UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO 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)
(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 ¨
Indicate by check mark whether Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of May 31, 2004, there were approximately 407,190,421 shares of the Registrant’s common stock outstanding.
BEA SYSTEMS, INC.
| Page No. | ||||
| PART I.
FINANCIAL INFORMATION | ||||
| Item 1. |
Condensed Consolidated Financial Statements (Unaudited): |
|||
| 3 | ||||
| Condensed Consolidated Balance Sheets as of April 30, 2004 and January 31, 2004 |
4 | |||
| Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2004 and 2003 |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14 | ||
| Item 3. |
37 | |||
| Item 4. |
39 | |||
| PART II.
OTHER INFORMATION | ||||
| Item 2. |
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
42 | ||
| Item 6. |
42 | |||
| 43 | ||||
2
PART I. FINANCIAL INFORMATION
| ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
BEA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(Unaudited)
| Three months ended April 30, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues: |
||||||||
| License fees |
$ | 120,152 | $ | 122,339 | ||||
| Services |
142,483 | 114,955 | ||||||
| Total revenues |
262,635 | 237,294 | ||||||
| Cost of revenues: |
||||||||
| Cost of license fees |
6,471 | 5,897 | ||||||
| Cost of services |
48,981 | 46,817 | ||||||
| Amortization of certain acquired intangible assets |
3,228 | 5,017 | ||||||
| Total cost of revenues |
58,680 | 57,731 | ||||||
| Gross profit |
203,955 | 179,563 | ||||||
| Operating expenses: |
||||||||
| Sales and marketing |
100,611 | 91,909 | ||||||
| Research and development |
34,942 | 34,830 | ||||||
| General and administrative |
21,615 | 18,610 | ||||||
| Facilities consolidation |
7,665 | — | ||||||
| Total operating expenses |
164,833 | 145,349 | ||||||
| Income from operations |
39,122 | 34,214 | ||||||
| Interest and other, net: |
||||||||
| Interest expense |
(7,285 | ) | (5,543 | ) | ||||
| Net loss on sale of equity investments |
— | (198 | ) | |||||
| Interest income and other, net |
4,354 | 6,463 | ||||||
| Total interest and other, net |
(2,931 | ) | 722 | |||||
| Income before provision for income taxes |
36,191 | 34,936 | ||||||
| Provision for income taxes |
10,857 | 10,481 | ||||||
| Net income |
25,334 | 24,455 | ||||||
| Other comprehensive income: |
||||||||
| Foreign currency translation adjustments |
301 | 83 | ||||||
| Unrealized loss on available-for-sale investments, net of income taxes |
(1,576 | ) | (221 | ) | ||||
| Comprehensive income |
$ | 24,059 | $ | 24,317 | ||||
| Net income per share: |
||||||||
| Basic |
$ | 0.06 | $ | 0.06 | ||||
| Diluted |
$ | 0.06 | $ | 0.06 | ||||
| Number of shares used in per share calculations: |
||||||||
| Basic |
409,660 | 402,710 | ||||||
| Diluted |
425,840 | 419,130 | ||||||
See accompanying notes to condensed consolidated financial statements.
3
BEA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
| April 30, 2004 |
January 31, 2004 |
|||||||
| Assets | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 707,940 | $ | 683,729 | ||||
| Restricted cash |
1,633 | 1,583 | ||||||
| Short-term investments |
851,248 | 783,288 | ||||||
| Accounts receivable, net |
205,815 | 268,526 | ||||||
| Other current assets |
39,773 | 32,480 | ||||||
| Total current assets |
1,806,409 | 1,769,606 | ||||||
| Property and equipment, net |
354,692 | 358,497 | ||||||
| Goodwill, net |
56,100 | 56,100 | ||||||
| Acquired intangible assets, net |
12,768 | 15,997 | ||||||
| Long-term restricted cash |
5,380 | 3,880 | ||||||
| Other long-term assets |
15,695 | 16,109 | ||||||
| Total assets |
$ | 2,251,044 | $ | 2,220,189 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 10,575 | $ | 18,534 | ||||
| Accrued facilities consolidation charges |
15,237 | 9,847 | ||||||
| Accrued payroll and related liabilities |
49,946 | 61,155 | ||||||
| Accrued income taxes |
47,248 | 43,725 | ||||||
| Accrued liabilities |
80,028 | 74,968 | ||||||
| Deferred revenues |
267,966 | 273,879 | ||||||
| Accrued liabilities related to land lease |
19,656 | 19,656 | ||||||
| Deferred tax liabilities |
— | 600 | ||||||
| Current portion of notes payable |
494 | 493 | ||||||
| Total current liabilities |
491,150 | 502,857 | ||||||
| Deferred tax liabilities |
23 | 1,522 | ||||||
| Notes payable and other long-term obligations |
4,125 | 4,033 | ||||||
| Long-term debt related to land lease |
191,639 | 191,639 | ||||||
| Convertible subordinated notes |
550,000 | 550,000 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock |
411 | 408 | ||||||
| Additional paid-in capital |
1,131,039 | 1,112,703 | ||||||
| Treasury stock, at cost |
(123,303 | ) | (123,303 | ) | ||||
| Retained earnings (deficit) |
6,333 | (19,001 | ) | |||||
| Deferred compensation |
(8,891 | ) | (10,462 | ) | ||||
| Accumulated other comprehensive income |
8,518 | 9,793 | ||||||
| Total stockholders’ equity |
1,014,107 | 970,138 | ||||||
| Total liabilities and stockholders’ equity |
$ | 2,251,044 | $ | 2,220,189 | ||||
See accompanying notes to condensed consolidated financial statements.
4
BEA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Three months ended April 30, |
||||||||
| 2004 |
2003 |
|||||||
| Operating activities: |
||||||||
| Net income |
$ | 25,334 | $ | 24,455 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
6,739 | 7,297 | ||||||
| Amortization of deferred compensation |
1,571 | 2,266 | ||||||
| Amortization of acquired intangible assets |
3,228 | 5,017 | ||||||
| Tax benefit from exercise of stock options |
6,300 | 9,824 | ||||||
| Facilities consolidation |
6,859 | — | ||||||
| Changes in operating assets and liabilities |
28,742 | (13,922 | ) | |||||
| Other |
3,352 | 5,560 | ||||||
| Net cash provided by operating activities |
82,125 | 40,497 | ||||||
| Investing activities: |
||||||||
| Purchases of property and equipment |
(2,690 | ) | (3,961 | ) | ||||
| Payments for acquisitions, net of cash acquired |
(200 | ) | (4,129 | ) | ||||
| Purchases of available-for-sale short-term investments |
(348,884 | ) | (145,582 | ) | ||||
| Proceeds from maturities of available-for-sale short-term investments |
49,793 | 30,800 | ||||||
| Proceeds from sales of available-for-sale short-term investments |
226,002 | 119,318 | ||||||
| Other |
(47 | ) | 353 | |||||
| Net cash used in investing activities |
(76,026 | ) | (3,201 | ) | ||||
| Financing activities: |
||||||||
| Increase in restricted cash for collateral on land lease transaction |
— | (21,226 | ) | |||||
| Net proceeds received for employee stock purchases |
19,389 | 9,836 | ||||||
| Purchases of treasury stock |
— | (51,999 | ) | |||||
| Net cash provided by (used in) financing activities |
19,389 | (63,389 | ) | |||||
| Net increase (decrease) in cash and cash equivalents |
25,488 | (26,093 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents |
(1,277 | ) | 447 | |||||
| Cash and cash equivalents at beginning of period |
683,729 | 578,717 | ||||||
| Cash and cash equivalents at end of period |
$ | 707,940 | $ | 553,071 | ||||
See accompanying notes to condensed consolidated financial statements.
5
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 presented. 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, 2004. The results of operations for the three months ended April 30, 2004 are not necessarily indicative of the results to be anticipated for the entire fiscal year ending January 31, 2005 (“fiscal 2005”).
The condensed consolidated balance sheet at January 31, 2004 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.
Principles of consolidation
The condensed consolidated financial statements include the accounts of the Company and all subsidiaries. The Company also consolidated as of August 2003 a variable interest entity of which the Company is the primary beneficiary pursuant to Financial Accounting Standards Board (or FASB) Interpretation No. 46R (“FIN 46R”), a revision to Interpretation 46, “Consolidation of Variable Interest Entities,” an interpretation of Accounting Research Bulletin No. 51. Material intercompany accounts and transactions have been eliminated.
Use of estimates
The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ materially from those estimates.
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 the basic elements of software revenue recognition have been established (i.e. persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable, and collection 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 vendor specific 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, all revenue is deferred and recognized when delivery of those elements occurs or when fair value can be established.
When licenses are sold together with services, license fees are recognized upon delivery, provided that (1) the basic elements of software revenue recognition have been met, (2) payment