BEA SYSTEMS INC - 10-K Annual Report

Back to GetFilings.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934.

(Mark One)

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

For the fiscal year ended January 31, 2002

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-22369

BEA SYSTEMS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		77-0394711

(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2315 North First Street

San Jose, California 95131

(Address of Principal Executive Offices, Zip Code)

(408) 570-8000

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Act:

None

Securities registered under Section 12(g) of the Act:

Common Stock

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the closing price at which the common equity was sold on March 29, 2002, as reported on the Nasdaq National Market, was approximately $4,996,457,000. Shares of common equity held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status does not reflect a determination that such persons are affiliates for any other purposes.

As of March 29, 2002, there were approximately 405,303,903 shares of the Registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant’s 2002 Annual Meeting of Stockholders to be held June 19, 2002 are incorporated by reference in Part III of this Form 10-K Report.

BEA SYSTEMS, INC.

FORM 10-K

For the Fiscal Year Ended January 31, 2002

INDEX

		Page

	PART I

Item 1.	Business	3
Item 2.	Properties	13
Item 3.	Legal Proceedings	14
Item 4.	Submission of Matters to a Vote of Security Holders	14

	PART II

Item 5.	Market for Registrant’s Common Stock and Related Stockholder Matters	15
Item 6.	Selected Financial Data	16
Item 7.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations	16
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 8.	Consolidated Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	78

	PART III

Item 10.	Directors and Executive Officers of the Registrant	78
Item 11.	Executive Compensation	78
Item 12.	Security Ownership of Certain Beneficial Owners and Management	78
Item 13.	Certain Relationships and Related Transactions.	78

	PART IV

Item 14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	79
Signatures		82

PART I

FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E (this “Annual Report”) of the Securities and Exchange Act of 1934 (the “Exchange Act”). All statements in this Annual Report other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any statements of the plans and objectives for future operations and any statement of assumptions underlying any of the foregoing. Statements that include the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “estimates,” “potential,” or “continue,” or the negative thereof or other comparable terminology are forward-looking statements. Forward-looking statements include (i) in Item 1, statements regarding the increase in importance of standard-based approaches, the general availability of version 7.0 of WebLogic Server, WebLogic Workshop and WebLogic Portal 4.0, continued hiring in direct sales, support and services, indirect distribution channels, our sales and marketing strategy, devoting substantial resources to product development, continuing to license and acquire software technologies and businesses, and continuing to recruit and hire experienced software developers, (ii) in Item 2, the statement regarding the adequacy of the Company’s existing facilities to meet anticipated needs, (iii) in Item 3, the statement regarding the non-materiality of the liability of claims arising in the ordinary course of business, (iv) in Item 5, the statement regarding the investment of cash and the payment of cash dividends in the future, (v) in Item 7, statements regarding the extension of computer systems to the Internet, seasonality of orders, continuation of certain products and services accounting for a majority of revenues, devoting substantial resources to product development and engineering, expected amortization of acquired intangible assets and goodwill, continuing to make additional acquisitions or license products, satisfaction of cash requirements, the effects of the adoption of new and changing accounting pronouncements, the establishment of product distribution arrangements, the increase in staff and the improvement in financial reporting and controls, the fluctuation of lease payments, the commencement of construction and the obtaining of financing, the evaluation of realizability of deferred tax assets, the costs of abandoning leased facilities and the payment of severance charges. These forward-looking statements involve risks and uncertainties, and it is important to note that BEA’s actual results could differ materially from those projected or assumed in such forward-looking statements. Among the factors that could cause actual results to differ materially are the factors detailed under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors That May Impact Future Operating Results” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates.” 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 hereof, and BEA assumes no obligation to update any forward-looking statement or risk factor. You should also consult the risk factors listed from time to time in the Company’s Reports on Forms 10-Q and 8-K.

ITEM 1. BUSINESS.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors That May Impact Future Operating Results” for risk factors that may adversely affect the Company.

Overview

BEA Systems, Inc. (“BEA” or the “Company”) is the world’s leading application infrastructure software provider. Our WebLogic Enterprise Platform^™ delivers a highly reliable, scalable software infrastructure designed to bring new services to market quickly, to lower operational costs by automating processes, and to automate relationships with suppliers and distributors. BEA’s WebLogic Enterprise Platform includes BEA WebLogic Server^™, a standards-based application server that serves as a platform for deployment of enterprise scale applications and Web services; BEA WebLogic Integration^™, a standards-based platform for workflow, application integration, Web services and business-to-business integration; BEA WebLogic Portal^™, a

sophisticated rules-based infrastructure for rich user interfaces to a wide variety of enterprise data; and BEA WebLogic Workshop^™, a rich, easy to use framework for development and deployment of Web services and Java-based applications. In addition, we offer the associated customer support, training and consulting services. Our products have a reputation for superior performance and high quality, evidenced by several awards and distinctions. In February 2002, InfoWorld’s Technology of the Year Awards named BEA WebLogic Portal 4.0 the best portal product. In its March 2002 annual Readers’ Choice Awards, Java Pro magazine readers voted BEA WebLogic Server and BEA WebLogic Portal as the number one product in their respective categories, and voted BEA WebLogic Integration as the second most valuable product overall in the Java market.

Our products have been adopted in a wide variety of industries, including commercial and investment banking, securities trading, telecommunications, airlines, retail, manufacturing, pharmaceuticals, package delivery, insurance and government. The BEA WebLogic Enterprise Platform provides a consolidated infrastructure for building and deploying an integrated information technology (“IT”) infrastructure, allowing customers to integrate private client/server networks, the Internet, intranets, extranets, mainframe and legacy systems, and Web services as system components. Our platform serves as a foundation for deployment or integration of applications such as billing, provisioning, customer service, electronic funds transfers, ATM networks, securities trading and settlement, Web-based banking, Internet sales, inventory management, supply chain management, enterprise resource planning, scheduling, logistics, and hotel, airline and car rental reservations. BEA employs more than 3,100 people, is headquartered in San Jose, California, and has 93 offices in 34 countries. 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 products are marketed and sold worldwide through a network of sales offices, the Company’s Web site at www.bea.com, as well as distributors and alliances with independent software vendors (“ISVs”), application service providers (“ASPs”), hardware original equipment manufacturers (“OEMs”) and systems integrators (“SIs”).

Industry Background

Over the past decade, the information systems of many large organizations have evolved from traditional mainframe-based systems to include distributed computing environments. This evolution has been driven by the benefits offered by distributed computing, including lower incremental technology costs, faster application development and deployment, increased flexibility, and improved access to business information. Despite these benefits, large-scale mission-critical applications that enable and support fundamental business processes, such as airline reservations, credit card processing, and customer billing and support systems, have largely remained in mainframe environments. For several decades, the high levels of reliability, scalability, security, manageability and control required for these complex, transaction-intensive systems have been provided by application server functionality included in the mainframe operating system. Mainframe environments, however, suffer from several shortcomings, including inflexibility, lengthy development and maintenance cycles, and limited, character-based user interfaces. Increasingly, these shortcomings are forcing many organizations to seek solutions, such as those offered by us, that will enable them to overcome the limitations of distributed computing for mission-critical applications while providing the robust computing infrastructure previously unavailable outside the mainframe environment.

In addition, many businesses are using the Internet as an element of these infrastructures. Businesses use the Internet as a means of selling products to consumers and distributors, buying components or whole products from suppliers, opening new customer accounts, scheduling service installation, providing account information and customer care, enabling reservations, funds transfers, bill payments and securities trading, and gathering information about customers and their buying habits. Many businesses also use intranets for functions such as inventory control, decision support, logistics, reservations, customer care and provisioning, and sometimes use extranets to make similar information and applications available to their suppliers or distributors.

As a result of investment in several different technologies, enterprise information technology (“IT”) organizations are characterized by complexity, heterogeneous environments, incompatible technologies and high cost of integration. Today’s enterprises must manage the effects of these realities. The recent massive investment in technology has significantly increased IT complexity. The Internet has altered users’ expectations of availability, cost, service and functionality. The current economic climate highlights the need to leverage existing assets and improve the return on investment for new initiatives.

Achieving the full benefits of the Internet and Web services requires fully integrating business-to-consumer or business-to-business Web-based applications with existing enterprise applications, such as shipping, financial systems, inventory control, billing, payroll, and general ledger. In order to fully integrate these internal applications with Web-based systems, the internal applications must be electronically linked to each other and must be built on a flexible, reliable, scalable, secure infrastructure that can connect to the Web and support the demanding loads that result from heavy Internet traffic. The development of standards, such as the Java 2 Enterprise Edition (“J2EE”), enabled the application development and deployment market to flourish, since individual developers, application companies and infrastructure companies could build compatible systems. Standards-based approaches, such as those supported by BEA, have been more widely adopted than proprietary approaches in Web application development and deployment. A new set of standards is emerging in the market for integrating existing applications, including the J2EE Connector Architecture (“JCA”) and Java Messaging Services (“JMS”). We have adopted the standards-based approach to integration, and believe that, over time, standards-based approaches to integration will increase in importance relative to the current proprietary approaches.

Our primary product category has been application servers, which provide an important part of the infrastructure necessary for enterprise applications. BEA has leveraged its success in the application server market by expanding into complementary product categories, to meet a broader set of customers’ application infrastructure needs. The application infrastructure market consists of the (1) application server, (2) integration, (3) portal, (4) security, (5) development and deployment, and (6) operations, administration and management product categories. BEA has developed significant features or product lines to address these markets and is in the process of developing additional features and products as well as a tight integration among our own products, to address the broader application infrastructure market.

Products

The BEA WebLogic Platform includes application infrastructure technology from proven BEA products, as well as new technologies currently under development. WebLogic Platform 7.0 (in beta as of April 2002) consists of several products: WebLogic Server, WebLogic Integration, WebLogic Portal and WebLogic Workshop. These technologies are combined into a single installation, with a single set of application programming interfaces (“APIs”), and other common features such as a single security framework and administration console. By combining these technologies and features, WebLogic Platform offers a single, unified, easy-to-use infrastructure platform for development, deployment and integration of applications and Web services. WebLogic Platform also provides a natural migration path for current WebLogic Server, Integration or Portal users seeking to deploy solutions that enhance and extend their existing environments via a single, integrated architecture.

BEA WebLogic Server: BEA WebLogic Server 6.1, our current full production version of BEA WebLogic Server, provides a platform for application development and deployment. WebLogic Server provides the presentation, business and information-access logic, security and management services required for high-scalability, high-availability mission-critical applications. WebLogic Server delivers key infrastructure functionality in several categories.

Broad Client Support. WebLogic Server supports a wide variety of Web browsers, wireless devices, ATMs, point of sale devices and others.

High Performance and Scalability. WebLogic Server is built on a highly scalable, clustered architecture, delivering load balancing, connection pooling, caching and optimized Web server, operating system, virtual machine and database connections.

High Availability. WebLogic Server delivers high system availability to mission-critical business applications. WebLogic Server delivers automatic failover at the Web, business logic, and database tiers, allowing continued system availability despite failures of system components or disconnections of Web sessions. WebLogic Server uses clustering to take advantage of the redundancy of multiple servers to protect against system failures. The same service can be deployed across multiple servers in the cluster, so that if one server fails, another can take over, increasing the availability of the application to users. A WebLogic Cluster consists of a number of WebLogic Servers deployed on a network, coordinated with a combination of domain name service, Java naming and directory interface tree replication, in-memory session data replication, and WebLogic remote method invocation clustering enhancements.

Broad Deployment Options. WebLogic Server features tight integration with the leading databases, enterprise operating systems, Web servers, Web browsers, mobile devices and Java virtual machines (“JVM”). WebLogic Server 6.1 supports several operating systems, such as Sun Solaris, HP Unix, Aix, Windows 98, Windows NT, Red Hat Linux, IBM O/S 390 and IBM Linux/390. WebLogic Server is designed so that the underlying hardware, operating system and database are transparent to the application—the application is written to WebLogic Server and does not need to be modified based on the underlying hardware, operating system or database. As a result, it is easy to migrate applications built on WebLogic Server from one underlying technology to another, or to deploy in a heterogeneous environment. For example, most WebLogic Server customers develop on Windows machines and deploy on Unix; some WebLogic Server customers deploy on several Unix servers, and use a mainframe as a system component to provide extra capacity for peak loads or as a backup site.

J2EE Services. WebLogic Server provides a robust implementation of the J2EE specification, including servlets, java server pages, enterprise java beans, java messaging services, java database connection, java transaction API and others. J2EE services provide access to standard network protocols, database and messaging systems.

Web Services. WebLogic Server seamlessly bridges J2EE and Web Services by enabling developers to automatically deploy Enterprise JavaBeans (“EJBs”) as Web Services with virtually no additional programming. WebLogic Server supports the key Web Services standards, including Simple Object Access Protocol (“SOAP”), Web Services Description Language (“WSDL”) and Universal Description, Discovery and Integration (“UDDI”).

System Management and Monitoring. WebLogic Server provides a powerful, Web-based administration console that provides systems administrators with tools needed to deploy, configure and monitor applications. Through the administration console, administrators can configure attributes of resources, deploy applications or components, monitor resource usage (such as server load, JVM memory usage, or database connection pool load), view log messages, shut down servers, and other management actions. WebLogic Server’s system management and monitoring capabilities are enhanced by complementary offerings from ISVs, such as BMC Software, Computer Associates, Hewlett-Packard, Mercury Interactive, NEON Systems, TeaLeaf Technology, Tivoli Software and Wily Technology.

Security. WebLogic Server provides a comprehensive security architecture encompassing access control cryptography-based privacy and user authentication. WebLogic Server also utilizes user and group-level access control lists, realms, secure socket layer, digital certificates and other standards-based security measures. Using these features, a developer can restrict access to WebLogic services through application logic when an application is being designed, or the system administrator can define how services are accessed after deployment. WebLogic Server can be incorporated into a single-sign-on solution by accessing existing security information stores, or it can operate independently. WebLogic Server’s security framework is enhanced by complementary offerings from ISVs such as Baltimore, Entegrity Solutions, Entrust Technology, Netegrity, Oblix, Pentasafe and RSA Data Security

BEA WebLogic Server 7.0 (in beta as of April 2002) includes new or enhanced features such as enhanced server performance, new graphical tools, wizard-driven server cluster configuration, and support for emerging standards, such as J2EE 1.3 (the latest version of the J2EE standard) and Web Services. This version also includes an enhanced security framework for authorization, authentication and auditing.

BEA Tuxedo. Tuxedo is a platform for enterprise-scale applications built using the C, C++ or COBOL programming languages, and also supports CORBA and XML. Tuxedo handles the underlying complexities of distributed, cross-platform application development, such as distributed transaction management, high availability, load balancing, transaction queuing, message queuing, event brokering and security. Tuxedo allows clients and servers to participate in a distributed transaction that involves coordinated updating of multiple databases. Tuxedo’s sophisticated transaction management helps ensure that all databases are updated properly, or will “roll-back” the databases to their prior state, assuring that data integrity is maintained despite component failures within complex computer systems. Tuxedo constantly monitors system components for application, transaction, network, and hardware failures. When a failure occurs, Tuxedo excludes the failed component from the system, manages any necessary recovery procedures, and re-routes messages and transactions to available systems—all transparent to the end-user and without disruption in service. Tuxedo manages unexpected high demand by automatically spawning and terminating application services as the system load dictates. Tuxedo balances the workload among all the available systems to minimize bottlenecks, whether the services are on the same component or spread across components. With data dependent routing, Tuxedo can route messages based on their context. This enables efficient transaction processing and higher levels of performance. Tuxedo enables connection of Internet clients to Tuxedo resources and to mainframes, as well as connection to applications built on WebLogic Server. Tuxedo supports a wide variety of platforms, such as Sun Solaris, HP-UX, IBM AIX, IBM OS/390, Microsoft Windows NT and 2000, Compaq Tru64, Red Hat Linux and Unisys SVR 4.

BEA WebLogic Workshop. BEA WebLogic Workshop, formerly known under the project name “Cajun,” is an integrated development framework for business application developers on the BEA WebLogic Platform. This framework is designed to accelerate software development by providing simplified abstractions to enable developers to build applications quickly and easily. WebLogic Workshop uses the concept of “controls” to simplify access to complex resources. For each control, developers simply set properties, call methods and handle events, rather than programming to an API. This enables developers to build Java applications and Web services without requiring the developer to learn all the complexities of those environments. WebLogic Workshop automates the complex coding required for Java and Web services, so the developer can focus on business logic and application features. WebLogic Workshop is designed to make J2EE easier to adopt for an estimated 9 million application developers worldwide who currently do not use Java, as well as simplifying tasks for an estimated 2 million professional developers. BEA WebLogic Workshop is in beta, with anticipated general availability in the first half of fiscal 2003.

BEA WebLogic Integration. WebLogic Integration offers a single solution that delivers application server, enterprise application integration (“EAI”), business process management, data integration and business-to-business integration functionality. WebLogic Integration supports the JCA, cXML, RosettaNet, EDI, XOCP and JMS standards, bringing a standards-based approach to the integration market. Based on WebLogic Server, WebLogic Integration allows EAI solutions that support complex transactions, bi-directional communication between applications, synchronous or asynchronous communication between applications, high reliability, high availability, caching and the other features of WebLogic Server. These features offer customers the ability to link separate enterprise systems, not only with each other but also with Web and wireless applications. Business process management, supported by WebLogic Integration, is the process of building rules that instruct a computer system in the series of actions to take, or applications to update, when an event occurs. As business processes change, or new applications are integrated into the system, the system can be modified relatively easily by simply modifying the business process rules, rather than modifying the applications themselves or the connections between applications. This allows customers to build broad, robust systems that are very flexible and easy to modify. Data integration features of WebLogic Integration include data translation and data transformation, enabling customers to make broader use of data across the company and across multiple

computing environments. WebLogic Integration also provides the infrastructure for business Web Services, which are multi-party, transactional, highly automated, Web-based interactions between applications. WebLogic Integration supports business-to-business integration, so that all of its features are available for systems that are integrated solely within a single organization, or between an organization and its suppliers, distributors or customers. Independent software vendors, system integrators, and other industry leaders that have announced support for BEA WebLogic Integration include Accenture, Actional, Arsin, Attunity, BroadVision, Calico, Cardonet, CEON, Chordiant, Clarity, Contivo, CSC, Electron Economy, EzCommerce, Infogain Corporation, Insevo, KPMG Consulting, Loudcloud, PeopleSoft, Peregrine Systems, Siebel, Stellcom, Sun Microsystems, and Vignette. In March 2002, WebLogic Integration was named runner-up in the Most Valuable Product category of the Java Pro Reader’s Choice Awards.

BEA WebLogic Portal. Enterprise portals enable a user to aggregate data and application functionality from several sources into a single screen or user interface. WebLogic Portal provides a framework for building enterprise portals, for internal, customer-facing or business-to-business purposes. Based on WebLogic Server for availability, transactions, security and other features, WebLogic Portal also makes it possible for an enterprise to deploy all applications with a common, personalized interface for customers, partners and employees, simplifying and improving their experience while lowering administrative costs and centralizing customer utilization information. WebLogic Portal includes an extensive set of features and enabling technologies, including portal configuration and administration tools, a unique rules-based entitlement engine, role-based personalization, reusable presentation software components, and a standards-based framework that supports JCA and Web Services. In February 2002, WebLogic Portal was named 2001 Technology of the Year in the portal software category by InfoWorld Magazine and in March 2002, WebLogic Portal was named Best Java Enterprise Portal in the Java Pro Reader’s Choice Awards.

Customers

The total number of customers and end users of our products and solutions is greater than 12,500 worldwide. Our target end-user customers are organizations with sophisticated, high-end information systems with numerous, often geographically-dispersed users and diverse, heterogeneous computing environments. Typical customers are mainframe-reliant, have large-scale client/server implementations that handle very high volumes of business transactions, or have Web-based applications with large and unpredictable usage volumes. No customer accounted for more than 10 percent of total revenues in any of the fiscal years 2002, 2001 or 2000.

A representative list of BEA customers includes:

Financial Services. Axa, BACS, Bank of New York, Bear Stearns, Bombay Stock Exchange, Charles Schwab, China Construction Bank, Citicorp, Credit Suisse Group, Depository Trust Company, Deutsche Bank, E*Trade, Fannie Mae, Ford Motor Credit, Franklin Templeton, GE Capital, JP Morgan Chase, Lehman Brothers, Marsh & McLennan, Merrill Lynch, Mizuho Securities, Morgan Stanley Online, Nasdaq, Nordea, Prudential Group, Societe Generale, SWIFT, The Hartford, TIAA-CREF, United Overseas Bank (Singapore) and Wells Fargo

Telecommunications. AT&T, BellSouth, British Telecomm, China Telecom, Cingular Wireless, DirecTV, Nextel, NTT DoCoMo, Sprint, Sprint PCS, Telecom Italia, Telia Mobile, Verizon, Virgin Mobile and Vodafone

Manufacturing. BMW, BP Amoco, DuPont, GE Power Systems, Honeywell International, Kuwait Petroleum, Lockheed Martin, Motorola, Network Appliances, Pentax, Pepsico, Texas Instruments, Toshiba American Business Solutions, Toyota Motor Sales and Vattenfall

Services and Retail. Amazon.com, American Airlines, American President Lines, AOL/TimeWarner, Bertelsmann, China Post, Cox Interactive Media, Delta Airlines, DHL, Electronic Arts, FedEx, Financial Times, Knight Ridder, NCS Pearson, Northwest Airlines, Sony, United Airlines, United Parcel Service, Universal Music Group and Vivendi

Government. EUCARIS, Italian Ministry of Finance, Republic of Ireland, UK Companies House, UK Employment Service, UK HM Customs and Excise, UK Inland Revenue, US Bureau of Labor and Statistics, US Central Intelligence Agency, US Defense Information Systems Agency, US Defense Logistics Agency, US Federal Bureau of Investigation, US General Services Administration and US National Security Agency

Healthcare/Medicine. 3M Health Information Systems, AstraZeneca, Blue Cross/Blue Shield, Incyte Genomics, McKesson, Medtronic, Ortho-McNeil Pharmaceutical, Pfizer, PSS World Medical and Sapient Health Network

Sales and Marketing

Our sales strategy is to pursue opportunities worldwide within large organizations and organizations that are establishing e-businesses, through our direct sales, services and technical support organizations, complemented by indirect sales channels such as hardware OEMs, ISVs, ASPs and SIs. We currently intend to continue to add to our direct sales and support organizations in major worldwide markets, as well as investing in building our indirect distribution channel through relationships with SIs, packaged application developers and others.

Direct Sales Organization. We market our software and services primarily through our direct sales organization. As of January 31, 2002, we had approximately 2,100 employees in consulting, training, sales, support and marketing, including over 660 quota-bearing sales representatives, located in 93 offices in 34 countries. We are currently investing in building our direct sales capacity by hiring experienced enterprise sales and technical sales support personnel. The Company typically uses a consultative, solution-oriented sales model that entails the collaboration of technical and sales personnel to formulate proposals to address specific customer requirements, often in conjunction with hardware, software and services providers. Because the Company’s solutions are typically used as a platform or integration tool for initiatives and applications that are critical to a customer’s business, the Company focuses its initial sales efforts on senior executives and information technology department personnel who are responsible for such initiatives and applications.

Targeting Developers. We also market our software directly to system and application developers. We make available trial developer copies of many of our products available for free download over our Web site. In addition, we periodically provide developer training and trial licenses through technical seminars in various locations worldwide. We also maintain a developers’ Web site, with approximately 360,000 registered developers as of the end of fiscal 2002. The developers’ Web site is designed to create a community among developers who use our products, providing a forum to exchange technical information and sample code, as well as feedback to us on our products and industry directions that we should pursue. With the introduction of BEA WebLogic Workshop, we believe that the addressable developer market for our products is now approximately 11 million developers, compared to an addressable market of approximately 2 million developers prior to WebLogic Workshop.

Strategic Relations. An important element of our sales and marketing strategy is to expand our relationships with third parties and strategic allies to increase the market awareness, demand and acceptance of BEA and our solutions. Allies have often generated and qualified sales leads, made initial customer contacts, assessed needs, recommended use of BEA solutions prior to our introduction to the customer, and introduced BEA at high levels within the customer organization. A strategic ally can provide customers with additional resources and expertise, especially in vertical or geographic markets in which the partner has expertise, to help meet customers’ system definition and application development requirements. Types of strategic alliances include:

System platform companies. Our allies often act as resellers of BEA solutions, either under the BEA product name or integrated with the platform vendor’s own software products, or recommend BEA products to their customers and prospects. In July 2001, we announced a significant relationship with Intel, under which BEA and Intel are jointly working to optimize BEA technology on Intel chip sets.

Packaged application software developers. We license our software to packaged application software vendors. These vendors build on BEA software as an infrastructure for the applications they supply, giving these applications improved reliability, increased scalability and portability across all hardware, operating systems and databases on which the BEA platform runs. Customers can also easily integrate other applications built using our solutions with these packaged applications.

Application service providers. ASPs buy and maintain the hardware, infrastructure software and application software necessary for Web sites and e-businesses, and rent access to these systems to their customers, primarily small and medium sized businesses, who do not have the resources or the desire to buy and maintain these systems themselves. We license our software to ASPs who use it as an exclusive or optional feature in their systems.

Systems integrators and independent consultants. SIs often refer their customers to BEA, utilize us as a subcontractor in some situations, and build custom solutions on our products. We also work cooperatively with independent consulting organizations, often being referred to prospective customers by services organizations with expertise in high-end transactional applications.

Distributors. To supplement the efforts of our direct sales force, BEA uses software distributors to sell our products in Europe, Asia, Latin America and, to a lesser degree, North America.

To date, we have signed up more than 2,100 partners and alliances, including leading SIs such as Accenture, Cap Gemini Ernst & Young, CSC, Deloitte Consulting, EDS, KPMG Consulting, PricewaterhouseCoopers and SchlumbergerSema. Hardware OEMs include Compaq, Dell, Ericsson, Hewlett-Packard, Intel and Nokia. ISV partners build applications on our infrastructure, or provide solutions that complement and complete our product. Our ISVs include solution providers in several categories:

Packaged Applications. Agile, AMDOCS, Ariba, Bertelsmann mediaSystems, Chordiant, CommerceOne, eGain, E.piphany, i2 Technologies, JD Edwards, Kana, Lawson, Manugistics, MatrixOne, MRO Software, PeopleSoft, SunGard Data Systems and Yantra

Integration. Attachmate, Contivo, Cyclone Commerce, Peregrine, Siperian and Software AG

Development and Deployment. Borland, Bowstreet, Macromedia, Rational, TogetherSoft and WebGain

Operations, Administrations and Management. BMC Software, Computer Associates, Hewlett-Packard, Mercury Interactive, NEON Systems, TeaLeaf Technology, Tivoli Software and Wily Technology

Portal. air2web, Alphablox, Autonomy, Business Objects, Clickmarks, Cognos, Divine, Documentum, FatWire, Informatica, Interwoven, Screaming Media, Stellent, Verity, Vignette and WebEx

Security. Baltimore, Entegrity Solutions, Entrust Technology, Netegrity, Oblix, Pentasafe and RSA Data Security

ASPs. AT&T Managed Services, C&W Optus, Digex, Divine, Exodus, Intel Online Services and LoudCloud

Services. We believe that our services organization plays an important role in facilitating initial license sales and enabling customers to successfully architect, design, develop, deploy and manage systems and applications. Our services revenue comes from customer support or maintenance fees, as well as fees for consulting and training services.

Customer Support. Fees for customer support are generally charged on an annual subscription basis, and vary by the level of support the customer chooses. BEA offers support via telephone, Web, e-mail and fax. In addition, customer support fees entitle the customer to certain product upgrades and maintenance updates. BEA support is available 24 hours per day, with support centers located around the world. BEA offers enhanced, mission-critical support, which features priority call response, personalized case

monitoring and escalation management, release/patch management planning and migration assessment planning. In addition, BEA offers customized support options, allowing the customer to tailor BEA’s support offerings to their specific needs.

Consulting Services. Fees for consulting services are generally charged on a time and materials basis and vary depending upon the nature and extent of services to be performed. Our services organization works directly with end user customers and also with SIs, to provide a variety of consulting services. Consulting services we offer include application development, application migration, integration validation, architectural assessment and architectural validation.

Education Services. We offer introductory and advanced classes and training programs. We also offer a certification program, and we are a sponsor member of jCert. The jCert initiative was created to establish and promote industry standards for certification of enterprise developers using Java technology. Our training and certification programs are offered at our offices, customer sites and training centers worldwide, as well as over the Internet. These programs cover the use of BEA products and are designed for end user customers, SIs and packaged application developers. In addition, we offer a mentoring program as a follow-on to our training programs or as an approach to customized training. Fees for education services are generally charged on a per-class or per-engagement basis.

Marketing. Our marketing efforts are directed at broadening the demand for BEA products and solutions by increasing awareness of the benefits of using our products to build mission-critical distributed and Web-based applications. Marketing efforts are also aimed at supporting our worldwide direct and indirect sales channels. Marketing personnel engage in a variety of activities including conducting public relations and product seminars, issuing newsletters, sending direct mailings, preparing sales collateral and other marketing materials, coordinating the Company’s participation in industry trade shows, programs and forums, and establishing and maintaining relationships with recognized industry analysts and press. Our senior executives are frequent speakers at industry forums in many of the major markets we serve.

Customer and Distributor Support

We believe that a high level of customer support is integral to the successful marketing and sale of BEA solutions. Mission-critical applications require rapid support response and problem resolution. Our worldwide support and sales presence enhances our ability to rapidly respond, and to handle support in local languages, which we believe gives us an advantage over many of our competitors. We offer a variety of support offerings. Broad support offerings such as 7x24 support contracts are also available, typically on an annual fee basis. Telephone hot line support is offered worldwide at either a standard or around-the-clock level, depending on customer requirements. We maintain product and technology experts on call at all times worldwide and have support call centers located in San Jose, California; Paris, France; Yokohama, Japan; Seoul, Korea and Brisbane, Australia.

Competition

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. In addition, 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 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 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, software and related service 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.

Product Development

Our total research and development expenses were approximately $120.9 million, $89.2 million and $61.0 million in fiscal 2002, 2001 and 2000, respectively. 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 products and Web Services features), respond to changing customer requirements, and develop and introduce in a timely manner new products (such as our WebLogic Portal, WebLogic Integration and WebLogic Workshop products) that keep pace with technological and market developments and emerging industry standards. 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, or lack of customer acceptance of our products, will materially and adversely affect our business, results of operations and financial condition. In addition, our success is increasingly 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.

Intellectual Property and Licenses

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.

Employees

As of January 31, 2002, we had approximately 3,116 full-time employees, including 586 in research and development, 2,135 in consulting, training, sales, support and marketing and 395 in administration. None of our employees are represented by a collective bargaining agreement, and we have never experienced any work stoppage. We consider our relations with our employees to be good.

ITEM 2. PROPERTIES.

Our corporate offices and those related to product development, corporate marketing and administrative functions, totaling approximately 224,000 square feet, are located in San Jose, California under leases expiring in 2008. We have subleased approximately 10,000 square feet of such offices. We also lease office space in various locations throughout the United States for sales, support and development personnel, and BEA’s foreign subsidiaries lease space for their operations. We own substantially all of the equipment used in our facilities, except equipment held under capitalized lease arrangements. We believe our existing facilities will be adequate to meet our anticipated needs for the foreseeable future. In 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 offices to have constructed additional corporate offices and research and development facilities. See Note 17 of the Notes to our Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors that May Impact Future Operating Results—We have a real estate leasing structure, which could result in substantial charges to our consolidated statement of operations, a substantial increase in liabilities on our consolidated balance sheet and substantial cash payments” for information regarding and risks related to the Company’s lease agreements and obligations in fiscal 2002.

ITEM 3. LEGAL PROCEEDINGS.

We are not currently party to any material legal proceedings, however we are periodically subject to legal proceedings and claims that arise in the ordinary course of our 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 is uncertain. Were an unfavorable outcome to occur, or if protracted litigation were to ensue, the impact could be material to the Company.

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

No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2002.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

Since our initial public offering on April 11, 1997, the Company’s common stock has traded on the Nasdaq National Market under the symbol “BEAS.” According to the Company’s transfer agent, the Company had approximately 854 stockholders of record as of March 29, 2002. Because many of such shares are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of stockholders represented by these record holders.

The following table sets forth the high and low sales prices, as adjusted to reflect the two-for-one stock split on April 24, 2000, reported on the Nasdaq National Market for BEA common stock for the periods indicated:

	Low		High
Fiscal year ended January 31, 2002:
Fourth Quarter	$	11.38	$	22.50
Third Quarter		8.94		25.08
Second Quarter		19.01		44.00
First Quarter		20.19		68.13
Fiscal year ended January 31, 2001:
Fourth Quarter	$	41.75	$	84.13
Third Quarter		41.00		89.50
Second Quarter		29.38		62.50
First Quarter		25.50		78.88

The Company has never declared or paid any cash dividends on its common stock. The Company currently intends to invest cash generated from operations, if any, to support the development of its business and does not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Company’s Board of Directors after taking into account various factors, including the Company’s financial condition, operating results and current and anticipated cash needs.

On each of December 19, 1999 and April 24, 2000, the Company effected two-for-one common stock splits in the form of stock dividends. All common stock share information and per share amounts in this Annual Report on Form 10-K have been retroactively adjusted to reflect the effects of the stock splits.

During the fourth quarter of fiscal 2002, in connection with the acquisition of Westside.com Incorporated, effective January 15, 2002, the Company issued 681,709 shares of its common stock, valued at $18.78 per share. The shares were issued in reliance on Section 4(2) of the Securities Act of 1933, as amended.

ITEM 6. SELECTED FINANCIAL DATA.

The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K.

	As of or for the fiscal year ended January 31,
	2002			2001		2000			1999(1)			1998(1)
	(in thousands, except per share data)
Total revenues	$	975,893		$	819,760	$	464,410		$	289,042		$	166,447
Total asset impairment charges (2)		80,150			—		—			—			—
Total facilities consolidation and severance charges (3)		40,453			—		—			—			—
Net income (loss)		(35,678	)		17,082		(19,574	)		(51,582	)		(22,912	)
Net income (loss) per share:
Basic		(0.09	)		0.05		(0.06	)		(0.18	)		(0.11	)
Diluted		(0.09	)		0.04		(0.06	)		(0.18	)		(0.11	)
Total assets		1,659,951			1,592,336		1,258,841			403,011			174,203
Long-term obligations (4)		553,135			564,082		578,489			250,112			766

(1)

Restated to include the results of Leader Group, Inc. and WebLogic, Inc., which were acquired in pooling of interests transactions. In addition, all share and per-share amounts have been restated to reflect the two-for-one common stock splits on each of December 19, 1999 and April 24, 2000.

(2)

Total asset impairment charges of $80,150 recorded in fiscal 2002 were related to the impairment of certain acquired intangible assets and goodwill, $7,082 of which was recorded as a cost of revenues and $73,068 of which was recorded as operating expenses.

(3)

Of the total facilities consolidation and severance charges of $40,453 recorded in fiscal 2002, $2,461 was recorded as cost of revenues and $37,992 was recorded as operating expenses.

(4)

Excludes any long-term deferred tax liabilities.

No cash dividends have been declared or paid and no redeemable preferred stock was outstanding in any period presented.

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

Overview

BEA is the world’s leading application infrastructure software provider. BEA’s WebLogic Enterprise Platform^™ delivers a highly reliable, scalable software infrastructure for customers to bring new services to market quickly, to lower operational costs by automating processes, and to automate relationships with suppliers and distributors. 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 telecommunications, commercial and investment banking, securities trading, software, airlines, services, retail, manufacturing, package delivery, insurance and government. The BEA WebLogic Platform^™ provides application 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, integration tool or portal framework 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.

Seasonality. 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 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.

Investment in Distribution Channels. 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, original equipment manufacturers, and distributors. The goals of this program are (1) to increase the revenue contribution from indirect sources from approximately 20 percent prior to the program to approximately 40 percent in fiscal 2005, and (2) to increase the number of projects we can address by increasing the pool of consultants available to assist customers with application development and deployment. In fiscal 2002, approximately 31 percent of our revenue was influenced by indirect sources, which is within our expected progress toward our goal. At inception of the program, we estimated that approximately 2,000 independent consultants had been trained on BEA software. As of January 31, 2002, we estimate that a total of approximately 11,000 consultants had been trained on our software. Although results of our investment in indirect distribution channels to date have met our goals, there can be no assurance that SIs, ISVs and other third parties will continue to use or recommend our products.

Investment in Developer Programs. Our products are a platform for Java application development, both packaged applications built and sold by ISVs and custom applications built by our customers and SI partners. Success in a platform market requires that a large number of developers are trained on and actively using our platform. As a result, we have made a substantial investment in building programs to attract and retain Java developers. In addition, BEA WebLogic Workshop, which is currently in beta, is designed to allow developers who are not trained in Java, such as developers who primarily use Visual Basic, Power Builder or COBOL, to quickly and easily become productive in Java and on WebLogic Server. As a result, we are investing in programs to go beyond the community of Java developers and attract developers currently using non-Java platforms. There can be no assurance that our investment in these programs will be successful.

Acquisitions. Throughout our history, we have acquired product lines, development teams, distributors and companies to expand our business. Our strategy is to continue to grow our business through acquisitions. Primarily, our acquisition strategy focuses on using cash or stock to purchase small development teams that we believe can build features or products that complement or expand our products. Although our strategy is to avoid acquisitions of large companies, measured in purchase price, revenue or number of employees, there can be no assurance that we will not acquire a large company. For large or small acquisitions, there can be no assurance that the acquisition (1) will not be dilutive to earnings, (2) will be successfully integrated into our company, or (3) that product development will be completed and integrated successfully. In addition, the price paid for any acquisition is subject to negotiation between the parties, and the valuation of potential acquisition targets is not an exact science. As a result, there can be no assurance that any acquisitions will be done at a correct valuation.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgements that significantly affect the reported amounts of assets, liabilitie