our stock
price

Although we have had significant revenue growth in recent quarters, our
growth rates may not be sustainable, and recently, in our second quarter
earnings release on August 14, 2001, we revised downward our financial guidance
for revenue and earnings for the remaining quarters of fiscal 2002. If our
revenues, operating results, earnings or future projections are below the
levels expected by investors or securities analysts, our stock

price is likely to decline. Our stock price is also subject to the volatility
generally associated with Internet, software and technology stocks and may also
be affected by broader market trends unrelated to our performance, such as the
declines in the prices of many such stocks from March 2000 through the present.

We expect to experience significant fluctuations in our future quarterly
revenues and operating results as a result of many factors, including:

. recent adverse economic conditions, particularly within the technology
industry, which may increase the likelihood that customers will
unexpectedly delay, cancel or reduce the size of orders, resulting in
revenue shortfalls;

. difficulty predicting the size and timing of customer orders, particularly
as a greater percentage of our revenues has shifted from service revenues
to license revenues;

. our ability to control costs and expenses, particularly in the face of
current adverse economic conditions which may adversely impact our
operating results;

. changes in the mix of products and services that we sell or the channels
through which they are distributed;

. any increased price sensitivity by our customers, particularly in the face
of current adverse economic conditions and increased competition;

. the degree of success, if any, of our strategy to further establish and
expand our relationships with distributors;

. introduction or enhancement of our products or our competitors' products;

. changes in our competitors' product offerings and pricing policies, and
customer order deferrals in anticipation of new products and product
enhancements from us or our competitors;

. our ability to develop, introduce and market new products on a timely
basis and whether any new products are accepted in the market;

. any continued slowdown in use of the Internet for commerce;

. recent hiring, which may prove excessive if growth rates are not
maintained;

. the structure, timing and integration of acquisitions of businesses,
products and technologies;

. the terms and timing of financing activities;

. potential fluctuations in demand or prices of our products and services;

. the lengthy sales cycle for our products;

. technological changes in computer systems and environments;

. our ability to successfully expand our sales and marketing programs;

. our ability to meet our customers' service requirements;

. costs associated with acquisitions, including expenses charged for any
impaired acquired intangible assets and goodwill;

. loss of key personnel; and

. fluctuations in foreign currency exchange rates.

As a result of all of these factors, we believe that quarterly revenues and
operating results are difficult to forecast and that period-to-period
comparisons of our results of operations are not necessarily meaningful and
should not be relied upon as indications of trends or future performance.

A material portion of our revenues has been derived from large orders, as
major customers deployed our products. Increases in the dollar size of some
individual license transactions would also increase the risk of fluctuation in
future quarterly results. The majority of our revenue originates from a large
number of small development orders with the potential to turn into large
deployments. If we cannot generate large customer orders, turn development
orders into large deployments or if customers delay or cancel such orders in a
particular quarter, it may have a material adverse effect on our revenues and,
more significantly on a percentage basis, our net income or loss in that
quarter. Moreover, we typically receive and fulfill most of our orders within
the quarter, with the substantial majority of our orders typically received in
the last month of each fiscal quarter. As a result, we may not learn of revenue
shortfalls until late in a fiscal quarter, after it is too late to adjust
expenses for that quarter. Moreover, recent adverse economic conditions
worldwide, particularly those related to the technology industry, may increase
the likelihood that customers will unexpectedly delay or cancel orders,
resulting in revenue shortfalls. This risk is particularly relevant with
respect to large customer orders which are more likely to be cancelled or
delayed and also have a greater financial impact on our operating results. A
number of technology companies, particularly software companies that, like us,
sell enterprise-wide software solutions, have recently announced that these
conditions have adversely affected their financial results. Additionally, our
operating expenses are based in part on our expectations for future revenues
and are difficult to adjust in the short term. Any revenue shortfall below our
expectations could have an immediate and significant adverse effect on our
results of operations.

When our employees exercise their stock options, we are subject to employer
payroll taxes on the difference between the price of our common stock on the
date of exercise and the exercise price. These payroll taxes are determined by
the tax rates in effect in the employee's taxing jurisdiction and are treated
as an expense in the period in which the exercise occurs. During a particular
period, these payroll taxes could be material. However, because we are unable
to predict the number, price or country of exercises during any particular
period, we cannot predict the amount, if any, of employer payroll expense that
will be recorded in a future period or the impact on our future financial
results.

As is common in the software industry, we believe that our fourth quarter
orders have in the past been favorably impacted by a variety of factors
including year-end capital purchases by larger corporate customers and the
commission structure for our sales force. This increase typically results in
first quarter customer orders being lower than orders received in the
immediately preceding fourth quarter. We anticipate that this seasonal impact
on our first quarter is likely to continue. We also believe that given the
current economic slowdown and reductions in IT spending, the favorable impact,
if any, of these factors on our fiscal 2002 fourth quarter may be less than in
the past.

Although we use standardized license agreements designed to meet current
revenue recognition criteria under generally accepted accounting principles, we
must often negotiate and revise terms and conditions of these standardized
agreements, particularly in larger license transactions. Negotiation of
mutually acceptable terms and conditions can extend the sales cycle and, in
certain situations, may require us to defer recognition of revenue on the
license. While we believe that we are in compliance with Statement of Position
97-2, Software Revenue Recognition, ("SOP 97-2") as amended, the American
Institute of Certified Public Accountants continues to issue implementation
guidelines for these standards and the accounting profession continues to
discuss a wide range of potential interpretations. In addition, the Securities
and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements ("SAB 101"). We adopted the
provisions of SAB 101 in our fourth fiscal quarter of 2001. Additional
implementation guidelines and changes in interpretations of such guidelines
could lead to unanticipated changes in our current revenue accounting practices
that could cause us to defer the recognition of revenue to future periods or to
recognize lower revenue and profits.

If we do not develop and enhance new and existing products to keep pace with
technological, market and industry changes, our revenues may decline

The market for our products is highly fragmented, competitive with
alternative computing architectures, and characterized by continuing
technological developments, evolving and competing industry standards and

changing customer requirements. The introduction of products embodying new
technologies, the emergence of new industry standards or changes in customer
requirements could render our existing products obsolete and unmarketable. As a
result, our success depends upon our ability to timely and effectively enhance
existing products (such as our WebLogic Server product and Web Services
features), respond to changing customer requirements and develop and introduce
in a timely manner new products (such as our WebLogic Collaborate(TM) product)
that keep pace with technological and market developments and emerging industry
standards. We are also developing products designed to provide components for
applications (such as our WebLogic Commerce Server(TM), WebLogic
Personalization Server and BEA Campaign Manager for WebLogic(R) products) in an
effort to further build out and increase the value of the e-business software
infrastructure platform we provide. It is possible that our products will not
adequately address the changing needs of the marketplace and that we will not
be successful in developing and marketing enhancements to our existing products
or products incorporating new technology on a timely basis. Failure to develop
and introduce new products, or enhancements to existing products, in a timely
manner in response to changing market conditions or customer requirements, will
materially and adversely affect our business, results of operations and
financial condition. In addition, our success is dependent on our strategic
partners' ability to successfully develop and integrate their software with the
BEA products with which it interoperates or is bundled, integrated or marketed.
If their software performs poorly, contains errors or defects or is otherwise
unreliable, or does not provide the features and benefits expected or required,
it could lower the demand for our solutions, result in negative publicity or
loss of reputation regarding us and our products and services and adversely
affect our revenues and other operating results.

Our revenues are derived primarily from two main products and related
services, and a decline in demand or prices for either products or services
could substantially adversely affect our operating results

We currently derive the majority of our license and service revenues from
BEA WebLogic, BEA TUXEDO(R) and from related products and services. We expect
these products and services to continue to account for the majority of our
revenues in the immediate future. As a result, factors adversely affecting the
pricing of or demand for BEA WebLogic, BEA TUXEDO or related services, such as
a general economic slowdown, competition, product performance or technological
change, could have a material adverse effect on our business and consolidated
results of operations and financial condition. As we have increased our focus
on using strategic partners to provide services related to the deployment and
use of our software solutions, we have recently experienced a slowdown in the
growth rate of our services revenue, particularly revenue derived from our
consulting services. This trend may continue or even worsen, particularly if
the recent industry-wide oversupply in software infrastructure consultants
further increases the willingness and ability of our strategic partners to
provide such services or if the current economic slowdown continues or worsens.
In addition, as we introduce new versions of our two main products, such as BEA
Tuxedo 8.0 and WebLogic Enterprise 6.0, any delay or failure of such new
versions to gain market acceptance among new and existing customers would have
an adverse affect on our revenues and other operating results.

Any failure to maintain ongoing sales through distribution channels could
result in lower revenues

To date, we have sold our products principally through our direct sales
force, as well as through indirect sales channels, such as computer hardware
companies, packaged application software developers, independent software
vendors ("ISVs"), systems integrators ("SIs") and independent consultants,
independent software tool vendors and distributors. Our ability to achieve
revenue growth in the future will depend in large part on our success in
expanding our direct sales force and in further establishing and expanding
relationships with distributors, ISVs, original equipment manufacturers
("OEMs") and SIs. In particular, in August 2000, we announced a significant
initiative to further establish and expand relationships with our distributors
through these sales channels, especially ISVs and SIs. A significant part of
this initiative is to recruit and train a large number of consultants employed
by SIs and induce these SIs to more broadly use our products in their
consulting practices, as well as to embed our technology in products that our
ISV customers offer. We intend to continue this initiative and to seek
distribution arrangements with additional ISVs to embed our Web application
servers in their products. It is possible that we will not be able to
successfully expand our direct sales force or other

distribution channels, secure agreements with additional SIs and ISVs on
commercially reasonable terms or at all, and otherwise adequately develop our
relationships with indirect sales channels. Moreover, even if we succeed in
these endeavors, it still may not increase our revenues. In particular, we need
to carefully monitor the development and scope of our indirect sales channels
and create appropriate pricing, sales force compensation and other distribution
parameters to help ensure these indirect channels complement our direct
channels. If we invest resources in these types of expansion and our overall
revenues do not correspondingly increase, our business, results of operations
and financial condition will be materially and adversely affected.

In addition, we already rely on informal relationships with a number of
consulting and systems integration firms to enhance our sales, support, service
and marketing efforts, particularly with respect to implementation and support
of our products as well as lead generation and assistance in the sales process.
We will need to expand our relationships with third parties in order to support
license revenue growth. Many such firms have similar, and often more
established, relationships with our principal competitors. It is possible that
these and other third parties will not provide the level and quality of service
required to meet the needs of our customers, that we will not be able to
maintain an effective, long term relationship with these third parties, and
that these third parties will not successfully meet the needs of our customers.

It is difficult to predict our future results for a variety of reasons
including our limited operating history and need to continue to integrate our
acquisitions

We were incorporated in January 1995 and therefore we have a relatively
limited operating history. We have generated revenues to date primarily from
sales of BEA WebLogic, a software product that we acquired in September 1998,
and from BEA TUXEDO, a software product to which we acquired worldwide
distribution rights in February 1996, and fees for software products and
services related to WebLogic and TUXEDO. We have also acquired a number of
additional businesses, technologies and products. Our limited operating history
and the need to continue to integrate a number of separate and independent
business operations subject our business to numerous risks. At July 31, 2001,
we had an accumulated deficit of approximately $141.3 million. In addition, in
connection with certain acquisitions completed prior to July 31, 2001, we
recorded approximately $526.0 million as intangible assets and goodwill of
which approximately $362.6 million has been amortized as of July 31, 2001. If
we acquire additional businesses, products and technologies in the future, we
may report additional, potentially significant expenses, particularly in light
of recent changes in regulations governing how we account for such
transactions. See below "If we cannot successfully integrate our past and
future acquisitions, our revenues may decline and expenses may increase." If
future events cause the impairment of any intangible assets acquired in our
past or future acquisitions, we may have to expense such assets sooner than we
expect. We first reported a net profit under generally accepted accounting
principles in the second quarter of fiscal 2001. Because of our limited
operating history and ongoing expenses associated with our prior acquisitions,
there can be no assurance that we will continue to be profitable in any future
period, and recent operating results should not be considered indicative of
future financial performance.

The price of our common stock may fluctuate significantly

The market price for our common stock may be affected by a number of
factors, including developments in the Internet, software or technology
industry, general market conditions and other factors, including factors
unrelated to our operating performance or our competitors' operating
performance. In addition, stock prices for BEA and many other companies in the
Internet, technology and emerging growth sectors have experienced wide
fluctuations including recent rapid rises and declines in their stock prices
that often have not been directly related to the operating performance of such
companies, such as the declines in the stock prices of BEA and many such
companies from March 2000 through the present. Such factors and fluctuations,
as well as general economic, political and market conditions, such as
recessions, may materially adversely affect the market price of our common
stock.

If we cannot successfully integrate our past and future acquisitions, our
revenues may decline and expenses may increase

From our inception in January 1995, we have made a number of strategic
acquisitions. Integration of acquired companies, divisions and products
involves the assimilation of potentially conflicting operations and products,
which divert the attention of our management team and may have a material
adverse effect on our operating results in future quarters. It is possible that
we may not achieve any of the intended financial or strategic benefits of these
transactions. While we intend to make additional acquisitions in the future,
there may not be suitable companies, divisions or products available for
acquisition. Our acquisitions entail numerous risks, including the risk that we
will not successfully assimilate the acquired operations and products, or
retain key employees of the acquired operations. There are also risks relating
to the diversion of our management's attention, and difficulties and
uncertainties in our ability to maintain the key business relationships that
the acquired entities have established. In addition, if we undertake future
acquisitions, we may issue dilutive securities, assume or incur additional debt
obligations, incur large one-time expenses, and acquire intangible assets that
would result in significant future amortization expense. Any of these events
could have a material adverse effect on our business, operating results and
financial condition.

On June 29, 2001, the Financial Accounting Standards Board ("FASB")
eliminated pooling of interests accounting for acquisitions. The effect of this
change is to increase the portion of the purchase price for any future
acquisitions that must be charged to BEA's cost of revenues and operating
expenses in the periods following any such acquisitions. As a consequence, our
results of operations in periods following any such acquisitions could be
materially adversely affected. Although these changes will not directly affect
the purchase price for any of these acquisitions, they will have the effect of
increasing the reported expenses associated with any of these acquisitions. To
that extent, these changes may make it more difficult for us to acquire other
companies, product lines or technologies.Also on June 29, 2001, the FASB
pronounced under Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets ("FAS 142") that purchased goodwill should not be
amortized, but rather, it should be periodically reviewed for impairment. Such
impairment could be caused by internal factors as well as external factors
beyond our control. The FASB has further determined that at the time goodwill
is considered impaired an amount equal to the impairment loss should be charged
as an operating expense in the income statement. The timing of such an
impairment (if any) of goodwill acquired in past and future transactions is
uncertain and difficult to predict. Our results of operations in periods
following any such impairment could be materially adversely affected. Effective
as of February 1, 2001, we will be required to determine whether goodwill and
any assets acquired in past acquisitions have been impaired in accordance with
FAS 142 and, if so, charge such impairment as an expense. We cannot predict
whether we will be required to take a charge for any such impairment for past
acquisitions under FAS 142, as well as whether we would be required to take
such a charge under the appropriate pre-FAS 142 accounting principles prior to
February 1, 2002. We have net goodwill and net acquired intangible assets of
approximately $163.4 million at July 31, 2001, so if we are required to take
such an impairment charge, the amount could be material to our results of
operations.

The lengthy sales cycle for our products makes our revenues susceptible to
substantial fluctuations

Our customers typically use our products to implement large, sophisticated
applications that are critical to their business, and their purchases are often
part of their implementation of a distributed or Web-based computing
environment. Customers evaluating our software products face complex decisions
regarding alternative approaches to the integration of enterprise applications,
competitive product offerings, rapidly changing software technologies and
limited internal resources due to other information systems requirements. For
these and other reasons, the sales cycle for our products is lengthy and is
subject to delays or cancellation over which we have little or no control. We
have experienced an increase in the number of million and multi-million dollar
license transactions. In some cases, this has resulted in more extended
customer evaluation and procurement processes, which in turn have lengthened
the overall sales cycle for our products. The recent economic downturn has also
contributed to increasing our sales cycle, and there is a risk this will
continue or worsen. This delay or failure to complete large orders and sales in
a particular quarter could significantly reduce revenue that quarter, as well
as subsequent quarters over which revenue for the sale would likely be
recognized.

If we do not effectively compete with new and existing competitors, our
revenues and operating margins will decline

The market for application server and integration software, and related
software components and services, is highly competitive. Our competitors are
diverse and offer a variety of solutions directed at various segments of this
marketplace. These competitors include operating system vendors such as IBM,
Sun Microsystems and Hewlett-Packard and database vendors such as Oracle.
Microsoft has released products that include some application server
functionality and has announced that it intends to include application server
and integration functionality in future versions of its operating systems. In
addition, certain application vendors, integration vendors and other companies
are developing or offering application server, integration and portal software
products and related services that directly compete with products that we
offer. Further, software development tool vendors typically emphasize the broad
versatility of their tool sets and, in some cases, offer complementary software
that supports these tools and performs basic application server and integration
functions. Finally, internal development groups within prospective customers'
organizations may develop software and hardware systems that may substitute for
those that we offer. A number of our competitors and potential competitors have
longer operating histories, significantly greater financial, technical,
marketing and other resources, greater name recognition and a larger installed
base of customers than we.

Some of our principal competitors currently are also hardware vendors who
bundle their own application server and integration software products, or
similar products, with their computer systems and database vendors that
advocate client/server networks driven by the database server. IBM, Sun
Microsystems and Hewlett-Packard are the primary hardware vendors who offer a
line of application server and integration solutions for their customers. IBM's
sale of application server and integration functionality along with its IBM
proprietary hardware systems requires us to compete with IBM in its installed
base, where IBM has certain inherent advantages due to its significantly
greater financial, technical, marketing and other resources, greater name
recognition and the integration of its enterprise application server and
integration functionality with its proprietary hardware and database systems.
These inherent advantages allow IBM to bundle, at a discounted price,
application functionality with computer hardware and software sales. Due to
these factors, if we do not sufficiently differentiate our products based on
functionality, interoperability with non-IBM systems, performance, total cost
of ownership, return on investment and reliability, and establish our products
as more effective solutions to customers' technological and economic needs, our
revenues and operating results will suffer.

Microsoft has announced that it intends to include certain application
server and integration functionality in its .NET initiative. Microsoft's .NET
initiative is a proprietary programming environment that competes with the
Java-based environment of our products. A widespread acceptance of Microsoft's
.NET initiative, particularly among the large and mid-sized enterprises from
which most of our revenues are generated, could curtail the use of Java and
therefore adversely impact the sales of our products. The .NET initiative and
the bundling of competing functionality in versions of Windows requires us to
compete with Microsoft, which has certain inherent advantages due to its much
greater financial, technical, marketing and other resources, its greater name
recognition, very large developer community, its substantial installed base and
the integration of its broad product line and features into a Web services
environment. We need to differentiate our products from Microsoft's based on
scalability, functionality, interoperability with non-Microsoft platforms,
performance, total cost of ownership, return on investment and reliability, and
need to establish our products as more effective solutions to customers'
technological and economic needs. We may not be able to successfully or
sufficiently differentiate our products from those offered by Microsoft, and
Microsoft's entry into the application server, integration and Web Services
markets or their proposed .NET alternative to Java could materially adversely
affect our business, operating results and financial condition.

In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of their current and prospective customers. Accordingly, it is possible
that new competitors or alliances

among current and new competitors may emerge and rapidly gain significant
market share. Such competition could materially adversely affect our ability to
sell additional software licenses and maintenance, consulting and support
services on terms favorable to us. Further, competitive pressures could require
us to reduce the price of our products and related services, which could
materially adversely affect our business, operating results and financial
condition. We may not be able to compete successfully against current and
future competitors and any failure to do so would have a material adverse
effect upon our business, operating results and financial condition.

If the market for application servers, application integration and
application component software and Web services does not grow as quickly as
we expect, our revenues will be harmed

We sell our products and services in the application server, application
integration and application component markets. These markets are emerging and
are characterized by continuing technological developments, evolving industry
standards and changing customer requirements. Our success is dependent in large
part on acceptance of our products by large customers with substantial legacy
mainframe systems, customers establishing or building out their presence on the
Web for commerce, and developers of web-based commerce applications. Our future
financial performance will depend in large part on continued growth in the
number of companies extending their mainframe-based, mission-critical
applications to an enterprise-wide distributed computing environment and to the
Internet through the use of application server and integration technology and
the growth in the use of the web to run software applications. There can be no
assurance that the markets for application server and integration technology
and related services will continue to grow. Even if they do grow they may grow
more slowly than we anticipate, particularly in view of the recent economic
downturn affecting the technology sector in the United States. If these markets
fail to grow or grow more slowly than we currently anticipate, or if we
experience increased competition in these markets, our business, results of
operations and financial condition will be adversely affected.

If we fail to adequately protect our intellectual property rights,
competitors may use our technology and trademarks, which could weaken our
competitive position, reduce our revenues and increase our costs

Our success depends upon our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret rights,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. It is possible that other companies could successfully
challenge the validity or scope of our patents and that our patents may not
provide a competitive advantage to us. As part of our confidentiality
procedures, we generally enter into non-disclosure agreements with our
employees, distributors and corporate partners and into license agreements with
respect to our software, documentation and other proprietary information.
Despite these precautions, third parties could copy or otherwise obtain and use
our products or technology without authorization, or develop similar technology
independently. In particular, we have, in the past, provided certain hardware
OEMs with access to our source code, and any unauthorized publication or
proliferation of this source code could materially adversely affect our
business, operating results and financial condition. It is difficult for us to
police unauthorized use of our products, and although we are unable to
determine the extent to which piracy of our software products exists, software
piracy is a persistent problem. Effective protection of intellectual property
rights is unavailable or limited in certain foreign countries. The protection
of our proprietary rights may not be adequate and our competitors could
independently develop similar technology, duplicate our products, or design
around patents and other intellectual property rights that we hold.

Third parties could assert that our software products and services infringe
their intellectual property rights, which could expose us to increased costs
and litigation

It is possible that third parties, including competitors or our technology
partners, could claim our current or future products infringe their rights,
including their patent rights. Any such claims, with or without merit, could
cause costly litigation that could absorb significant management time, which
could materially adversely affect our business, operating results and financial
condition. These types of claims could cause us to pay substantial

damages on settlement amounts, cease offering any subject technology or
products and require us to enter into royalty or license agreements. If
required, we may not be able to obtain such royalty or license agreements, or
obtain them on terms acceptable to us, which could have a material adverse
effect upon our business, operating results and financial condition,
particularly if we are unable to ship key products.

Our international operations expose us to greater management, collections,
currency, intellectual property, tax, regulatory and other risks

International revenues accounted for 44.0 percent and 41.8 percent of our
consolidated revenues for the six months ended July 31, 2001 and 2000,
respectively. We sell our products and services through a network of branches
and subsidiaries located in 34 countries worldwide. In addition, we also market
through distributors. We believe that our success depends upon continued
expansion of our international operations. Our international business is
subject to a number of risks, including unexpected changes in regulatory
practices and tariffs, greater difficulties in staffing and managing foreign
operations, longer collection cycles, seasonality, potential changes in tax
laws, greater difficulty in protecting intellectual property and the impact of
fluctuating exchange rates between the U.S. dollar and foreign currencies in
markets where we do business. In particular, BEA is periodically subject to tax
audits by government agencies in foreign jurisdictions. To date, the outcomes
of these audits have not had a material impact on the Company. It is possible,
however, that future audits could result in significant assessments for
transfer taxes, payroll taxes or other taxes which could adversely effect our
operating results. General economic and political conditions in these foreign
markets may also impact our international revenues. There can be no assurances
that these factors and other factors will not have a material adverse effect on
our future international revenues and consequently on our business and
consolidated financial condition and results of operations.

If we are unable to manage our growth, our business will suffer

We have continued to experience a period of rapid and substantial growth
that has placed, and if such growth continues would continue to place, a strain
on our administrative and operational infrastructure. We have increased the
number of our employees from 120 employees in three offices in the United
States at January 31, 1996 to over 3,380 employees in 93 offices in 34
countries at July 31, 2001. Our ability to manage our staff and growth
effectively requires us to continue to improve our operational, financial and
management controls; reporting systems and procedures; and information
technology infrastructure. In this regard, we are currently updating our
management information systems to integrate financial and other reporting among
our multiple domestic and foreign offices. In addition, we may continue to
increase our staff worldwide and to continue to improve the financial reporting
and controls for our global operations. We are also continuing to develop and
roll out information technology initiatives. It is possible that we will not be
able to successfully implement improvements to our management information,
control systems and information technology infrastructure in an efficient or
timely manner and that, during the course of this implementation, we could
discover deficiencies in existing systems and controls. If we are unable to
manage growth effectively, our business, results of operations and financial
condition will be materially adversely affected.

If we lose key personnel or cannot hire enough qualified personnel, it will
adversely affect our ability to manage our business, develop new products and
increase revenue

We believe our future success will depend upon our ability to attract and
retain highly skilled personnel including our founders, Messrs. William T.
Coleman III and Alfred S. Chuang, and other key members of management.
Competition for these types of employees is intense, and it is possible that we
will not be able to retain our key employees and that we will not be successful
in attracting, assimilating and retaining qualified candidates in the future.
As we seek to expand our global organization, the hiring of qualified sales,
technical and support personnel will be difficult due to the limited number of
qualified professionals. Failure to attract, assimilate and retain key
personnel would have a material adverse effect on our business, results of
operations and financial condition.

If our products contain software defects, it could harm our revenues and
expose us to litigation

The software products we offer are internally complex and, despite extensive
testing and quality control, may contain errors or defects, especially when we
first introduce them. We may need to issue corrective releases of our software
products to fix any defects or errors. Any defects or errors could also cause
damage to our reputation and result in loss of revenues, product returns or
order cancellations, or lack of market acceptance of our products. Accordingly,
any defects or errors could have a material and adverse effect on our business,
results of operations and financial condition.

Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. It is
possible, however, that the limitation of liability provisions contained in our
license agreements may not be effective as a result of existing or future
federal, state or local laws or ordinances or unfavorable judicial decisions.
Although we have not experienced any product liability claims to date, sale and
support of our products entails the risk of such claims, which could be
substantial in light of customers' use of such products in mission-critical
applications. If a claimant brings a product liability claim against us, it
could have a material adverse effect on our business, results of operations and
financial condition. Our products interoperate with many parts of complicated
computer systems, such as mainframes, servers, personal computers, application
software, databases, operating systems and data transformation software.
Failure of any one of these parts could cause all or large parts of computer
systems to fail. In such circumstances, it may be difficult to determine which
part failed, and it is likely that customers will bring a lawsuit against
several suppliers. Even if our software is not at fault, we could suffer
material expense and material diversion of management time in defending any
such lawsuits.

Our strategy of investing in development-stage companies involves a number of
risks and uncertainties

We have invested, and expect to continue to invest, in development-stage
companies. Each of these investments involves risks and uncertainties,
including:

. diversion of management attention from our core business;

. failure to leverage our relationship with these companies to access new
technologies and new markets;

. inability to value investments appropriately or to predict changes to the
future value of investments;

. inability to manage investments effectively; and

. loss of cash invested.

During the six months ended July 31, 2001, we recorded a charge to earnings
of $11.2 million related to impaired assets acquired as part of our development
stage company investment program. We have an investments balance of $39.3
million at July 31, 2001, and there is a risk that such investments may also
become impaired, particularly in view of the difficulties many such companies
have had in raising additional capital in the current unfavorable economic
climate.

We have a high debt balance and large interest obligations

At July 31, 2001, we had approximately $561.4 million of convertible notes
outstanding. As a result of this indebtedness, we have substantial principal
and interest payment obligations. The degree to which we are leveraged could
significantly harm our ability to obtain financing for working capital,
acquisitions or other purposes and could make us more vulnerable to industry
downturns and competitive pressures. Our ability to meet our debt service
obligations will be dependent upon our future performance, which will be
subject to financial, business and other factors affecting our operations, many
of which are beyond our control. Although our earnings were sufficient to cover
fixed charges in the current quarter reported herein, they may not be
sufficient to cover fixed charges in subsequent quarters. Also, in connection
with a lease transaction for real estate in San Jose, California, we have
restricted approximately $120.1 million out of our total cash, cash equivalents
and investment securities as of July 31, 2001, as collateral for specified
obligations to the lessor

under the lease. The investment securities are restricted as to withdrawal and
are managed by a third party subject to a number of limitations. We will be
required under this real estate transaction to make annual lease payments of
approximately $12.8 million, which will fluctuate from time to time depending
on short-term interest rates. When construction commences on the 40 acres, we
plan to obtain financing pursuant to an arrangement similar to that for the
above lease transaction in order to facilitate this future construction which
may require additional collateralization of cash. We will require substantial
amounts of cash to fund scheduled payments of interest on the convertible
notes, payment of the principal amount of the convertible notes, payment of
principal and interest on our other indebtedness, the lease payments discussed
above, future capital expenditures, payments on our lease and any increased
working capital requirements. If we are unable to meet our cash requirements
out of cash flow from operations, there can be no assurance that we will be
able to obtain alternative financing. In the absence of such financing, our
ability to respond to changing business and economic conditions, to make future
acquisitions, to absorb adverse operating results or to fund capital
expenditures or increased working capital requirements would be significantly
reduced. If we do not generate sufficient cash flow from operations to repay
the notes at maturity, we could attempt to refinance the notes; however, no
assurance can be given that such a refinancing would be available on terms
acceptable to us, if at all. Any failure by us to satisfy our obligations with
respect to the notes at maturity (with respect to payments of principal) or
prior thereto (with respect to payments of interest or required repurchases)
would constitute a default under the indenture and could cause a default under
agreements governing our other indebtedness.

Power outages in California may adversely affect us

We have significant operations, including our headquarters, in the state of
California and are dependent on a continuous power supply. California's current
energy crisis could substantially disrupt our operations and increase our
expenses. California has recently implemented, and may in the future continue
to implement, rolling blackouts throughout the state. If blackouts interrupt
our power supply, we may be temporarily unable to continue operations at our
California facilities. Any such interruption in our ability to continue
operations at our facilities could delay the development and delivery of our
products and services and otherwise disrupt communications with our customers
or other third parties on whom we rely, such as SIs. Future interruptions could
damage our reputation and could result in lost revenue, either of which could
substantially harm our business and results of operations. Furthermore,
shortages in wholesale electricity supplies have caused power prices to
increase. If energy prices continue to increase, our operating expenses will
likely increase which could have a negative effect on our operating results.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Foreign Exchange

BEA's revenues originating outside the United States were 45.0 percent and
41.5 percent of total revenues in the second quarter of fiscal 2002 and 2001,
respectively, and 44.0 percent and 41.8 percent of total revenues in the six
months ended July 31, 2001 and 2000, respectively. International revenues from
each geographic sub-region were less than 10 percent of total revenues in the
three and six month periods ended July 31, 2001. The only geographic sub-region
outside of the United States with revenues greater than 10 percent of total
revenues in the three and six month periods ended July 31, 2000 was the United
Kingdom with $18.7 million or 10.0 percent of total revenues for the second
quarter of fiscal 2001 and $41.8 million or 12.3 percent of total revenues for
the six months ended July 31, 2000. International sales were made mostly from
the Company's foreign sales subsidiaries in the local countries and are
typically denominated in the local currency of each country. These subsidiaries
also incur most of their expenses in the local currency. Accordingly, foreign
subsidiaries use the local currency as their functional currency.

The Company's international operations are subject to risks typical of an
international business, including, but not limited to, differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange volatility. Accordingly, the
Company's future results could be materially adversely impacted by changes in
these or other factors.

Effective February 1, 2001, the Company adopted the Financial Accounting
Standards Board Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. All derivatives, whether designated
in hedging relationships or not, are required to be recorded on the balance
sheet at fair value. If the derivative is designated as a fair value hedge, the
changes in the fair value of the derivative and of the hedged item attributable
to the hedged risk are recognized in earnings. If the derivative is designated
as a cash flow hedge, the effective portions of changes in the fair value of
the derivative are recorded in accumulated other comprehensive loss.

The Company uses derivative instruments to manage exposures to foreign
currency. The Company's objectives to holding derivatives are to minimize the
risks using the most effective methods to eliminate or reduce the impacts of
these exposures.

The Company's exposure to foreign exchange rate fluctuations arises in part
from intercompany accounts between the parent company in the United States and
its foreign subsidiaries. These intercompany accounts are typically denominated
in the functional currency of the foreign subsidiary in order to centralize
foreign exchange risk with the parent company in the United States. The Company
is also exposed to foreign exchange rate fluctuations as the financial results
of foreign subsidiaries are translated into U.S. dollars in consolidation. As
exchange rates vary, these results, when translated, may vary from expectations
and may adversely impact overall financial results.

The Company has a program to reduce the effect of foreign exchange
transaction gains and losses from recorded foreign currency-denominated assets
and liabilities. This program involves the use of forward foreign exchange
contracts in certain European and Asian currencies. A forward foreign exchange
contract obligates the Company to exchange predetermined amounts of specified
foreign currencies at specified exchange rates on specified dates or to make an
equivalent U.S. dollar payment equal to the value of such exchange. Under this
program, increases or decreases in the Company's foreign currency transactions
are partially offset by gains and losses on the forward contracts, so as to
mitigate the possibility of significant foreign currency transaction gains and
losses. The Company does not use foreign currency contracts for trading
purposes. All foreign currency transactions and all outstanding forward
contracts are marked-to-market on a monthly basis with realized gains and
losses included in interest income and other, net. Net losses resulting from
foreign currency transactions were approximately $776,000 for the second
quarter in fiscal 2002 and $781,000 for the six months ended July 31, 2001.

The Company's outstanding forward contracts as of July 31, 2001 are
presented in the table below. This table presents the notional amount in U.S.
dollars using the spot exchange rate in July 2001 and the weighted average
contractual foreign currency exchange rates. Notional weighted average exchange
rates are quoted using market conventions where the currency is expressed in
units per U.S. dollar. All of these forward contracts mature within 30 days or
less as of July 31, 2001.

Notional
Weighted
Average
Notional Exchange
Amount Rate
-------------- --------
(in thousands)

Functional Currency--U.S. Dollar
Euros................................................. $ 44,700 1.155
British pounds........................................ 6,100 0.717
Japanese yen.......................................... 1,800 124.610
Swedish krona......................................... 12,300 10.736
Canadian dollars...................................... 8,100 1.542
Korean won............................................ 6,000 1314.000
Australian dollars.................................... 3,000 1.970
Mexican pesos......................................... 1,200 9.226
Israeli shekels....................................... 1,100 4.227
Brazilian reals....................................... 2,400 2.521
Swiss francs.......................................... 700 1.753
--------
Total.............................................. $ 87,400
--------
Functional Currency--EURO
British pounds........................................ $ 11,800 0.715
Swiss francs.......................................... 1,700 1.751
Swedish krona......................................... 200 10.725
Israeli shekels....................................... 1,400 4.222
--------
Total.............................................. $ 15,100
--------
Grand Total........................................ $102,500
========

Interest Rates

The Company invests its cash in a variety of financial instruments,
consisting principally of investments in commercial paper, interest-bearing
demand deposit accounts with financial institutions, money market funds and
highly liquid debt securities of corporations, municipalities and the U.S.
Government. These investments are denominated in U.S. dollars. Cash balances in
foreign currencies overseas are operating balances and are invested in
interest-bearing bank accounts and money market funds at the local operating
banks.

The Company accounts for its investment instruments in accordance with
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("FAS 115"). All of the cash
equivalents, short-term investments and short-term and long-term restricted
cash are treated as "available-for-sale" under FAS 115. Investments in both
fixed rate and floating rate interest earning instruments carry a degree of
interest rate risk. Fixed rate securities may have their market value adversely
impacted due to a rise in interest rates, while floating rate securities may
produce less income than expected if interest rates fall. Due in part to these
factors, the Company's future investment income may fall short of expectations
due to changes in interest rates or the Company may suffer losses in principal
if forced to sell securities which have seen a decline in market value due to
changes in interest rates. However, the Company reduces its interest rate risk
by investing its cash in instruments with short maturities. The Company's
exposure, on its portfolio of marketable investments, to changes in short term
interest rates is insignificant as of July 31, 2001 because the

average holding period until maturity of the Company's cash equivalents,
long-term restricted cash and short-term investments was approximately 28 days.
The table below presents the principal amount and related weighted average
interest rates for the Company's investment portfolio. Short-term investments
are all in fixed-rate instruments.

Table of investment securities (in thousands) at July 31, 2001:

Average
Interest
Fair Value Rate
---------- --------

Cash equivalents........................................... $653,290 3.84%
Short-term investments (0-1 year).......................... 207,145 3.85%
Short-term restricted cash (0-1 year)...................... 6,903 3.83%
Long-term restricted cash (1-5 years)...................... 120,129 3.59%
--------
Total cash and investment securities....................... $987,467
========

The Company is exposed to changes in short-term interest rates through a
lease that the Company entered into on February 13, 2001, which includes a
variable short-term interest rate based on LIBOR. The annual lease expense will
fluctuate from time to time depending on changes in LIBOR. A 1.0% increase in
LIBOR will generate an increase in annual lease expense of approximately $3.3
million beginning in year 3 of the lease.

Investments in equity securities

The Company has made net investments in several privately-held companies
totaling $39.3 million as of July 31, 2001, several of which can still be
considered in the start-up or development stages. These non-marketable
investments are accounted for under the cost method, as ownership is less than
20 percent and/or the Company does not have the ability to exercise significant
influence over the operations of the investee companies. These investments are
inherently risky as the market for the technologies or products they have under
development are typically in the early stages and may never materialize. It is
possible that the Company could lose its entire initial investment in these
companies. As a part of management's process of regularly reviewing these
investments for impairment, the Company recorded write-downs of $11.2 million
of certain investments, which were determined to be other than temporarily
impaired in the six months ended July 31, 2001.

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

In connection with the acquisition of Crossgain Corporation ("Crossgain"),
effective July 17, 2001, the Company exchanged approximately $10.4 million in
cash and issued 458,466 shares of its common stock, valued at $26.67 per share,
and options to purchase 87,950 shares of common stock to former shareholders of
Crossgain at a conversion ratio of .036684 shares of BEA common stock for each
share of Crossgain stock. The shares were issued in reliance on Section 4(2) of
the Securities Act of 1933, as amended, and were registered for resale on a
form S-3 (File No. 333-67644) registration statement, declared effective on
September 4, 2001, and form S-8 (File No. 333-67646) registration statement.

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

At the Company's Annual Meeting of Stockholders held on July 11, 2001, the
following proposals were approved:

Affirmative Negative Votes
Votes Votes Withheld
----------- --------- --------

1. Election of the following individuals to the Board of Directors:
Robert L. Joss...................................................... 331,153,491 -- 626,710
Dean O. Morton...................................................... 331,058,425 -- 721,776
2. Ratify the appointment of Ernst & Young, LLP as independent auditors
for the fiscal year ending January 31, 2002......................... 330,510,595 1,159,600 110,006

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

Exhibit
Number Description
------ -----------

3.1(1) Amended and Restated Certificate of Incorporation of the Registrant.
3.2(2) Registrant's Amended and Restated Bylaws.
4.1 Reference is made to Exhibit 3.1.

- --------
(1) Incorporated by reference to Exhibit 3.5 previously filed with the
Registrant's registration statement on Form SB-2 (Registration No.
333-20791).
(2) Incorporated by reference to Exhibit 3.4 previously filed with the
Registrant's registration statement on Form SB-2 (File No. 333-20791)

(b) Reports on Form 8-K:

None

SIGNATURES

Pursuant to the requirement of the Security Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

BEA SYSTEMS, INC.
(Registrant)

/s/ William M. Klein
_____________________________________
William M. Klein
Chief Financial Officer and Executive
Vice President--Administration
(Duly Authorized Officer and
Principal Financial Officer)

Dated: September 14, 2001