Quarterly Report on Form 10-Q for the Period Ended July 31, 2007

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 the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨ No x

As of October 31, 2007, there were approximately 398,272,000 shares of the registrant’s common stock outstanding.

The condensed consolidated financial statements included herein are unaudited and reflect all adjustments (consisting 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. (referred herein as “we”, “us”, “BEA” or the “Company”) Annual Report on Form 10-K for the fiscal year ended January 31, 2007. The results of operations for the three and six months ended July 31, 2007 are not necessarily indicative of the results to be anticipated for the entire fiscal year ending January 31, 2008 (“Fiscal 2008”) or thereafter.

The condensed consolidated balance sheet at January 31, 2007 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.

The condensed consolidated financial statements include the accounts of the Company and all subsidiaries. Intercompany accounts and transactions have been eliminated. The operating results of businesses acquired and accounted for as a purchase are included from the date of their acquisition.

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.

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 criteria of software revenue recognition have been met: (1) persuasive evidence of an agreement exists, (2) delivery of the product has occurred, (3) the fee is fixed or determinable, and (4) 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 objective 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 license 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 has occurred or when fair value is established.

Vendor specific objective evidence of the fair value of maintenance is determined by the price paid by the Company’s customers when maintenance is sold separately (i.e., the prices paid by the customers in connection with renewals). Vendor specific objective evidence of fair value of consulting services and education is based on the price when sold separately.

When licenses are sold together with consulting services, license fees are recognized upon delivery, provided that (1) the basic criteria of software revenue recognition have been met, (2) payment of the license fees is not dependent upon the performance of the consulting services, and (3) the consulting services do not provide significant customization of the software products and are not essential to the functionality of the software that was delivered. The Company does not normally provide significant customization of its software products.

Revenue arrangements with extended payment terms are generally considered not to be fixed or determinable and, the Company generally does not recognize revenue on these arrangements until the customer payments become due and all other revenue recognition criteria have been met. In certain countries where collection risk is considered to be high, such as certain Latin American, Asian and Eastern European countries, revenue is generally recognized upon receipt of cash, and in some cases, evidence of delivery to the end user when the sale is made through a distributor.

In addition to our direct sales force, the Company has a number of partnerships that represent an indirect channel for license revenues, including system platform companies, packaged application software developers, application service providers, system integrators and independent consultants and distributors. Fundamentally, partners who resell our products either embed or do not embed (i.e., “bundle”) our software into their own software products. Partners who embed our

software are referred to as embedded Independent Software Vendors (“ISVs”), and revenue is recognized upon delivery of our software to the partner assuming all other revenue recognition criteria have been met. Partners who do not embed our software are generally referred to as Resellers. Due to the risk of concessions regarding transactions with Resellers, the Company recognizes revenue once persuasive evidence of sell through to an end user is received and all other revenue recognition criteria have been met. The Company’s partner license agreements do not provide for rights of return.

Services revenue includes revenues for consulting services, education and customer support and maintenance. Consulting services revenue and the related cost of services are generally recognized on a time and materials basis. BEA’s consulting arrangements do not include significant customization of the software since the software is essentially a pre-packaged “off the shelf” platform that applications are built on or attached to. Customer support and maintenance agreements provide technical support and the right to unspecified future upgrades on an if-and-when available basis. Customer support and maintenance revenues are recognized ratably over the term of the support period (generally one year). Education services revenue are recognized as the related training services are delivered.

The Company occasionally purchases software products from vendors who are also customers. These transactions have not been frequent. In such transactions involving the exchange of software products, fair value of the software sold and purchased generally cannot be reasonably estimated. As a result, in most cases the Company records such transactions at carryover (i.e. net) basis.

Accounts receivable are stated at cost, net of allowances for doubtful accounts. The Company makes judgments as to its ability to collect outstanding receivables and records allowances when collection becomes doubtful due to liquidity and non-liquidity concerns. The allowance includes both (1) an estimate for uncollectible receivables due to customers’ financial liquidity concerns and (2) an estimate for uncollectible receivables due to non-liquidity types of concerns. The allowance charges associated with non-liquidity concerns are recorded as reductions to revenue and allowance charges associated with liquidity concerns are recorded as general and administrative expenses. These estimates are based on assessing the credit worthiness of our customers based on multiple sources of information and analysis of such factors as our historical collection experience, collection experience within our industry, industry and geographic concentrations of credit risk, and current economic trends.

The accounts receivable aging is reviewed on a regular basis and write-offs are recorded on a case by case basis net of any amounts that may be collected.

The Company periodically assesses, in accordance with the provisions of Statement of Financial Accounting Standards No. 144 (“FAS 144”), Accounting for the Impairment and Disposal of Long-Lived Assets, potential impairment of its long-lived assets with estimable useful lives. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers important that could trigger an impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for the Company’s overall business, and significant industry or economic trends. If the Company determines that the carrying value of the long-lived assets may not be recoverable based upon the existence of one or more of the above indicators, the Company determines the recoverability by comparing the carrying amount of the asset to net future undiscounted cash flows that the asset is expected to generate. The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the asset.

Goodwill represents the excess of the purchase price over the fair value of net tangible and identified intangible assets acquired in business combinations. Goodwill is not amortized but is evaluated at least annually for impairment or when a change in facts and circumstances indicate that the fair value of the goodwill may be below its carrying value.

The Company tests goodwill for impairment in accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“FAS 142”). Under FAS 142, goodwill is tested for impairment in a two-step process. First, we determine if the carrying amount of our Reporting Unit exceeds the “fair value” of the Reporting Unit, which may initially indicate that goodwill could be impaired. If we determine that such impairment could have occurred, we would compare the “implied fair value” of the goodwill as defined by FAS 142 to its carrying amount to determine the impairment loss, if any.

In fiscal 2002 and fiscal 2005, we recorded a facilities consolidation charge for our estimated future lease commitments on excess facilities, net of estimated future sublease income. The estimates used in calculating the charge are reviewed on a quarterly basis and would be revised if estimated future vacancy rates and sublease rates varied from our original estimates. To the extent that our new estimates vary adversely from our original estimates, we may incur additional losses that are not included in the accrued balance at July 31, 2007. Conversely, unanticipated improvements in vacancy rates or sublease rates, or termination settlements for less than our accrued amounts, may result in a reversal of a portion of the accrued balance and a benefit on our statement of income in a future period. The maximum future cost associated with these excess facilities, assuming that no future sublease income is realized on these properties, other than for subleases that have been executed prior to July 31, 2007, and assuming that the landlords are unwilling to negotiate early lease termination arrangements, is estimated to be $9.5 million, which exceeds the accrued balance at July 31, 2007 by $1.3 million.

Realization of our deferred tax assets is primarily dependent on future U.S. taxable income. FAS 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. As a result of recent U.S. operating results, as well as U.S. jurisdictional forecasts of taxable income, we believe that net deferred tax assets in the amount of $226 million are realizable based on the “more likely than not” standard required for recognition.

BEA is a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. The Company’s provision for income taxes is based on jurisdictional mix of earnings, statutory rates, and enacted tax rules, including transfer pricing. Significant judgment is required in determining the Company’s provision for income taxes and in evaluating its tax positions on a worldwide basis. The Company believes its tax positions, including intercompany transfer pricing policies, are consistent with the tax laws in the jurisdictions in which it conducts its business. It is possible that these positions may be challenged, which may have a significant impact on the Company’s effective tax rate.

We are required to allocate the purchase price of acquired companies to the tangible and intangible assets acquired, liabilities assumed, as well as in-process research and development (“IPR&D”) based on their estimated fair values. We engage independent third party appraisal firms to assist us in determining the fair values of certain assets acquired and liabilities assumed for significant acquisitions. This valuation requires management to make significant estimates and assumptions, especially with respect to long-lived and intangible assets. Intangible assets are amortized using the straight-line method.

Critical estimates in valuing certain of the intangible assets include but are not limited to: future expected cash flows from license sales, maintenance agreements, consulting contracts, customer contracts and acquired developed technologies and patents; expected costs to develop the IPR&D into commercially viable products and estimating cash flows from the projects when completed; the acquired company’s brand awareness and market position, as well as assumptions about the period of time the brand will continue to be used in the combined company’s product portfolio; and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable and based on historical experience and information obtained from the management of the acquired companies; however, these assumptions are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

The fair value of the deferred support obligation is based, in part, on a valuation completed by a third party appraiser using estimates and assumptions provided by management. The estimated fair value of the support obligation is determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the costs relating to

fulfilling the obligation plus a normal profit margin. The sum of the costs and operating profit approximates, in theory, the amount that the Company would be required to pay a third party to assume the support obligation. The estimated costs to fulfill the support obligation were based on the historical direct costs related to providing the support services and to correct any errors in the acquired company’s software products. We do not include any costs associated with selling efforts or research and development or the related fulfillment margins on these costs. Profit associated with selling effort is excluded because acquired companies conclude the selling effort on the support contracts prior to the acquisition date. The estimated research and development costs are not included in the fair value determination, as these costs are not deemed to represent a legal obligation at the time of acquisition.

IPR&D represents incomplete research and development projects that had not reached technological feasibility and had no alternative future use when a company is acquired. Technological feasibility is established when an enterprise has completed all planning, design, coding and testing activities that are necessary to establish that a product can be produced to meet its design specifications including functions, features and technical performance requirements. The value assigned to IPR&D is determined by considering the importance of the project to the overall development plan, estimating cost to develop the acquisition related IPR&D into commercially viable products, estimating the resulting net cash flows from the project when completed and discounting the net cash flows to their present value based on the percentage of completion of the IPR&D project.

In addition, other estimates associated with the accounting for these acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed. In particular, liabilities to restructure the pre-acquisition organization, including workforce reductions are subject to change as management completes its assessment of the pre-merger operations and begins to execute the approved plan. These assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur.

In September 2006, the FASB issued FAS No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in Generally Accepted Accounting Principles (“GAAP”), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Financial Accounting Standards Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We will adopt this statement effective February 1, 2008. We do not believe the adoption of FAS 157 will have a material impact on our consolidated financial position, results of operations and cash flows

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FAS 109, Accounting for Income Taxes (“FIN 48”), to create a single model to address accounting for uncertainty of tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting for interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 as of February 1, 2007, as required. Upon initial adoption, the cumulative effect of applying the provisions of FIN 48 is an increase in tax liabilities of $9.9 million. This was reported as an adjustment to the opening balance of retained earnings. There may be an increase in the effective income tax rate in future years along with greater volatility due to the adoption of FIN 48.

In September 2006, the FASB issued FAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—An Amendment of FASB No. 87, 88, 106 and 132(R) (“FAS 158”). FAS 158 requires that the funded status of defined benefit postretirement plans be recognized on the company’s balance sheet, and changes in the funded status be reflected in comprehensive income, effective fiscal years ending after December 15, 2006, which we adopted effective February 1, 2007. FAS 158 also requires companies to measure the funded status of the plan as of the date of its fiscal year end, effective for fiscal years ending after December 15, 2008. We expect to adopt the measurement provisions of FAS 158 effective February 1, 2009. Based upon our July 31, 2007 balance sheet and with insignificant foreign pension plan obligations, the adoption of FAS 158 did not have a material impact on our results of operations and financial position.

In June 2007, the FASB ratified EITF Issue No. 07-3, Accounting for Non-Refundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities, (“EITF 07-3”). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future

research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. EITF 07-3 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007 and will be adopted by the Company in the first quarter of fiscal 2009. The Company is currently evaluating the impact, if any, EITF 07-3 will have on its consolidated results of operations and financial condition.

In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of FASB Statement No. 115, (“FAS 159”). FAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. The objective of FAS 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. Under FAS 159, an entity may elect to use fair value to measure eligible items including accounts receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, and issued debt. FAS 159 is required to be adopted by the Company in the first quarter of fiscal 2009. The Company currently is assessing the impact, if any, FAS 159 will have on its consolidated results of operations and financial condition.

On August 22, 2006, the Company paid cash consideration to acquire all the outstanding shares of Flashline, Inc., a privately held software company headquartered in Cleveland, Ohio. Flashline Inc.’s product is a metadata repository that provides enterprise-wide visibility into an organization’s software assets to help reduce IT costs and improve business agility. The enterprise metadata repository capabilities of Flashline, Inc.’s product together with UDDI service registry, BEA AquaLogic Service Registry, provide a complete metadata management solution. It gives BEA customers the capability to manage and govern the full SOA lifecycle, from planning and design through runtime and maintenance.

Flashline has been accounted for as a business combination using the purchase method of accounting. Assets acquired and liabilities assumed have been recorded at their fair values as of August 22, 2006 and adjusted as necessary for changes in estimates through July 31, 2007. The total purchase price is $43.6 million, including the estimated acquisition related transaction costs, and is comprised of (in thousands):

The total purchase price has been allocated to Flashline’s net tangible and identifiable intangible assets based on their estimated fair values as of August 22, 2006, and have been adjusted as necessary for changes in estimates through July 31, 2007 as set forth below. The excess of the purchase price over the net tangible and identifiable assets was recorded as goodwill, which is not deductible for tax purposes. The primary areas of the purchase price allocation that were not yet finalized relate to certain income and non-income based taxes and residual goodwill. In addition, upon finalization of the combined company’s legal entity structure, additional adjustments to deferred taxes may be required. The following is the preliminary purchase price allocation (in thousands):

The acquisition related IPR&D, which was valued at $1.7 million, related primarily to the Flashline enhancement projects and had not yet reached technological feasibility and has no alternative future use upon acquisition. Consequently, the valuation of IPR&D was written off to the income statement as of August 22, 2006.

The following table sets forth the components and fair values of the intangible assets associated with the Flashline Acquisition (in thousands):

Purchased technology is comprised of Flashline products that have reached technological feasibility and the associated patents affiliated with these products. Non-compete agreements represent the value of such agreements with key Flashline personnel. Customer base represents the underlying customer support contracts and related relationships with Flashline’s existing customers.

In allocating the acquisition purchase price, the Company recorded an adjustment to reduce the carrying value of Flashline’s August 22, 2006 deferred support revenue by $0.3 million to reflect an ending balance of $0.3 million, which represents the estimate of the fair value of the support obligation assumed. As a result of the adjustments to record Flashline’s support and services obligations assumed at fair value, $0.3 million of customer support revenues and services revenue that would have been otherwise recorded by Flashline as an independent entity will not be recognized in the Company’s consolidated results of operations. As former Flashline customers renew these support contracts, the Company will recognize the full value of the support contracts over the renewal period, the majority of which are one year.

On February 28, 2006, the Company paid cash consideration to acquire all the outstanding shares of Fuego, Inc. (“Fuego”), a privately-held software company headquartered in Plano, Texas. Fuego specializes in providing Service Oriented Architecture software to help companies manage business processes. The Fuego software has become a part of the BEA AquaLogic product family and serves as the foundation of the new BEA AquaLogic Business Service Interaction product line. The Fuego acquisition has been accounted for as a business combination using the purchase method of accounting. Assets acquired and liabilities assumed have been recorded at their fair values as of February 28, 2006 and adjusted as necessary through February 28, 2007.

The total purchase price is $88.0 million, including the estimated acquisition related transaction costs, and is comprised of (in thousands):

The total purchase price has been allocated to Fuego’s net tangible and identifiable intangible assets based on their fair values as of July 31, 2007, as set forth below. The excess of the purchase price over the net tangible and identifiable assets was recorded as goodwill, which is not deductible for tax purposes. The following is the purchase price allocation (in thousands):

In performing the preliminary purchase price allocation we considered, among other factors, our intention for future use of acquired assets, analyses of historical financial performance and estimates of future performance of Fuego’s products. The fair value of intangible assets was based, in part, on a preliminary valuation completed by a third party appraiser using an income approach and estimates and assumptions provided by management. The rates utilized to discount net cash flows to their present values were based on our weighted average cost of capital and range from 13.4 to 15.0 percent. These discount rates were determined after consideration of our rate of return on debt capital and equity and the weighted average return on invested capital. The following table sets forth the components and fair values of the intangible assets associated with the Fuego acquisition (in thousands):

Purchased technology is comprised of Fuego products that have reached technological feasibility and the associated patents related to these products. Customer base represents the underlying customer support and maintenance contracts and related relationships with Fuego’s existing customers. Intangible assets are being amortized using the straight-line method.

In allocating the acquisition purchase price, the Company recorded an adjustment to reduce the carrying value of Fuego’s February 28, 2006 deferred support revenue by $0.3 million to reflect an ending balance of $1.6 million, which represents the estimate of the fair value of the support obligation assumed. As a result of the adjustments to record Fuego’s support obligations assumed at fair value, $0.3 million of customer support revenues that would have been otherwise recorded by Fuego as an independent entity will not be recognized in the Company’s consolidated results of operations. As former Fuego customers renew these support contracts, the Company will recognize the full value of the support contracts over the renewal period, the majority of which are one year. The Company also recorded deferred consulting revenues of approximately $0.3 million.

The following table summarizes the stock-based compensation expense for stock options, restricted stock awards, options assumed in acquisitions and our employee stock purchase plans included in our results from continuing operations (in thousands):

Valuation and Amortization Method. We estimated the fair value of stock options granted before and after the adoption of SFAS 123(R) using the Black-Scholes-Merton option valuation model. For options granted prior and subsequent to adoption of SFAS 123(R), we estimate the fair value using a single option approach and amortize the fair value on a straight-line basis for options expected to vest. All options are amortized over the requisite service periods of the awards, which are generally the vesting periods.

Expected Term. The expected term of options granted represents the period of time that they are expected to be outstanding. We estimate the expected term of options granted based on our historical experience of grants, exercises and post-vesting cancellations in our option database. Contractual term expirations have not been significant.

Expected Volatility. Effective May 1, 2006, we began estimating the volatility of our common stock based on the implied volatility of our publicity traded options on our common stock consistent with FAS 123(R) and Securities and Exchange Commission Staff Accounting Bulletin No. 107. Prior to that date we estimated the volatility of our stock options using a combination of historical and implied volatilities. We believe that the use of just the implied volatility of our publicity traded options on our common stock results in a better estimate of fair value of our stock options.

Risk-Free Interest Rate. The risk-free interest rate that we use in the Black-Scholes-Merton option valuation model is the implied yield in effect at the time of option grant based on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of our option grants.

Dividends. We have never paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. Consequently, we use an expected dividend yield of zero in the Black-Scholes-Merton option valuation model.

Forfeitures. We use historical data to estimate pre-vesting option forfeitures. As required by SFAS 123(R), we record stock-based compensation expense only for those awards that are expected to vest.

We used the following weighted-average valuation assumptions to estimate the fair value of options granted for the three and six months ended July 31, 2006:

The weighted-average fair value of options granted during the three and six months ended July 31, 2007 was $3.65 and $3.87, respectively. The weighted-average fair value of options granted during the three and six months ended July 31, 2006 was $4.05 and $4.44, respectively.

A summary of stock option activity during the quarter ended July 31, 2007 is as follows (in thousands, except years and per-share amounts):

The aggregate intrinsic value of options outstanding at July 31, 2007 is calculated as the difference between the exercise price of the underlying options and the market price of our common stock for the 34.2 million shares that had exercise prices that were lower than the market price of our common stock as of July 31, 2007. There were no options exercised during the quarter ended July 31, 2007. The Company settles employee stock option exercises with newly issued common shares.

As of July 31, 2007, there was $55.8 million of total unrecognized compensation cost related to unvested stock options which is expected to be recognized over a weighted-average period of 2.6 years.

The following table summarizes our restricted stock award activity for the quarter ended July 31, 2007 (in thousands, except per share amounts):

As of July 31, 2007, there was $3.7 million of total unrecognized compensation cost related to restricted stock which is expected to be recognized over a weighted-average period of 1.9 years. No restricted stock awards vested during the quarter ended April 30, 2007.

Under our Employee Stock Purchase Plan (ESPP), qualified employees are entitled to purchase shares of the Company’s common stock at 85% of the fair market value twice a year in the second and fourth fiscal quarter. ESPP awards were valued using the Black-Scholes-Merton option valuation model. During the three and six months ended July 31, 2006 ESPP awards were valued using the following weighted-average assumptions:

No shares were purchased under the ESPP for the three or six months ended July 31, 2007 as the company was unable to issue shares of its common stock because it was not current with its reporting obligations under the Securities Exchange Act. The weighted-average fair value of ESPP awards valued during the three and six months ended July 31, 2006 was $3.37.

As of July 31, 2007, there was $0.2 million of total unrecognized compensation costs related to the ESPP that is expected to be fully recognized during the next 0.4 years.

The following table provides a summary of the carrying amount of goodwill (in thousands):

The following tables provide a summary of the carrying amounts of acquired intangible assets that will continue to be amortized and exclude amounts originally allocated to assembled workforce (in thousands):

The total amortization expense related to acquired intangible assets is provided in the table below (in thousands):

In the first quarter of fiscal 2008, the Company recorded an impairment of $3.8 million related to a small acquisition completed in fiscal 2006, in accordance with FAS 144, Accounting for the Impairment and Disposal of Long-Lived Assets. This resulted in a write down of intangibles and accumulated amortization of $14.1 million and $10.3 million, respectively.

The total expected future amortization as of July 31, 2007, related to acquired intangible assets is provided in the table below (in thousands):

An equipment capital lease for $1.6 million was entered into in fiscal 2005 and accumulated amortization was $1.5 million at July 31, 2007 and $1.2 million at January 31, 2007. The remaining balance of furniture and equipment under capital lease was fully depreciated in prior years.

In the first quarter of fiscal 2008, the Company entered into a Land Purchase and Sale Agreement (the “Land Agreement”) with Tishman Speyer Development Corporation (“Tishman”), pursuant to which the Company agreed to sell the San Jose Land to Tishman for $108.0 million. Under the terms of the Land Agreement, on February 27, 2007 Tishman delivered into escrow a non-refundable deposit in the amount of $15.0 million, and on March 29, 2007 the $93.0 million balance of the purchase price, in accordance with the terms and subject to typical conditions contained in the Land Agreement, including the delivery of deeds, title insurance and payment of closing costs. After closing costs, the Company recorded a net gain of $0.8 on the sale of the San Jose Land.

Also in the first quarter of fiscal 2008, the Company entered into a Purchase and Sale Agreement (the “Building Agreement”) with the The Sobrato Family Foundation and Sobrato-Sobrato Investments (collectively, “Sobrato”), pursuant to which the Company agreed to purchase a 17-story building and parking facilities located at 488 Almaden Boulevard, San Jose, California from Sobrato for $135.0 million. That facility is intended to be our new corporate headquarters. We delivered a $10.0 million deposit to Sobrato on March 1, 2007 and paid the $125.0 million balance of the purchase price on April 2, 2007, in accordance with the terms and subject to typical conditions contained in the Building Agreement, including the delivery of deeds, title insurance and payment of closing costs.

We have allocated the purchase price to the land and building based on third party appraisals. The building will be depreciated over 40 years once the build-out occurs and the building is occupied.

During fiscal 2002, we approved a plan to consolidate certain facilities in regions including the United States, Canada, and Germany. A facilities consolidation charge of $20.0 million was calculated using management’s best estimates and was based upon the remaining future lease commitments and brokerage fees for vacant facilities from the date of facility consolidation, net of estimated future sublease income. In fiscal 2006, an additional $0.8 million was accrued due to a reassessment of original estimates of costs of abandoning the leased facilities compared to the actual results and future estimates. In fiscal 2007, we accrued an additional $0.5 million due to a reassessment of the estimates of costs of abandoning the leased facilities.

During fiscal 2005, due to a decline in employee and contractor hiring and headcount we identified the opportunity to reduce our facilities requirements. We approved a plan to consolidate six sites in the United States and Canada. A facilities consolidation charge of $7.7 million was recorded and was comprised of $6.9 million related to future lease commitments and $0.8 million of leasehold improvement write-offs. The $6.9 million of future lease commitments was calculated based on management’s best estimates and the present value of the remaining future lease commitments for vacant facilities, net of present value of the estimated future sublease income.

In the second quarter of fiscal 2008, the Company occupied the new San Francisco office space and vacated the three existing San Francisco office locations. Two of the three existing office leases expire in fiscal 2008 and the remaining one expires in fiscal 2009. In the second quarter of fiscal 2008, the Company recorded a facilities consolidation charge of $2.5 million related to future lease commitments. The $2.5 million of future lease commitments was calculated based on management’s best estimates and the present value of the remaining future lease commitments for vacant facilities.

The estimated costs of abandoning the leased facilities identified above, including estimated costs to sublease, were based on market information and trend analyses, including information obtained from third party real estate industry sources at the time the facilities consolidation was recorded. As of July 31, 2007, $8.4 million of lease termination costs, net of anticipated sublease income, remains accrued and is expected to be fully utilized by fiscal 2012. If actual circumstances prove to be materially different than the amounts management has estimated, the Company’s total charges for these vacant facilities could be significantly higher. Adjustments to the facilities consolidation charge will be made in future periods, if necessary, based upon then current actual events and circumstances. If the Company was unable to receive any of its estimated but uncommitted sublease income in the future, the total additional charge would be approximately $1.3 million.

The following table provides a summary of the accrued facilities consolidation (in thousands):

The following table sets forth the components of deferred revenues (in thousands):

Deferred services revenues include customer support and maintenance, consulting and education. The composition of deferred services revenues are predominantly customer support and maintenance revenues. Deferred customer support and maintenance revenues are recognized over the term of the contract. Deferred license and consulting and education revenues normally result from billings invoiced before revenue recognition requirements have been met.

Notes payable and other long-term obligations consist of the following (in thousands):

Other long-term obligations include an accrual of $5.3 million related to the facilities consolidation.

Notes payable and other obligations consist of accrued rent and other long-term obligations. Scheduled maturities of current and long-term notes payable and other obligations and the capital lease are as follows (in thousands):

During fiscal 2007, the Company entered into a five-year $500.0 million unsecured revolving credit facility (the “Credit Facility”). At closing, the Company borrowed $215.0 million to repay in full and terminate the Keybank Agreement which was scheduled to mature in October 2008.

Loans under the Credit Facility accrue interest at the election of the company at the prime rate or the London Interbank Offering Rate (“LIBOR”) plus a margin based on our leverage ratio, determined quarterly. The effective annual interest rate was approximately 5.7 percent as of July 31, 2007. Interest payments are made in cash at intervals ranging from one to three months, as elected by the Company. Principal, together with accrued interest, is due on the maturity date of July 31, 2011.

On September 11, 2006, the Company provided notice to the Administrative Agent and the lenders party to the Credit Facility that a default had occurred because the Company had not timely furnished certified financial statements. On October 6, 2006, December 8, 2006, March 9, 2007 and July 9, 2007, the Company was granted Waiver No. 1, Waiver No. 2, Waiver No. 3 and Waiver No. 4 that waived compliance by the Company with the requirements of the Credit Agreement to deliver the financial statements and the compliance certificates for the quarters ended July 31, 2006 and October 31, 2006, January 31, 2007, April 30, 2007 and July 31, 2007, respectively. Waiver No. 4 was granted from the date of Waiver No. 4 through the earlier to occur of (i) October 9, 2007, (ii) the date of delivery of the administrative agent or the lenders of any modified or restated version of the Company’s financial statements for its fiscal year ended January 31, 2006 or fiscal quarter ended April 30, 2006 (the “Previous Financial Statements”) which is in the reasonable opinion of the required lenders, materially adversely deviates from the original version thereof in a manner that negatively impacts the creditworthiness of the Company and (iii) the date of the occurrence of any other default or event of default not waived by the Waiver.

In addition, pursuant to waiver No. 4 the commitments of the lenders to make loans other than the $215 million borrowed to date, and of the issuing bank to issue, amend, renew or extend any letter of credit, is suspended until the date of delivery to the administrative agent and the lenders of the (i) ratification and reaffirmation of the Previous Financial Statements or modified or restated versions of the Previous Financial Statements which, in a reasonable opinion of the required lenders , do not materially adversely deviate from the original version thereof in a manner that negatively impacts the creditworthiness of the Company, and (ii) the financial statements and compliance certificates for the quarters ended July 31, 2006 and October 31, 2006.

The Credit Agreement permits prepayment of outstanding loans at any time without premium or penalty. On June 29, 2007, the Company repaid the entire $215 million outstanding balance under the credit facility, and the Credit Agreement remains in effect.

The Company has provided income tax expense of $18.6 million and $15.2 million for the second quarter of fiscal 2008 and fiscal 2007, respectively. The Company has provided for income taxes for the second quarter of fiscal 2008 based on a projected effective tax rate of 28 percent and adjusted for certain items for which the tax effect is required to be recognized in the period in which it occurs. The second quarter of fiscal 2008 reflected a one-time income tax expense of $0.3 million relating to the accrual of tax reserves resulting in an effective tax rate of 29 percent. The projected annual effective tax rate for the second quarter of fiscal 2008 reflects a 5 percentage point reduction as compared to the projected annual effective tax rate for the second quarter of fiscal 2007 due primarily to a benefit of lower non-deductible stock option compensation expense and the benefit of higher projected current year low taxed foreign earnings. The Company’s projected annual effective tax rate is less than the 35 percent U.S. federal statutory rate primarily due to the benefit of projected low taxed current year foreign earnings. The Company’s projected annual effective tax rate for the second quarter of fiscal 2007 was 31 percent and differed from the U.S. federal statutory rate of 35 percent primarily due to the benefit of low taxed foreign earnings.

The Company has provided income tax expense of $30.6 million and $32.1 million for the six months ended July 31, 2007 and 2006, respectively. The Company has provided for income taxes for the six months ended July 31, 2007 based on a projected effective tax rate of 28 percent and adjusted for certain items for which the tax effect is required to be recognized in the period in which it occurs. The first six months of fiscal 2008 reflected one-time income tax expense of $0.6 million relating to the accrual of tax reserves resulting in an effective tax rate of 29 percent. The projected annual effective tax rate for the first six months of fiscal 2008 reflects a 5 percentage point reduction as compared to the projected annual effective rate for the first six months of fiscal 2007 due to the benefit of higher projected current year low taxed foreign earnings. The Company’s projected annual effective tax rate is less than the 35 percent U.S. federal statutory rate primarily due to the benefit of non-deductible stock option compensation expense and projected low taxed current year foreign earnings. The Company’s projected annual effective tax rate for the six months ended July 31, 2006 was 33 percent and differed from the U.S. federal statutory rate of 35 percent primarily due to the benefit of low taxed foreign earnings.

The Company adopted the provisions of FASB Interpretation Number 48, Accounting for Uncertainty in Income Taxes, on February 1, 2007. The cumulative effect of adopting FIN 48 was a $9.9 million decrease to the opening balance of retained earnings. Upon adoption, the total amount of gross unrecognized tax benefits was $139.8 million. Included in this balance were approximately $71.7 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. The Company is currently under audit by the Internal Revenue Service and several states and foreign jurisdictions It is possible that the amount of the liability for unrecognized tax benefits, including the unrecognized tax benefits related to the audits referenced above, may change within the next 12 months. However, an estimate of the range of possible changes cannot be made at this time.

In accordance with the Company’s accounting policy, it recognizes accrued interest and penalties related to unrecognized tax benefits in the Provision for income taxes. This policy did not change as a result of the adoption of FIN 48. The Company had accrued interest and penalties of $9.0 million as of the date of adoption of FIN 48.

The gross unrecognized tax benefits increased by approximately $3.6 million for the six months ended July 31, 2007. Interest and penalties for the same period increased by approximately $2.3 million.

The Company files income tax returns in the U.S federal jurisdiction, in various states, and in various foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before January 31, 2001.

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

In September 2001, March 2003, May 2004, March 2005 and May 2007, the Board of Directors approved stock repurchases that in aggregate equaled $1.1 billion of our common stock under a share repurchase program (the “Share Repurchase Program”). During the six months ended July 31, 2007 and through the date of this filing, the Company did not repurchase any shares due to the stock option review. Approximately $621.7 million is available for repurchase under the Share Repurchase Program.

In the six months ended July 31, 2006, the Company recognized $11.0 million of net gains on the disposal of two minority interests in equity investments. The first disposal was of shares of a privately held company that went public in February 2006 and resulted in a $2.7 million gain. The second disposal of a minority interest in an equity investment was a privately held company acquired by a third party in March 2006, which resulted in an $8.3 million net gain.

Basic net income per share is computed based on the weighted average number of shares of the Company’s common stock less the weighted average number of shares subject to repurchase and held in escrow. Diluted net income per share is computed based on the weighted average number of shares of the Company’s common stock and common equivalent shares (using the treasury stock method for stock options and using the if-converted method for convertible notes), if dilutive.

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

The computation of diluted net income per share for the three months ended July 31, 2007 and 2006 excludes the impact of options to purchase 24.7 million and 20.4 million shares of common stock, respectively, as such impact would be anti-dilutive. The computation of diluted net income per share for the six months ended July 31, 2007 and 2006 excludes the impact of options to purchase 25.6 million and 19.2 million shares of common stock, respectively, as such impact would be anti-dilutive. These options could be dilutive in the future.

The computation of diluted net income per share for the three and six months ended July 31, 2006 also excludes the conversion of the 2006 Notes which are convertible into 7.4 million shares of common stock at July 31, 2006, as such impact would be anti-dilutive.

The Company occasionally sells software products or services to companies that have board members or executive officers that are also on BEA’s Board of Directors. The total revenues recognized by the Company from such customers in the six months ended July 31, 2007 and 2006 were insignificant.

The Company and its subsidiary Plumtree Software, Inc. (“Plumtree”) are involved in a patent infringement lawsuit against Datamize, LLC (“Datamize”) in the U.S. District Court for the Northern District of California. In July 2004, Plumtree sued Datamize for declaratory judgment that certain U.S. patents are invalid and not infringed. In January 2007, Datamize answered Plumtree’s complaint and counterclaimed for infringement. In July 2007 the parties were realigned so that Datamize is the plaintiff, and BEA was added to the case as a defendant. The Court issued its claim construction order on August 7, 2007. Trial is set for August 18, 2008. Plumtree and the Company intend to vigorously pursue their claim for declaratory relief and vigorously defend against Datamize’s allegations of infringement. It is not known when or on what basis the action will be resolved.

On August 23, 2005, a class action lawsuit titled Globis Partners, L.P. v. Plumtree Software, Inc. et al. was filed in the Court of Chancery in the State of Delaware in and for New Castle County (the “Globis Action”). The complaint names Plumtree, all members of Plumtree’s board of directors and the Company as defendants. The suit alleges, among other claims, that the consideration to be paid in the proposed acquisition of Plumtree by the Company is unfair and inadequate. The complaint seeks an injunction barring consummation of the merger and, in the event that the merger is consummated, a rescission of the merger and an unspecified amount of damages. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis the action will be resolved.

In addition, on August 24, 2005, a class action lawsuit titled Keitel v. Plumtree Software, Inc., et al. was filed in the Superior Court of the State of California for the County of San Francisco (the “Keitel Action”). The complaint names Plumtree and all member of Plumtree’s board of directors as defendants alleging similar complaints and seeking similar damages as the class action brought by Globis Partners, L.P. The Keitel Action has been stayed pending the outcome of the Globis Action. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis the action will be resolved.

In the Keitel Action, plaintiffs sought an injunction against completion of the merger. That motion was denied and the case has now been stayed. In the Globis Action, plaintiff filed an amended complaint on October 22, 2005, which the Company moved to dismiss on October 6, 2006. Plumtree and the individual defendants moved to dismiss the amended complaint on the same date. On December 8, 2006, plaintiff moved for leave to file a second amended complaint. On January 4, 2007, parties stipulated to permit plaintiff to file the second amended complaint. It was filed on January 16, 2007. Defendants moved to dismiss the second amended complaint on February 5, 2007. The briefing on the motions has been completed. Currently, the parties are waiting for the Court to set a date for the hearing. There can be no assurance that we will be able to achieve a favorable resolution. An unfavorable resolution of the pending litigation could result in the payment of substantial damages which could have a material adverse effect on our business, financial condition and results of operations. In addition, as a result of the merger, we have assumed all liabilities of Plumtree resulting from the litigation.

On July 20, 2006, the first of several derivative lawsuits was filed by a purported Company shareholder in the United States District Court for the Northern District of California. The cases were subsequently consolidated and plaintiffs’ current complaint names certain of the Company’s present and former officers and directors as defendants and names the Company as a nominal defendant. The complaint alleges that the individual defendants violated the federal securities laws and breached their duties to the Company in connection with our historical stock option grant activities. In addition, the current complaint includes a claim purportedly on behalf of a class of BEA shareholders arising out of Oracle’s unsolicited acquisition proposal, claiming that members of our Board of Directors breached their fiduciary duties in response to the proposal. It is not known when or on what basis the action will be resolved.

In addition, on August 25, 2006, another shareholder derivative action was filed in the Superior Court for the County of Santa Clara. The court granted a motion to stay that action in deference to the actions filed previously in federal court. It is not known when or on what basis the action will be resolved.

On July 20, 2006, the first of several derivative lawsuits was filed by a purported Company shareholder in the United States District Court for the Northern District of California. The cases were subsequently consolidated and plaintiffs’ current complaint names certain of the Company’s present and former officers and directors as defendants and names the Company as a nominal defendant. The complaint alleges that the individual defendants violated the federal securities laws and breached their duties to the Company in connection with our historical stock option grant activities. On October 25, 2007, the complaint was amended to assert a purported class action claim alleging that the Company’s directors breached their fiduciary duties by failing to fully inform themselves of the Company’s true value prior to rejecting Oracle’s unsolicited proposal to acquire the Company for $17.00 per share. Plaintiffs seek an order requiring the director defendants to

implement a procedure or process to determine the Company’s true value and obtain the highest possible price for shareholders. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis the action will be resolved.

On October 12, 2007, a class action lawsuit titled Freedman v. BEA Systems, Inc. et al. was filed in the Court of Chancery in the State of Delaware in and for New Castle County (the “Freedman Action”). The complaint names the Company and its directors as defendants, asserting that the directors breached their fiduciary duties by failing to give proper consideration to Oracle’s unsolicited proposal to acquire us for $17.00 per share. The complaint seeks injunctive relief, including the implementation of a process or procedure to obtain the highest possible price for the Company’s shareholders through negotiations with Oracle or other means. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis the action will be resolved.

On October 12, 2007, a class action lawsuit titled Blaz v. BEA Systems, Inc. et al. was filed in the Court of Chancery in the State of Delaware in and for New Castle County (the “Blaz Action”). The complaint names the Company and its directors as defendants, asserting that the directors breached their fiduciary duties by failing to give proper consideration to Oracle’s unsolicited proposal to acquire the Company for $17.00 per share. The complaint seeks injunctive relief, including the implementation of a process or procedure to obtain the highest possible price for the Company’s shareholders through negotiations with Oracle or other means. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis the action will be resolved.

On October 12, 2007, a class action lawsuit titled Gross v. BEA Systems, Inc. et al. was filed in the Superior Court of the State of California for the County of Santa Clara (the “Gross Action”). The complaint names the Company, eight of its directors, and certain unnamed “John Doe” parties as defendants, alleging that the directors breached their fiduciary duties by failing to give proper consideration to Oracle’s unsolicited proposal to acquire the Company for $17.00 per share. The complaint seeks injunctive relief, including an order requiring the defendants to cooperate with any party expressing a bona fide interest in making an offer that maximizes the value of the Company’s shares and the formation of a stockholders’ committee to ensure the fairness of any transaction involving the Company’s shares. The complaint also seeks compensatory damages in an unspecified amount. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis the action will be resolved.

On October 12, 2007, a class action lawsuit titled Ellman v. Chuang et al. was filed in the Superior Court of the State of California for the County of Santa Clara (the “Ellman Action”). The complaint names nine of the Company’s directors as defendants and the Company as a nominal defendant, alleging that the directors breached their fiduciary duties by failing to adequately consider Oracle’s unsolicited proposal to acquire the Company for $17.00 per share. In addition, the complaint asserts a derivative cause of action against the director defendants, ostensibly on behalf of and for the benefit of the Company, again alleging that the director defendants breached their fiduciary duties by failing to adequately consider Oracle’s proposal. The complaint seeks injunctive relief, including an order requiring the Company’s directors to respond reasonably to offers that are in the best interests of shareholders, a prohibition on entry into any contractual provisions designed to impede the maximization of shareholder value, and an order restraining the defendants from adopting or using any defensive measures against a potential acquiror. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis the action will be resolved.

A shareholder class action lawsuit titled Zwick v. BEA Systems, Inc. et al. may be filed in the Superior Court of the State of California for the County of Santa Clara (the “Zwick Action”). The complaint names the Company, eight of its current directors, and certain unnamed “John Doe” parties as defendants. The complaint alleges that the director defendants breached their fiduciary duties by failing to give proper consideration to Oracle’s unsolicited proposal to acquire the Company for $17.00 per share. The complaint seeks injunctive relief, including an order requiring the defendants to cooperate with any party expressing a bona fide interest in making an offer that maximizes the value of the Company’s shares and the formation of a stockholders’ committee to ensure the fairness of any transaction involving the Company’s shares. The complaint also seeks compensatory damages in an unspecified amount. Plaintiffs indicated their intention to file this suit on October 26, 2007, but as of October 27, 2007, the Company has no confirmation that the suit has in fact been filed. If the suit is filed, the Company will defend the case vigorously. There can be no assurance, however, that we will be successful in our defense of this potential action. It is not known when or on what basis the action will be resolved.

On October 26, 2007, a lawsuit titled High River Ltd. P’Ship et al. v. BEA Systems, Inc. et al. was filed in the Court of Chancery in the State of Delaware in and for New Castle County (the “High River Action”). The action was brought by High River Ltd. Partnership and certain affiliated parties who purport to collectively beneficially own almost 14 percent of the Company’s stock. The complaint seeks, pursuant to Del. C. § 211, to compel the Company to hold an annual meeting on or before November 30, 2007, and to enjoin the Company from taking certain actions pending the next annual meeting. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis the action will be resolved.

The Company is subject to legal proceedings and other claims that arise in the ordinary course of business, such as those arising from domestic and foreign tax authorities, intellectual property matters and employee related matters, 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 Company’s financial position, results of operations or liquidity, the ultimate outcome could be material to the Company.

The Company generally provides a warranty for its software products and services to its customers and accounts for its warranties under Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (“FAS 5”). The Company’s products are generally warranted to perform substantially as described in the associated product documentation for a period of 90 days. The Company’s services are generally warranted to be performed consistent with industry standards for a period of 90 days from delivery. In the event there is a failure of such warranties, the Company generally is obligated to correct the product or service to conform to the warranty provision or, if the Company is unable to do so, the customer is entitled to seek a refund of the purchase price of the product or service. The Company has not provided for a warranty accrual as of July 31, 2007 or January 31, 2007. To date, the Company’s product warranty expense has not been significant.

The Company generally agrees to indemnify its customers against legal claims that the Company’s software products infringe certain third-party intellectual property rights and accounts for its indemnification obligations under FAS 5. In the event of such a claim, the Company is generally obligated to defend its customer against the claim and to either settle the claim at the Company’s expense or pay damages that the customer is legally required to pay to the third-party claimant. In addition, in the event of an infringement, the Company agrees to modify or replace the infringing product, or, if those options are not reasonably possible, to refund the cost of the software, as pro-rated over a period of years. To date, the Company has not been required to make any payment resulting from infringement claims asserted against its customers. As such, the Company has not recorded a liability for infringement costs as of July 31, 2007.

We have obligations under certain circumstances to indemnify each of the defendant directors against judgments, fines, settlements and expenses related to claims against such directors and otherwise to the fullest extent permitted under Delaware law and our bylaws and certificate of incorporation. We cannot predict the outcome of lawsuits, nor can we predict the amount of time and expense that will be required to resolve these lawsuits.

On August 16, 2006, the Company announced that the Audit Committee would conduct an independent review of the Company’s stock option grants. Beforehand, the Company contacted the Securities and Exchange Commission’s (“SEC’s”) San Francisco District Office to advise the SEC Staff that such announcement would be forthcoming.

On September 11, 2006, the Company received a letter from the SEC Staff requesting the voluntary production of certain information in connection with an informal SEC Staff inquiry regarding Company option grants. On December 12, 2006, the Company received a letter from the SEC Staff requesting that the Company preserve all documents relating to the Company’s historical stock option grants and related accounting matters. On March 1, 2007, the Company received a supplemental request for the voluntary production of certain additional information relating to Company stock option grants and the Company’s pending restatement. Counsel for the Company and counsel for the Audit Committee have provided the requested materials to the SEC Staff and intends to continue to cooperate fully with the Staff inquiry. To that end, counsel for the Audit Committee and the Company have met with and/or communicated with the SEC Staff on a number of occasions regarding the status, findings, and conclusions of the Independent Review.

On August 17, 2007, the Company received a letter from the Board of Directors of the NASDAQ Stock Market LLC (the “Nasdaq Board”) informing the Company that the Nasdaq Board has called for review the July 9, 2007 decision of the Nasdaq Listing and Hearing Review Council (the “Listing Council”), and determined to stay, pending further review by the Nasdaq Board, the Listing Council’s decision to suspend the Company’s common stock from trading on The Nasdaq Global Select Market. The Listing Council had previously determined to suspend the Company’s securities from trading on August 23, 2007 if the Company did not file its delayed quarterly and annual reports with the Securities and Exchange Commission by August 21, 2007. On September 14, 2007, the Company received a letter from the Nasdaq Board informing the Company that the Nasdaq Board had determined to grant the Company until November 14, 2007 to file all delinquent periodic reports necessary for the Company to regain compliance with its Nasdaq filing requirements.

On November 9, 2007, the Company received a letter from the Nasdaq Board informing the Company that the Nasdaq Board had determined to grant the Company until January 9, 2008 to file all delinquent reports necessary for the Company to regain compliance with its Nasdaq filing requirements.

On October 9, 2007, the Company the Company was granted Waiver No. 5. Waiver No. 5 waived compliance by the Company with the requirements of the Credit Agreement to deliver the financial statements and the compliance certificates for the quarters ended July 31, 2006, October 31, 2006, January 31, 2007, April 30, 2007, July 31, 2007 and October 31, 2007, respectively. Waiver No. 5 (the “Waiver”) to the Credit Agreement dated as of July 31, 2006 among the Company,

JPMorgan Chase Bank, National Association, as Administrative Agent, Citicorp USA, Inc., as Syndication Agent, Bank of America, N.A., Comerica Bank and Deutsche Bank AG New York Branch, as Co-Documentation Agents, and the lenders party thereto (the “Credit Agreement”). Pursuant to the Waiver, the required lenders under the Credit Agreement waived compliance by the Company with the requirements of the Credit Agreement to deliver financial statements and compliance certificates for the quarters ended July 31, 2006, October 31, 2006, January 31, 2007, April 30, 2007, July 31, 2007 and October 31, 2007, and the fiscal year ended January 31, 2007. The waiver was granted for the period (the “Waiver Period”) commencing on the date of the Waiver through the earlier to occur of (i) January 9, 2008, (ii) the date of delivery to the administrative agent or the lenders of any modified or restated version of the Company’s financial statements for its fiscal year ended January 31, 2006 or fiscal quarter ended April 30, 2006 (the “Previous Financial Statements”) which, in the reasonable opinion of the required lenders, materially adversely deviates from the original version thereof in a manner that negatively impacts the creditworthiness of the Company, and (iii) the date of the occurrence of any other default or event of default not waived by the Waiver.

The following discussion of the financial condition and results of operations of BEA Systems, Inc. (referred to herein as “we,” “us,” “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, 2007, and subsequent filings with the Securities and Exchange Commission (the “SEC”). 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,” “goals,” “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, without limitation, statements related to:fluctuation of revenues and operating results, including as a result of seasonality;

These forward-looking statements involve important factors that could cause actual results to differ materially from those in the forward-looking statements. These important factors include, but are not limited to, those described under the headings “Part II, Item 1A Risk Factors,” 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 us as of the date thereof, and we assume no obligation to update any forward-looking statement or risk factor.

BEA^® Systems, Inc. (referred to as “we”, “us”, “BEA” or the “Company”) is a world leader in enterprise application and service infrastructure software. Application infrastructure provides an important part of the foundational software necessary for enterprise applications to run reliably and securely, to serve large numbers of users and to process large numbers of transactions.

Application infrastructure is deployed on top of the operating system and database in an enterprise server and serves as a platform technology for either custom or packaged enterprise applications. Two of our three primary product families address this market. Specifically, our BEA Tuxedo^® product family, which is an application infrastructure platform for large transactional processing systems for C, C++ and COBOL systems, and BEA WebLogic^® product family, which consists of application infrastructure software for Java applications, perform functions such as transaction processing, clustering, caching, load balancing, failover, security, integration and management features, all of which provide high levels of reliability, availability, scalability and performance for enterprise applications. To meet a broader set of customers’ application infrastructure needs, BEA has leveraged its success in the application server market by expanding into adjacent product categories that take advantage of the performance and features provided by the underlying application server. The application infrastructure market consists of the application server market and products, as well as related integration, portal, security, development, operations, administration and management markets and product categories. New use cases for application infrastructure are beginning to emerge, such as applications with near real time performance requirements; virtualized applications; edge devices such as embedded sensors, control devices, and radio frequency identification (“RFID”) devices; and next generation telephony applications such as voice, video and data services over internet protocol. BEA is introducing application infrastructure products specialized for these customer uses.

More and more customers are migrating away from systems where users directly interface with a specific application and towards systems where users interface with Web-based portals and composite applications, which in turn interface with several enterprise applications. This information technology (“IT”) strategy is often referred to as Service-Oriented Architecture (“SOA”). This migration has created the need for a new category of software, called “service infrastructure,” residing on top of enterprise applications and serving as the platform for portals, automated business processes and composite applications. Service infrastructure provides a flexible SOA platform for deploying, integrating, securing, governing and managing services, regardless of the platform on which they were created. Service infrastructure also provides a platform for leveraging these services in the creation and management of automated business processes, portals, collaborative communities, and composite applications. In June 2005, BEA launched BEA AquaLogic^®, a new family of products designed to address a variety of needs in the service infrastructure category. This product family includes products and capabilities in the areas of user interaction, business process management, enterprise service bus, Web services management, data integration services, service registry, enterprise repository, and security policy management. In September 2007, BEA announced a new development initiative, Project Genesis, to provide infrastructure for the next generation of SOA applications. Genesis converges SOA, business process management, enterprise social computing and other technologies to provide customers with a fast, simplified way to assemble and modify business applications. BEA has developed and acquired significant features or product lines to address these markets and is in the process of developing and adding additional features and products.

Our products are marketed and sold worldwide directly through a network of sales offices and the Company’s Web site, as well as indirectly through distributors, value added resellers (“VARs”) and partnerships with independent software vendors (“ISVs”), application service providers (“ASPs”), hardware original equipment manufacturers (“OEMs”) and systems integrators (“SIs”). Our products have been adopted in a wide variety of industries, including telecommunications, commercial and investment banking, securities trading, government, manufacturing, retail, airlines, pharmaceuticals, package delivery and insurance. Our products serve as a platform for systems such as billing, provisioning, customer service, electronic funds transfer, ATM networks, securities trading and settlement, online banking, Internet sales, inventory management, supply chain management, enterprise resource planning, scheduling, logistics and hotel, airline and car rental reservations. In addition, we offer associated customer support, training and consulting services. Licenses for our products are typically priced on a per-central processing unit (“CPU”) basis, but we also offer licenses priced on other bases.

Seasonality. Our first fiscal quarter license revenues are typically significantly lower than license revenues in the immediately preceding fourth fiscal quarter because our commission plans and other sales incentives are structured for annual performance and contain bonus provisions based on annual quotas that typically are triggered in the later quarters in a fiscal year. In addition, many of our customers begin a new fiscal year on January 1, and it is common for capital expenditures to be lower in an organization’s first quarter than in its fourth quarter. We anticipate that the negative impact of seasonality on our first fiscal quarter results will continue. Our cash flows and deferred revenue balances also tend to fluctuate seasonally, based in part on the seasonality of our license business.

Due to the seasonality of license revenue, a greater than proportional amount of our customer support contracts are renewed in the fourth quarter, which leads to a significant increase in deferred customer support revenue in the fourth quarter. The recognition of this deferred revenue occurs over the following four quarters, and consequently deferred revenue generally declines in the first three quarters of the next fiscal year. Due to the significant increase in deferred customer support revenue balance in the fourth quarter, there is a greater than proportional cash collection of the respective receivables that occurs in the fourth quarter and the first quarter of the following fiscal year. Consequently operating cash flow is typically seasonally strong in the fourth quarter and first quarter and weaker in the second and third quarters of a fiscal year.

Investment in Products. Our strategic focus is expanding our product set in three main categories—(1) expanding and refreshing our existing application infrastructure products, (2) expanding our service infrastructure products and (3) broadening our application infrastructure products into targeted emerging use cases.

Expanding and Refreshing Application Infrastructure. We have historically offered products that act as a platform for a new enterprise application, which we refer to as “application infrastructure.” We have recently shipped new versions of our Tuxedo and WebLogic application infrastructure products, and further improvements are under development. Improvements in the recent versions of Tuxedo and WebLogic Server focused on improved performance, improved support for Web services and Service-Oriented Architecture (“SOA”), enhanced standards support, enhanced administration, operations and management capabilities, and enhanced support for standards-based development tools.

Investment in Service Infrastructure. We announced AquaLogic, our service infrastructure product category and brand in June 2005, and have released a number of new products in this category since July 2005. In order to deliver an expanded product set for service infrastructure, we expanded our capabilities in areas such as messaging, portal infrastructure, data integration, security, Web services management and other technologies. Selling and marketing service infrastructure products for SOA requires significant investment in marketing to educate customers and prospects, as well as investment to educate our sales force. Goals of the service infrastructure and SOA program include selling to customers’ and prospects’ Chief Information Officers, and to be chosen as the architectural foundation of SOA projects that will be implemented over a sustained period of time. This approach may have the effect of lengthening sales cycles and increasing deal sizes, both of which make it harder to predict the timing and size of large deals. We are actively working on the transitions inside our sales, marketing and consulting organizations, and are actively hosting educational seminars and other programs designed to appeal to customers’ and prospects’ Chief Information Officers. There can be no assurance that our products or our sales and marketing efforts will be successful.

Investment in Expansion of Application Infrastructure Products. In the fourth quarter of fiscal 2005, we announced a set of products to provide an infrastructure for telecommunications to provide voice, video and data services over internet protocol, known as VOIP and SOIP. Sales to telecommunications companies have historically represented our largest vertical market, generally accounting for more than 20 percent of our annual license revenues over the last few fiscal years. However, these companies have generally used our software as a platform for operational and business support applications, such as applications used in the billing and provisioning of their services. Our products for the voice, video and data services over IP market are designed to act as the platform for the service itself, expanding our addressable market within the telecommunications industry. We address this market with the BEA WebLogic Communications Platform, which consists of the BEA WebLogic SIP Server, released in the fourth quarter of fiscal 2005, and the BEA WebLogic Network Gatekeeper, released in the first quarter of fiscal 2006. Our initial sales efforts are focused on telecommunications and network equipment providers included in our enterprise account program. Selling products for the voice, video and data services over IP markets requires us to sell to the network groups inside these customers, when our relationships with these customers have generally been with the information technology groups. There can be no assurance that we will be able to expand our relationships to the network groups inside our customers, that our product will be accepted for use in their VOIP and SOIP projects, or that VOIP and SOIP projects will be undertaken in the near term. In addition, BEA has released new application infrastructure products such as the WebLogic RFID product family, for radio-frequency identification (“RFID”), WebLogic Real-Time Edition, for low-latency use cases, WebLogic Event Server for event-driven architectures, and WebLogic Server Virtual Edition for supporting Java applications in virtualized hardware environments. We are currently in the process of educating our sales force and the market on these products, and working with early customers. There can be no assurance that the market for these products will develop, that customers will accept our products, or that our sales force will be successful in selling and marketing these products.

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. Our acquisition strategy is focused primarily on using cash or stock to purchase development teams or technologies to add features or products that complement or expand our products.

The following table sets forth certain line items in our consolidated statements of income as a percentage of total revenues for the three and six months ended July 31, 2007 and 2006.

Our revenues are derived from fees for software licenses and services. Services revenues are comprised of customer support and maintenance, education and consulting. Total revenues increased 7.4 percent for the quarter ended July 31, 2007 (the “second quarter of fiscal 2008”) as compared the three months ended July 31, 2006 (the “first quarter of fiscal 2007”) due to a 18.6 percent increase in service revenues offset by a 9.4 percent decrease in license revenue. The increase in services revenues was primarily related to customer support and maintenance revenues.

Total revenues increased 7.2 percent for the first six months ended July 31, 2007 (the “first half of fiscal 2008”) as compared to the first six months ended July 31, 2006 (the “first half of fiscal 2007”) due to a 19.8 percent increase in services revenues offset by an 11.4 percent decrease in license revenues. The increase in services revenues in absolute dollars was primarily due to increased customer support and maintenance revenues.

Geographically, the Americas (U.S., Canada, Mexico and Latin America) contribution to total revenues decreased to 47.5 percent in the second quarter of fiscal 2008 compared to 53.7 percent in the second quarter of fiscal 2007. The EMEA (Europe, Middle East and Africa) contribution increased slightly to 34.6 percent in the second quarter of fiscal 2008 compared to 31.6 percent in the second quarter of fiscal 2007 and the APAC (Asia Pacific and Japan) contribution increased to 17.9 percent in the second quarter of fiscal 2008 compared to 14.7 percent for the second quarter of fiscal 2007. Additionally in the second quarter of fiscal 2008, EMEA revenues, which grew in absolute dollars year over year, were

positively impacted by exchange rates. Total revenues for the second quarter of 2008, when translated at constant exchange rates from the same period in the prior year, would have been approximately $118.0 million, which represents a 10.1 percent increase over total revenues of $107.2 million for the same period in the prior year.

Geographically, the Americas contribution to total revenues decreased to 49.2 percent in the first half of fiscal 2008 compared to 53.8 percent in the first half of fiscal 2007. The EMEA contribution increased slightly to 33.9 percent in the first half of fiscal 2008 compared to 31.5 percent in the first half of fiscal 2007 and the APAC contribution increased slightly to 16.9 percent for the first half of fiscal 2008 from 14.7 percent for the first half of fiscal 2007. Additionally in the first half of fiscal 2008, EMEA revenues, which grew in absolute dollars year over year, were positively impacted by exchange rates. Exchange rates impacted total revenues for the first half of fiscal 2008 compared to the first half of fiscal 2007. Total revenues for the first half of 2008, when translated at constant exchange rates from the same period in the prior year, would have been approximately $222.3 million, which represents a 6.6 percent increase over total revenues of $208.6 million for the same period in the prior year.

Total license fees decreased 9.4 percent for the second quarter of fiscal 2008 as compared to the second quarter in fiscal 2007. License fees from the WebLogic product family declined as a percentage of total license fees, but this decline was partially offset by increases in license fees from the AquaLogic product family. Due to the structure of our multiproduct enterprise license agreements, our breakdown of product family license fees is based on our best estimate of demand at the time the order is placed, not necessarily on actual deployment.

Total license fees decreased 11.4 percent for first half of fiscal 2008 as compared to the first half of fiscal 2007. License fees from the WebLogic product family declined as a percentage of total license fees, but this decline was partially offset by increases in license fees from the AquaLogic and Tuxedo product families. Due to the structure of our multiproduct enterprise license agreements, our breakdown of product family license fees is based on our best estimate of demand at the time the order is placed, not necessarily on actual deployment.

Geographically, total license fees for the first half of fiscal 2008 in the Americas declined 35.4 percent, but this decline was offset by an increase of 40.3 percent and 6.7 percent in APAC and EMEA, respectively. In addition, license fees were positively impacted by exchange rates. In the first half of fiscal 2008, license revenues for the first half of fiscal 2008, when translated at constant exchange rates from the same period in the prior year, would have been approximately $230.8 million, which represents a 14.0 percent decline in license revenues of $268.4 million for the same period in the prior year.

Quarterly revenue contribution from transactions with license fees greater than $1 million has ranged from approximately 19% to 36% of total license fees over the past eight quarters. Transactions greater than $1 million constitute a significant portion of total license revenues and management believes these transactions have an inherent volatility related to the timing and size of such transactions, which increases the risk that reported results may differ from expected results.

In addition to the transactions with license fees greater than $1 million, we have a significant number of small and midsize transactions. Our business model generally begins with smaller transactions being seeded into our customers with a goal that these customers will enter into larger, more significant transactions over time.

Services revenues are comprised of customer support and maintenance, consulting and education. Customer support and maintenance revenues consist of fees for annual maintenance contracts, typically priced as a percentage of the license fee, and recognized ratably over the term of the agreement (generally one year). Consulting and education revenues consist of professional services related to the deployment and use of our software products. These arrangements are generally structured on a time and materials basis and revenues are recognized as services are performed.

Total services revenues increased 18.6 percent for the second quarter of fiscal 2008 as compared to the second quarter of fiscal 2007. This increase in services revenue was due to a 20.1 percent increase in customer support and maintenance revenue and a 18.2 percent increase in consulting and education revenues. In the second quarter of fiscal 2008, service revenues, when translated at a constant exchange rate from the same period in the prior year, would have been $235.4 million, an increase of 15.6 percent over total services revenue of $203.6 million for the same period in fiscal 2007.

Total services revenues increased 19.8 percent for the second half of fiscal 2008 as compared to the second half of fiscal 2007. This increase in services revenue was due to a 20.0 percent increase in customer support and maintenance revenue and a 19.8 percent increase in consulting and education revenues. In the first half of fiscal 2008, service revenues, when translated at a constant exchange rate from the same period in the prior year, would have been $458.8 million, an increase of 16.3 percent over the same period in fiscal 2007.

The increase in customer support and maintenance revenue for the second quarter and first half of fiscal 2008 compared to the second quarter and first half of fiscal 2007 was primarily due to maintenance renewals on our existing installed base of software licenses and new maintenance contracts sold together with new license fees. The increase in consulting and education revenues for the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 was due to a 21.9 percent increase in consulting services. The increase in consulting and education revenues for the first half of fiscal 2008 compared to the first half of fiscal 2007 was due to a 21.4 percent increase in consulting services which was primarily due to exchange rate impacts and one specific engagement on which the revenue was primarily generated through the use of third-party consultants.

For each of the twelve fiscal quarters ended July 31, 2007, EMEA and APAC revenues combined as a percentage of total revenues have ranged between 45 percent and 53 percent, composed of 31 percent to 38 percent for EMEA and 14 percent to 18 percent for APAC. These ranges are expected to continue to fluctuate in the future depending upon regional economic conditions, foreign currency exchange rates, and other factors.

The following tables provide a summary of revenues by geographic region (in thousands):

For the second quarter of fiscal 2008, the percentage of total revenue contribution from the Americas decreased 6.2 percentage points to 47.5 percent from 53.7 percent when compared to the same quarter in the prior fiscal year. This decrease in Americas total revenue was due to a 35.4 percent decrease in license fees offset by a 14.4 percent increase in services revenue. The increase in Americas services revenue was due to a 17.2 percent increase in customer support and maintenance revenue in addition to a 5.4 percent increase in consulting and education revenues.

For the first half of fiscal 2008, the percentage of total revenue contribution from the Americas decreased 4.6 percentage points to 49.2 percent from 53.8 percent when compared to the same half in the prior fiscal year. This decrease in Americas total revenue was due to a 29.7 percent decrease in license fees offset by a 15.7 percent increase in services revenue. The increase in Americas services revenue was due to a 18.6 percent increase in customer support and maintenance revenue in addition to a 6.3 percent increase in consulting and education revenues. Management believes the decrease in Americas license revenue in the first half of fiscal 2008 was impacted in part by a challenging selling environment and organization changes made in the first quarter of fiscal 2008.

For the second quarter of fiscal 2008, the percentage of total revenue contribution from EMEA increased 3.0 percentage points to 34.6 percent from 31.6 percent when compared to the same quarter in the prior fiscal year. This increase in EMEA total revenue was due to a 24.1 percent increase in services revenue and a 6.7 percent increase in license fees. The increase in EMEA services revenue was due to a 17.8 percent increase in customer support and maintenance revenue in addition to a 50.4 percent increase in consulting and education revenues. This increase in consulting and education revenues was due primarily to a significant consulting engagement recognized in the UK in the second quarter of fiscal 2008. In the second quarter of fiscal 2008, total revenues in EMEA of $126.0 million when translated at constant exchange rates from the same period in the prior year would have been approximately $118.0 million, which is a 10.1 percent increase over total revenues in EMEA of $107.2 million for the same quarter in the prior year.

For the first half of fiscal 2008, the percentage of total revenue contribution from EMEA increased 2.4 percentage points to 33.9 percent from 31.5 percent when compared to the same quarter in the prior fiscal year. This increase in EMEA total revenue was due to a 25.3 percent increase in services revenue and license fees remained flat. The increase in EMEA services revenue was due to a 20.3 percent increase in customer support and maintenance revenue in addition to a 45.8 percent increase in consulting and education revenues. This increase in consulting and education revenues was due primarily to a significant consulting engagement recognized in the UK in the first half of fiscal 2008. In the first half of fiscal 2008, total revenues in EMEA of $240.9 million when translated at constant exchange rates from the same period in the prior year would have been approximately $222.3 million, which is a 6.6 percent increase over total revenues in EMEA of $208.6 million for the same quarter in the prior year.

For the second quarter of fiscal 2008, the percentage of total revenue contribution from APAC increased 3.2 percentage points to 17.9 percent from 14.7 percent when compared to the same quarter in the prior fiscal year. This increase in APAC total revenue was due to a 22.4 percent increase in services revenue in addition to a 40.3 percent increase in license fees. The increase in APAC services revenue was due to a 22.8 percent increase in customer support and maintenance revenue and a 19.5 percent increase in consulting and education revenues. APAC was not significantly impacted by foreign exchange rates in the second quarter.

For the first half of fiscal 2008, the percentage of total revenue contribution from APAC increased 2.2 percentage points to 16.9 percent from 14.7 percent when compared to the same quarter in the prior fiscal year. This increase in APAC total revenue was due to a 23.8 percent increase in services revenue in addition to a 22.6 percent increase in license fees. The increase in APAC services revenue was due to a 23.1 percent increase in customer support and maintenance revenue and a 28.3 percent increase in consulting and education revenues. APAC was not significantly impacted by foreign exchange rates in the first half.

Cost of License Fees. Cost of license fees, as referenced in the table above, includes:

Cost of license fees were 11.5 percent and 11.9 percent of license revenues for the second quarter of fiscal 2008 and 2007, respectively. Cost of license fees declined due for the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 due to a reduction in acquisition related intangible asset amortization due to the impairment charge taken in the first quarter of fiscal 2008. Management believes that cost of license fees may increase in absolute dollars in fiscal 2008 due to expansion of the compliance program and royalty expenses associated with our new product lines and the respective mix of product sold quarterly.

Cost of license fees were 14.3 percent and 11.7 percent of license revenues for the first half of fiscal 2008 and 2007, respectively. The increase in the cost of license fees as a percentage of license revenues for the first half of fiscal 2008 compared to the same period in fiscal 2007 was primarily due to a $3.8 million acquisition related intangible asset impairment charge in the first quarter of fiscal 2008. The Company wrote off a small acquisition that was completed in fiscal 2007 in accordance with FAS 142. Management believes that cost of license fees may increase in absolute dollars in fiscal 2008 due to expansion of the compliance program and royalty expenses associated with our new product lines and the respective mix of product sold quarterly.

Cost of Services. Cost of services, consists primarily of salaries and benefits for consulting, education, and product support personnel; cost of third party delivered education and consulting revenues; and infrastructure expenses in information technology and facilities for the operation of the services organization. Cost of services represented 30.5 percent and 33.3 percent of services revenues for the second quarter of fiscal 2008 and fiscal 2007, respectively. Cost of services represented 30.6 percent and 33.1 percent of services revenues for the first half of fiscal 2008 and fiscal 2007, respectively. The 3.1 percent decline in cost of services as a percent of services revenues for both the second quarter and first half for fiscal 2008 over the same periods of fiscal 2007, was primarily due to improved margins in customer support and maintenance. This increase in services margins was also due to a decrease in recurring share-based compensation of $0.9 million and $1.3 million for the second quarter and first half of fiscal 2008 over the same periods of fiscal 2007, respectively. Total headcount at the end of the period increased 13 people year over year.

The increase in cost of services in absolute dollars from the second quarter of fiscal 2008 compared to the first quarter of fiscal 2007 was due primarily to compensation expense. Compensation expense associated with salaries and benefits increased $6.4 million and was partially offset by a $0.9 million decline in recurring share based compensation. Cost of services was adversely impacted by foreign exchange rates in the first quarter of fiscal 2008. In the first quarter of fiscal 2008, cost of services of $73.7 million when translated at constant exchange rates from the same period in the prior year would have been approximately $70.9 million, which is a 4.6 percent increase over cost of services of $67.8 million for the same quarter in the prior year

The increase in cost of services in absolute dollars for the first half of fiscal 2008 compared to the first half of fiscal 2007 was due primarily to compensation expense. Compensation expense increased approximately $13.1 million related to salary and benefits and was partially offset by a decline in recurring share based compensation of $1.3 million. Cost of services was adversely impacted by foreign exchange rates for the first half of fiscal 2008. In the first half of fiscal 2008, cost of services of $144.4 million when translated at constant exchange rates from the same period in the prior year would have been approximately $140.5 million, which is a 7.3 percent increase over cost of services of $130.9 million for the same period in the prior year

Acquired Intangibles Amortization. Total future amortization expense associated with acquired intangibles is approximately $48.6 million which includes $10.4 million for the remaining six months of fiscal 2008, $16.8 million for fiscal 2009, $12.0 million for fiscal 2010, $7.6 million for fiscal 2011 and $1.8 million thereafter. We periodically review the estimated remaining useful lives of our intangible assets. A reduction in our estimate of remaining useful lives, if any, could result in increased amortization expense in future periods.

Sales and marketing expenses include salaries, benefits, sales commissions, travel, certain 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. The increase in expenses from the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 was primarily due to compensation-related expenses. Compensation-related expenses increased $1.1 million due to an increase of $3.7 million for salary and benefits related to an increase of 51 headcount partially offset by a decrease of $2.6 million in variable compensation. In the second quarter of fiscal 2008, sales and marketing of $128.1 million when translated at constant exchange rates from the same period in the prior year would have been approximately $124.9 million, which is a 1.7 percent decrease over sales and marketing expenses of $127.1 million for the same period in the prior year.

The increase in expenses from the first half of fiscal 2008 compared to the first half of fiscal 2007 was primarily due to compensation-related expenses. Compensation-related expenses increased $8.3 million due to (1) an increase of $11.9 million for salary and benefits related to an increase of 51 headcount; (2) a decrease of $3.6 million increase in variable compensation; and (3) a decrease of $3.2 million in recurring share-based compensation. In the first half of fiscal 2008, sales and marketing of $257.0 million when translated at constant exchange rates from the same period in the prior year would have been approximately $252.5 million, which is a 1.8 percent increase over sales and marketing expenses of $248.1 million for the same period in the prior year.

Research and development expenses consist primarily of salaries and benefits for software engineers, contract development fees, costs of computer equipment used in software development, certain information technology and facilities expenses. All costs incurred in the research and development of software products and enhancements to existing products have been expensed as incurred. Research and development expenses as a percentage of total revenues remained steady at 16.2 percent as compared to 16.5 percent for the second quarter of fiscal 2008 and second quarter of fiscal 2007, respectively. Research and development expenses as a percentage of total revenues increased to 16.9 percent from 16.7 percent for the first half of fiscal 2008 compared to the first half of fiscal 2007. The increase as a percentage of total revenue was due to BEA’s concerted effort to invest in research and development, specifically related to the WebLogic Communications Platform and the AquaLogic Product Family.

Research and development expenses increased $3.0 million from the first fiscal quarter of 2008 compared to the first fiscal quarter of 2007. As of July 31, 2007, research and development was comprised of 1,240 employees, 822 were located in the Americas and 418 were located outside the Americas. The increase in expenses from the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007 was primarily due to compensation-related expenses. Compensation-related expenses increased $1.6 million due to salary and benefits related to an increase, both through acquisition and organic growth, of 88 headcount; partially offset by a decrease of $1.4 million associated with recurring share based compensation. In addition third party reimbursements declined by $1.2 million in the second quarter of fiscal 2008.

The increase in expenses from the first half of fiscal 2008 compared to the first half of fiscal 2007 was primarily due to compensation-related expenses. Compensation-related expenses increased $7.3 million for salary and benefits, both through acquisition and organic growth, of 88 headcount; partially offset by a decrease $2.3 million associated with stock-based compensation. In addition, third party reimbursements declined $1.3 million in fiscal 2008 compared to fiscal 2007.

We have entered into product development agreements with third parties to develop ports and integration tools, for which the third parties provide expense reimbursement. In addition, we have one significant product development arrangement with a third party to co-develop a product of mutual interest, for which the third party has historically provided expense reimbursement for certain product development and marketing expenses. Historically, the funding received from these arrangements was intended to offset certain research and development and marketing costs and was non-refundable, and such amounts were recorded as a reduction in our operating expenses. During the first half of fiscal 2008, we received $0.8 million related to research and development funding and $0.1 million of third party reimbursement, related to the development of ports and integration tools during the first half of fiscal 2008. Management believes the Company will receive research and development funding of approximately $0.8 million to $1.0 million in fiscal 2008 related to the co-development of a product of mutual interest. Total research and development expense is not expected to decline sequentially equal to the amount of the funding. . In the first half of fiscal 2007, we received $2.2 million of third party reimbursement, of which $0.9 million related to the development of ports and integration tools and $1.3 million related to research and development expenses.

General and administrative expenses increased $4.0 million for the second quarter of fiscal 2008 compared to the second quarter of fiscal 2007. This increase in expenses was primarily due to an increase of $4.2 million for third party expenses related to the Company’s stock option review offset by a decline in recurring share based compensation of approximately $1.0 million. General and administrative expenses increased $12.0 million for the first half of fiscal 2008 compared to the first half of fiscal 2007. This increase in expenses was primarily due to $8.8 million for third party expenses related to the Company’s stock option review. Compensation expense for salary and benefits increased approximately $0.9 million offset by a decline in recurring share based compensation of $1.3 million for the first half of fiscal 2008 compared to the first half of fiscal 2007.

Acquisition-related in-process research and development In-process research and development (“IPR&D”) represents incomplete research and development projects that had not reached technological feasibility and had no alternative future use at the date the assessment was made in conjunction with the acquisition and consequently was written off in the first quarter of fiscal 2007.

Office Lease and Facilities Consolidation. In the second quarter of fiscal 2008, the Company occupied new San Francisco office space and vacated the three existing San Francisco office locations. Two of the three existing office leases expire in fiscal 2008 and the remaining one expires in fiscal 2009. In the second quarter of fiscal 2008, the Company recorded a facilities consolidation charge of $2.5 million related to future lease commitments. The $2.5 million of future lease commitments was calculated based on management’s best estimates and the present value of the remaining future lease commitments for vacant facilities.

The following table provides a summary of the items included in interest and other, net (in thousands):

Interest expense is a function of the outstanding balance of the $215.0 million of notes payable in fiscal 2008 and the convertible notes that were outstanding in fiscal 2007. The decrease in interest expense for the second quarter and first half of fiscal 2008 compared to the same periods in fiscal 2007 correlates with the repurchase of all the outstanding convertible subordinated notes in fiscal 2007 and the payoff of the $215 million credit facility in fiscal 2008.

Interest income and other, net increased $1.6 million for the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007 due primarily to (1) improved yields on our cash, cash equivalents and investment balances which resulted in an increase in interest income of $0.5 million; (2) $0.7 million write-off of unamortized arrangement cost on the credit facility; and (3) $0.2 million of gain on the disposition of minority interests in a strategic equity investment.

Interest income and other, net decreased $3.6 million for the first half of fiscal 2008 compared to the first half of fiscal 2007 due primarily to (1) improved yields on our cash, cash equivalents and investment balances which resulted in an increase in interest income of $5.0 million; (2) a gain of $0.8 million on the sale of the San Jose Land which is offset by (2) a $10.6 million decline in gains on the disposition of minority interests in strategic equity investments in fiscal 2008.

We have recorded income tax expense of $18.6 million and $15.2 million for the second quarter of fiscal 2008 and fiscal 2007, respectively. We have provided for income taxes based on a projected annual effective tax rate of 28 percent and 33 percent for the second quarter of fiscal 2008 and fiscal 2007, respectively. The second quarter of fiscal 2008 reflected one-time income tax Expense of $0.3 million relating to the accrual of tax reserves resulting in an effective tax rate of 29 percent. The projected annual effective tax rate for the second quarter of fiscal 2008 reflects a 5 percentage point reduction as compared to the projected annual effective tax rate for the second quarter of fiscal 2007 primarily due to a benefit of lower non-deductible stock option compensation expense and the benefit of higher projected current year low taxed foreign earnings. Our projected annual effective tax rate for the second quarter of fiscal 2008 and for the second quarter of fiscal 2007 is less than the 35 percent U.S. federal statutory rate primarily due to the benefit of projected low taxed foreign earnings.

We have recorded income tax expense of $30.6 million and $32.1 million for the first six months of fiscal 2008 and fiscal 2007, respectively. We have provided for income taxes based on a projected annual effective tax rate of 28 percent and 33 percent for the first six months of fiscal 2008 and fiscal 2007, respectively. The first six months of fiscal 2008 reflected one-time income tax expense of $0.6 million relating to the accrual of tax reserves resulting in an effective tax rate of 29 percent. The projected annual effective tax rate for the first six months of fiscal 2008 reflects a 5 percentage point reduction as compared to the projected annual effective tax rate for the first six months of fiscal 2007 primarily due to a benefit of lower non-deductible stock option compensation expense and the benefit of higher projected current year low taxed foreign earnings. Our projected annual effective tax rate for the first six months of fiscal 2008 and for the first six months of fiscal 2007 is less than the 35 percent U.S. federal statutory rate primarily due to the benefit of projected low taxed foreign earnings.

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. As a result of recent U.S. operating results, as well as U.S. jurisdictional forecasts of taxable income, we believe that net deferred tax assets in the amount of $226.0 million are realizable based on the “more likely than not” standard required for recognition.

Our primary source of cash is receipts from our revenues. The primary uses of cash are payroll (salaries, bonuses, commissions and benefits) and general operating expenses (facilities, marketing, legal, travel, etc.). Another source of cash is proceeds from the exercise of employee options and other uses of cash include our stock repurchase program and repurchase of our convertible subordinated notes.

As of July 31, 2007, cash, cash equivalents (excluding all restricted cash) and short-term and long-term investments totaled $1,174 million versus $1,275 million at January 31, 2007.

In the first half of fiscal 2008, net cash provided by operating activities increased by $2.8 million when compared to the first half of fiscal 2007. Net income adjusted for non-cash charges increased $2.4 million due to the increase in net income offset by the declines in share based compensation and acquisition related charges for intangible asset amortization and IPR&D. The change in operating assets and liabilities was essentially flat in the ordinary course of operations.

Cash provided by investing activities increased by $30.0 million when comparing cash flows from investing activities for the first half of fiscal 2008 and the first half of fiscal 2007. The change is primarily due to a decrease in acquisition payment activity that was partially offset by a decrease in gains on sales of minority investments. In addition, we sold the San Jose land for net proceeds of approximately $105.5 million and purchased of the Sobrato building for approximately $135.0 million.

Cash used in financing activities increased by $87.0 million in the first half of fiscal 2008 compared to the same period in the prior year. The increase in financing cash outflow was due to repaying the $215 million credit facility in fiscal 2008 compared to repurchasing $210 million in outstanding convertible notes offset by a decrease of $74.7 million in proceeds from the employee stock purchase plan.

Our principal source of liquidity is our cash, cash equivalents and short and long-term investments, as well as the cash flow that we generate from our operations. Our liquidity could be negatively impacted by any trends that result in a reduction in demand for our products or services. We believe that our existing cash, cash equivalents, short and long-term investments and cash generated from operations, if any, will be sufficient to satisfy our currently anticipated cash requirements through July 31, 2008. However, we may make acquisitions or license products and technologies complementary to our business and may need to raise additional capital through future debt or equity financing to the extent necessary to fund any such acquisitions or licenses. There can be no assurance that additional financing will be available, at all, or on terms favorable to us.

On July 31, 2006, the Company entered into a five-year $500.0 million unsecured revolving credit facility (the “Credit Facility”). At closing, the Company borrowed $215.0 to repay in full and terminate the long term debt facility which matured in October 2008. The Credit Facility permits prepayment of outstanding loans at any time without premium or penalty. On June 29, 2007, the Company repaid the entire $215 million outstanding balance under the credit facility, and the Credit Facility remains in effect. Interest on this debt was calculated based on the London Interbank Offering Rate (“LIBOR”) or a prime-based rate, plus a margin based on our leverage ratio, determined quarterly. The effective annual interest rate was approximately 5.7 percent as of July 31, 2007.

At January 31, 2007, the Company has utilized the majority of its net operating losses for U.S. tax reporting purposes. However, the Company has recognized a loss for tax purposes during the year ended January 31, 2008 on the sale of land that was held for its future headquarters. As a result, it is not anticipated that substantial cash payments for U.S. taxes will be required.

Restricted cash represents collateral for our letters of credit. Short term restricted cash correlates with letters of credit that expire within one year.

The following table of contractual obligations as of July 31, 2007 has been prepared assuming that the convertible subordinated notes will be repaid in cash upon maturity (in thousands):

The above table excludes obligations related to accounts payable, accrued liabilities incurred in the ordinary course of business, and any future rate variable interest obligations associated with contractual obligations shown above.

We do not have significant commitments under lines of credit, standby lines of credit, guarantees, standby repurchase obligations or other such arrangements.

In September 2001, March 2003, May 2004, March 2005 and May 2007, the Board of Directors approved stock repurchases that in aggregate equaled $1,100.0 million of our common stock under a share repurchase program (the “Share Repurchase Program”). In the first quarter of fiscal 2007, the Company did not repurchase any shares, and alternatively repurchased subordinated convertible notes (as discussed above). An additional $500 million was approved by the Board of Directors in May 2007, resulting in a remaining $621.7 million available for repurchase under the Share Repurchase Program.

We do not use off-balance-sheet arrangements with unconsolidated entities or related parties, nor do we use other forms of off-balance-sheet arrangements such as research and development arrangements. Accordingly, our liquidity and capital resources are not subject to off-balance-sheet risks from unconsolidated entities. As of July 31, 2007, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

We have entered into operating leases for most U.S. and international sales and support offices and certain equipment in the normal course of business. These arrangements are often referred to as a form of off-balance sheet financing. As of July 31, 2007, we leased facilities and certain equipment under non-cancelable operating leases expiring between 2007 and 2014. Future minimum lease payments under our operating leases as of July 31, 2007 are detailed previously in the minimum contractual obligations table above.

We occasionally sell software products or services to companies that have board members or executive officers that are also on our Board of Directors. The total revenues recognized by us from such customers in the second quarter and first half of July 31, 2007 and 2006 were insignificant.

Our revenues originating outside the Americas (U.S., Canada, Mexico and Latin America) were 52.5 percent and 46.3 percent of total revenues for the second quarter of fiscal 2008 and 2007, respectively, and 50.8 percent and 46.2 percent of total revenues in the first half of fiscal 2008 and 2007, respectively. International revenues from each individual country outside of the United States were less than 10 percent of total revenues in the three and six months ended July 31, 2007. International revenues from each individual country outside of the United States were less than 10 percent of total revenues in the three and six months ended July 31, 2006 with the exception of the United Kingdom with $66.1 million or 10.0% of total revenues in the six months ended July 31, 2006. International sales were made mostly from our foreign sales subsidiaries in the local countries and are typically denominated in the local currency of each country. Fluctuations in the Euro, British Pound and Yen would have the most impact on our future results of operations. These subsidiaries also incur most of their expenses in the local currency. Accordingly, foreign subsidiaries use the local currency as their functional currency.

Our 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, export license restrictions, other regulations and restrictions, and foreign exchange volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors.

Most of our accounting exposure to foreign exchange rate volatility arises primarily from intercompany accounts between our parent company in the United States and our foreign subsidiaries. The remaining accounting exposure is a result of certain assets and liabilities denominated in foreign currencies other than their functional currency that require remeasurement. The intercompany accounts are typically denominated in the functional currency of the foreign subsidiary in order to centralize foreign exchange risk. The income statement exposure to currency fluctuations arises principally from revaluing our intercompany balances into U.S. dollars, with the resulting gains or losses recorded in other income and expense. The Company hedges its exposure to these profit and loss fluctuations by entering into forward exchange contracts. A forward foreign exchange contract obligates us 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. The gains or losses from the forward contracts are designed to approximately offset the gains or losses from revaluing the intercompany accounts. At July 31, 2007, our transaction exposures amounted to $121.4 million and were offset by foreign currency forward contracts with a net notional amount of $121.4 million. Based on exposures at July 31, 2007, a 10 percent movement against our portfolio of transaction exposures and hedge contracts would result in an insignificant gain or loss. We do not use foreign currency contracts for speculative or trading purposes. All outstanding forward contracts are marked-to-market on a monthly basis with gains and losses included in interest and other, net. Net losses resulting from foreign currency transactions were approximately $1.2 million for the first half of fiscal 2008 and approximately $0.7 million for the first half of fiscal 2007.

We are also exposed to foreign exchange rate fluctuations as the financial results of foreign subsidiaries are translated into U.S. dollars for consolidation purposes. As exchange rates vary, these results, when translated, may vary from expectations and may adversely impact overall financial results.

Our outstanding forward contracts as of July 31, 2007 are presented in the table below and are recorded on the balance sheet as part of accrued liabilities. All forward contracts amounts are representative of the expected payments to be made under these instruments. The fair market value of the contracts below represents the difference between the spot rate at July 31, 2007 and the contracted rate. All of these forward contracts mature within 94 days or less as of July 31, 2007.

We invest our 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 primarily invested in interest-bearing bank accounts and money market funds at the local operating banks.

We account for our 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, our future investment income may fall short of expectations due to changes in interest rates or we 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, we reduce our interest rate risk by investing our cash in instruments with remaining time to maturity of less than two years. As of July 31, 2007, the average holding period until maturity of our cash equivalents, short and long-term restricted cash and short-term investments was approximately 178 days. This reflects the auction rate securities (ARS) based on their reset feature. Rates on these securities typically reset every 7, 28 or 35 days.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded these disclosure controls and procedures are effective.

There were no changes in the Company’s internal control over financial reporting during the quarter ended July 31, 2007 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.

On July 20, 2006, the first of several derivative lawsuits was filed by a purported Company shareholder in the United States District Court for the Northern District of California. The cases were subsequently consolidated and plaintiffs’ current complaint names certain of the Company’s present and former officers and directors as defendants and names the Company as a nominal defendant. The complaint alleges that the individual defendants violated the federal securities laws and breached their duties to the Company in connection with our historical stock option grant activities. On October 25, 2007, the complaint was amended to assert a purported class action claim alleging that the Company’s directors breached their fiduciary duties by failing to fully inform themselves of the Company’s true value prior to rejecting Oracle’s unsolicited proposal to acquire the Company for $17.00 per share. Plaintiffs seek an order requiring the director defendants to implement a procedure or process to determine the Company’s true value and obtain the highest possible price for shareholders. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis the action will be resolved.

consideration to Oracle’s unsolicited proposal to acquire us for $17.00 per share. The complaint seeks injunctive relief, including the implementation of a process or procedure to obtain the highest possible price for the Company’s shareholders through negotiations with Oracle or other means. The Company is defending the case vigorously. There can be no assurance, however, that we will be successful in our defense of this action. It is not known when or on what basis the action will be resolved.

We operate in a rapidly changing environment that involves numerous risks and uncertainties. Set forth below are 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, and which could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Prospective and existing investors should carefully consider the following risk factors, and other risks and cautionary statements set forth in this report, in evaluating an investment in our common stock.

We have experienced in the past, and may experience in the future, significant fluctuations in our actual or anticipated revenues and operating results, which has prevented us in the past, and may prevent us in the future from meeting securities analysts’ or investors’ expectations and result in a decline in our stock price.

Our revenues have fluctuated significantly in the past and are likely to fluctuate significantly in the future, which may include declines in quarterly revenues as compared to the previous fiscal quarter and as compared to the same quarterly period in the prior fiscal year, as well as declines in annual revenues as compared to the previous fiscal year. 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. Moreover, even if our total revenues meet investors’ and securities analysts’ expectations, if a component of our total revenues does not meet these expectations, our stock price may decline. Our stock price is also subject to many factors outside of our control, including the substantial volatility generally associated with Internet, software and technology stocks, and broader market trends unrelated to our performance, such as the substantial declines in the prices of many such stocks from 2000 through 2003, as well as market declines related to terrorist activities and military actions.

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

Our quarterly revenues, expenses and operating results are difficult to forecast because of the volatility of our license revenues.

A substantial portion of our license revenues have been derived from large orders. Reliance on large license transactions increases the risk of fluctuation in quarterly results because the unexpected loss of a small number of larger orders can create a significant revenue shortfall. If we cannot generate a sufficient number of large customer orders, convert a sufficient number of development orders into orders for 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.

We use a “pipeline” system, a common industry practice, to forecast sales and trends in our business. Our sales personnel monitor the status of all potential transactions, including the estimated closing date and estimated dollar amount of each transaction. We aggregate these estimates periodically to generate a sales pipeline and then evaluate the pipeline to forecast sales and identify trends in our business. This pipeline analysis and related estimates of revenue has in recent periods and may in future periods differ significantly from actual revenues in a particular reporting period.

A slowdown in the global economy, among other factors, has caused and may continue to cause customer purchasing decisions to be delayed, reduced in amount or cancelled, all of which have reduced and could in the future reduce the rate of conversion of the pipeline into contracts.

Moreover, we typically receive and fulfill most of our orders within the quarter, and a substantial portion of our orders, particularly our larger transactions, are typically received in the last month of each quarter, with a concentration of such orders at the end of the quarter. As a result, even though we may have substantial backlog at the end of a prior quarter and positive business indicators such as sales “pipeline” reports about customer demand during a quarter, we may not learn of revenue shortfalls until very late in the quarter, and possibly not until the final day or days of the quarter. Not only could such shortfalls significantly adversely affect our revenues, they could substantially adversely affect our earnings because we may not become aware of such shortfalls in time to adjust our cost structure to respond to a variation in the conversion of the pipeline into contracts. Our inability to respond to a variation in the pipeline or in the conversion of the pipeline into contracts in a timely manner, or at all, could cause us to plan or budget inaccurately and thereby adversely affect our business, financial condition or results of operations.

Further, periodic adverse economic conditions, particularly those related to the technology industry and the economic and political uncertainties arising out of the ongoing U.S. military activity in Iraq, recent and possible future terrorist activities, other potential military and security actions in the Middle East, and instability in markets in other parts of the world, have increased the likelihood that customers will unexpectedly delay, cancel or reduce orders, resulting in revenue shortfalls.

Because of such factors and our operating history and on-going expenses associated with our prior acquisitions, the possibility of future impairment charges and the possibility of future charges related to any future facilities consolidation or work force reductions, we may again experience net losses in future periods. In addition, as we have expensed stock option grants under FAS 123R for fiscal periods commencing February 1, 2006, we will continue to have significant accounting charges that will make it substantially more likely we could experience net losses. Any revenue shortfall below our expectations or increase in expenses could have an immediate and significant adverse effect on our results of operations and lead to a net loss.

The seasonality of our sales typically has a significant adverse effect on our revenues in our first fiscal quarter.

Our first quarter revenues, particularly our license revenues, are typically lower than revenues in the immediately preceding fourth quarter. We believe this is because our commission plans and other sales incentives are structured for annual performance and contain bonus provisions based on annual quotas that typically are triggered in the later quarters in a year. In addition, most of our customers begin a new fiscal year on January 1 and it is common for capital expenditures to be lower in an organization’s first quarter than in its fourth quarter. We anticipate that the negative impact of seasonality on our first quarter will continue. Moreover, because of this seasonality, even if we have a very strong fourth quarter in a particular year, the initial quarter in the next year could nevertheless still be weak on a year-over-year comparative basis, as well as on a sequential basis. This risk remains even if the amount of our deferred revenue and backlog is substantial at the close of the immediately preceding fourth quarter. This seasonality may harm our revenues and other operating results in our first quarter and possibly subsequent quarters as well, particularly if the seasonal impact is more pronounced than we expect.

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

Many of our customers 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 Web-based computing environment, or SOA. Customers evaluating our software products face complex decisions regarding alternative approaches to the integration of enterprise applications, competitive product offerings, implementation of SOA, rapidly changing software technologies and standards, and limited internal resources due to other information systems demands. For these and other reasons, the sales cycle for our products is lengthy and unpredictable, and potential orders are subject to delays or cancellation for reasons over which we have little or no control. In addition, we continue to rely on a significant number of million and multimillion dollar license transactions. In some cases, the larger size of the transactions has resulted in more extended customer evaluation and procurement processes, which in turn have lengthened the overall sales cycle for our products. Periodic economic difficulties in our key markets have also contributed to increasing the length of our sales cycle.

Finally, the introduction of AquaLogic and other products and implementation of our products for SOA have contributed to a longer sales cycle due to the fact that it offers a more comprehensive solution that may require us to provide a significant level of education to prospective customers regarding the use and benefits of our products, and may result in more detailed customer evaluations. Delays or failures 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.

We have restructured, and may in the future restructure, our sales force, which can be disruptive.

We continue to rely heavily on our direct sales force. In recent years, we have restructured or made other adjustments to our sales force in response to factors such as conditions in the information technology industry, our expenses related to revenues, management changes, product changes and other external and internal considerations. Changes in the structure of the sales force and sales force management have resulted in a temporary lack of focus and reduced productivity that may have affected revenues in one or more quarters. If we continue to restructure our sales force, then the transition issues associated with restructuring the sales force may recur. Such restructuring or associated transition issues can be disruptive and adversely impact our business and operating results.

Any failure to maintain on-going sales through distribution channels could result in lower revenues, and increasing sales through distribution channels could result in lower margins on our license 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”), original equipment manufacturers (“OEMs”), consultants, software tool vendors and distributors. Our ability to achieve revenue growth in the future will depend in large part on our success in maintaining existing relationships and further establishing and expanding relationships with our indirect sales channels. In particular, we have an ongoing initiative to further establish and expand relationships with our distributors, 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 WebLogic Server and other products in their products. It is possible that we will not be able to successfully expand our distribution channels, secure agreements with additional SIs and ISVs on commercially reasonable terms or at all, and otherwise adequately continue to develop and maintain 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 do not conflict with or curtail our direct sales. 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 formal and informal relationships with a number of SIs and consulting 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. 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, or that we will not be able to maintain an effective, long-term relationship with these third parties. However, because we achieve lower margins on license revenue sales through distribution channels, an increase in our sales through distribution channels could result in lower margins on our license revenues.

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

The market for application server, integration and SOA software, and related software infrastructure, and specialty applications in communications, time and event driven, real-time and virtualization products and services is highly competitive. Our competitors are diverse and offer a variety of solutions directed at various segments of this marketplace.

Our competitors include several companies, such as IBM, Oracle Corporation, SAP AG and Microsoft, which compete in a number of our product lines. All of these competitors have longer operating histories; significantly greater financial, technical, marketing and other resources; significantly greater name recognition; a broader product offering; a larger installed base of customers than we do; and are able to bundle competing products with their other software offerings at a discounted price. In addition, many competitors have well-established relationships with our current and potential customers. As a result, these competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of their products than we can.

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. Further, 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 and open source availability of functionally competitive software could require us to reduce the price of our products and related services, which could harm our business. We may not be able to compete successfully against current and future competitors, and any failure to do so would harm our business.

Because the technological, market and industry conditions in our business can change very rapidly, if we do not successfully adapt our products to these changes, our revenue and profits will be harmed.

The market for our products and services 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 result in a decline in the markets for our existing products or render them obsolete and unmarketable. As a result, our success depends upon our ability to timely and effectively enhance existing products, respond to changing customer requirements, and develop and introduce in a timely manner new products and initiatives that keep pace with technological and market developments and emerging industry standards, as well as our ability to educate and train our sales force and indirect sales channels on our new or enhanced products, initiatives and technologies. 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 new products on a timely basis. Failure to develop, acquire 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 those of our products with which their software 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 products and services, result in negative publicity or loss of our reputation, and adversely affect our revenues and other operating results.

If the markets for application servers, application platforms, application integration, portal, BPM, SOA and related application infrastructure software and Web services decline or do not grow as quickly as we expect, our revenues will be harmed.

We sell our products and services in the application server, application platform, application integration, portal, BPM, SOA and related application and service infrastructure markets. These markets 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 and SOA. Our future financial performance will depend in large part on the continued growth in the use of the Web to run software applications and 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 SOA. The markets for application server, application platform, portal, application integration, web services, BPM and SOA and related services and technologies may not grow and could decline. Even if they do grow, they may grow more slowly than we anticipate, particularly in view of periodic economic difficulties affecting the technology sector in the United States, Asia and Europe. If these markets fail to grow, grow more slowly than we currently anticipate, or decline, our business, results of operations and financial condition will be adversely affected.

Our revenues are derived primarily from a single group of similar and related products and related services, and a decline in demand or prices for these products or services could substantially adversely affect our operating results.

We currently derive the majority of our license and service revenues from BEA WebLogic Server, Tuxedo and our AquaLogic products, 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 Server, Tuxedo, AquaLogic products or related services, such as periodic difficult economic conditions, future terrorist activities or military actions, any decline in overall market demand, competition, product performance or technological change, could have a material adverse effect on our business and consolidated results of operations and financial condition. In particular, with regard to Tuxedo, we have recently experienced a decline in the percentage of our license revenue generated by Tuxedo, as well as a decline in the absolute dollar amount of revenue generated by Tuxedo. If this trend were to continue or worsen, it would have an adverse impact on our revenue, profit and other operating results.

Our future growth, if any, is expected to be achieved through the implementation and introduction of our new product initiatives in SOA, AquaLogic, time and event-driven architectures, real-time applications, virtualization, and WebLogic Communications Platform. Many of these new product initiatives have substantial, entrenched competitors with greater resources and experience in these product areas. Other product initiatives are in nascent markets, and it is unclear when or if these markets will develop into substantial markets or whether we will serve those markets well. There can be no assurances that all or any of these new products will be successful and contribute to profitability or growth.

If our WebLogic Communications Platform, AquaLogic and other recently introduced products do not achieve significant market acceptance, or market acceptance is delayed, our revenues will be substantially adversely affected.

In January 2006 we released the first product of our WebLogic Communications Platform. In June 2006, we introduced the BEA AquaLogic group of products and enhanced them with products from the Plumtree acquisition for our SOA offerings. We have invested substantial resources to develop, acquire and market these products, and anticipate that this will continue. If these products and our other products currently in development do not achieve substantial market acceptance among new and existing customers, whether due to factors such as any technological problems, competition, pricing, sales execution, market shifts or otherwise, it will have a material adverse effect on our revenues and other operating results. Moreover, because our new products generally offer broader solutions and other improvements over our prior products, potential customers may take additional time to evaluate their purchases, which can delay customer acceptance of our new products. If these delays continue or worsen, it will adversely affect our revenues and other operating results.

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 our 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. In addition, 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.

We have been and continue to be subject to legal proceedings and claims that arise in the ordinary course of our business, including claims currently being asserted that our products infringe certain patent rights. It is possible that third parties, including competitors, technology partners and other technology companies, could successfully claim that our current or future products, whether developed internally or acquired, infringe their rights, including their trade secret, copyright and

patent rights. These types of claims, with or without merit, can cause costly litigation that requires significant management time, as well as impede our sales efforts due to any uncertainty as to the outcome, all of which could materially adversely affect our business, operating results and financial condition. These types of claims, with or without merit, could also cause us to pay substantial damages or settlement amounts, cease offering any subject technology or products altogether, require us to enter into royalty or license agreements, compel us to license software under unfavorable terms, and damage our ability to sell products due to any uncertainty generated as to intellectual property ownership. 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.

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, lack of market acceptance of our products, or increased service and warranty costs. 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 our 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.

If we do not maintain our relationships with third-party vendors, interruptions in the supply of our products may result.

Portions of our products incorporate software that was developed and is maintained by third-party software vendors. We may not be able to replace the functionality provided by the third-party software currently offered with our products if that software becomes obsolete or incompatible with future versions of our products or is not adequately maintained or updated. Any significant interruption in the supply of these products could adversely impact our sales unless and until we can secure another source at costs which are acceptable to us. We depend in part on these third parties’ abilities to enhance their current products, to develop new products on a timely and cost-effective basis and to respond to emerging industry standards and other technological changes. The inability to replace, or any significant delay in the replacement of, functionality provided by third-party software in our products could materially and adversely affect our business, financial condition or results of operations.

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

Revenues from markets outside of the Americas has accounted for approximately one-half of our total revenues over the past several years, and we expect these markets to continue to account for a significant portion of our total revenues. We sell our products and services through a network of branches and subsidiaries located in 37 countries worldwide. In addition, we also market our products 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 greater difficulties in maintaining and enforcing U.S. accounting and public reporting standards, greater difficulties in staffing and managing foreign operations with personnel sufficiently experienced in U.S. accounting and public reporting standards, unexpected changes in regulatory practices and tariffs, longer collection cycles, seasonality, potential changes in export licensing and tax laws, and greater difficulty in protecting intellectual property rights. Also, the impact of fluctuating exchange rates between the U.S. dollar and foreign currencies in markets where we do business can significantly impact our revenues. The EMEA region has historically accounted for, and we expect in the future will continue to account for, a significant portion of our revenues. If the value of the U.S. dollar relative to European currencies were to significantly increase, it would have an adverse impact on our revenues, profits and other operating results. Also, we are 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 us. It is possible, however, that future audits could result in significant assessments against us or our employees for transfer taxes, payroll taxes, income taxes, or other taxes as well as related employee and other claims which could adversely effect our operating results. General economic and political conditions in these foreign markets, including the military action in the Middle East, geopolitical instabilities in other parts of the world and a backlash against U.S. based companies may also impact our international revenues, as such conditions may cause decreases in demand or impact our ability to collect payment from our customers. 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.

Changes in accounting regulations and related interpretations and policies, particularly those related to accounting for stock options and revenue recognition, could cause us recognize lower revenue and profits or to defer recognition of revenue.

The methods, estimates, and judgments we use in applying our accounting policies have a significant impact on our results of operations. Such methods, estimates, and judgments are, by their nature, subject to substantial risks, uncertainties, and assumptions, and factors may arise over time that lead us to change our methods, estimates, and judgments. Changes in those methods, estimates, and judgments could significantly affect our results of operations. For example, the FASB has adopted Financial Accounting Standards Board Statement No. 123R (“FAS 123R”), Share-Based Payment, replacing FAS 123, which eliminates the ability to account for compensation transactions using Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and requires that such transactions be accounted for using the fair value based method.

The fair value based method of accounting for compensation transactions required under FAS 123R requires the use of valuation methodologies which were developed for valuing traded options, not employee stock options and restricted stock units, and requires a number of assumptions, estimates and conclusions regarding complex and subjective matters such as the expected forfeitures of equity awards, the expected volatility of our stock price, the expected dividend rate with respect to our common stock, and the exercise behavior of our employees. Because our employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, the existing valuation models may not provide an accurate measure of the fair value of our employee stock options. In addition, these factors may be difficult to analyze. Therefore, it is possible that the attribution of this non-cash charge may be misunderstood and cause increased volatility in our stock price. Similarly, factors may arise over time that lead us to change our estimates and assumptions with respect to future share-based compensation arrangements, resulting in variability in our share-based compensation expense over time. Changes in forecasted share-based compensation expense could impact our gross margin percentage; research and development expenses; marketing, general and administrative expenses; and our tax rate.

Similarly, 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, 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. 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.

Moreover, policies, guidelines and interpretations related to revenue recognition, accounting for acquisitions, income taxes, facilities consolidation charges, allowances for doubtful accounts and other financial reporting matters require us to make difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance. To the extent that our judgment is incorrect, it could result in an adverse impact on the Company’s financial statements. Some of these matters are also among topics currently under re-examination by accounting standard setters and regulators. These standard setters and regulators could promulgate interpretations and guidance that could result in material and potentially adverse changes to our accounting policies.

Unanticipated changes in our effective tax rates or exposure to additional income tax liabilities could affect our profitability.

We are a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Our provision for income taxes is based on jurisdictional mix of earnings, statutory rates, and enacted tax rules, including transfer pricing. Significant judgment is required in determining our provision for income taxes and in evaluating our tax positions on a worldwide basis. It is possible that these positions may be challenged which may have a significant impact on our effective tax rate.

We have experienced substantial growth since our inception in 1994. Overall, we have increased the number of our employees from 120 employees in three offices in the United States at January 31, 1996 to approximately 4,278 employees in 81 offices in 37 countries at January 31, 2007. Our ability to manage our staff and growth effectively requires us to continue to improve our operational, financial, disclosure and management controls, reporting systems and procedures, and information technology infrastructure, particularly in light of the enactment of the Sarbanes-Oxley Act of 2002 and related regulations.

In this regard, we are continuing to update 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 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, reporting 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, as well as past errors resulting there from. If we are unable to manage growth effectively, our business, results of operations and financial condition will be materially adversely affected.

The majority of our expenses are personnel-related costs such as employee compensation and benefits, along with the cost of the infrastructure (occupancy and equipment) to support our employee base. The failure to adjust our employee base to the appropriate level to support our revenues could materially and adversely affect our business, operating results and financial condition.

We may lose key personnel or may not be able to hire enough qualified personnel, which would adversely affect our ability to manage our business, develop and acquire new products and increase revenue.

We believe our future success will depend upon our ability to attract and retain highly skilled personnel, including members of management and key technical employees. 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. In addition, as we seek to expand our global organization, the hiring of qualified sales, technical and support personnel has been, and will continue to 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.

We have historically used stock options and other forms of equity compensation as key components of our employee compensation program in order to align employees’ interests with the interests of our stockholders, encourage employee recruitment and retention, and provide competitive compensation packages. The changing regulatory landscape, including as a result of FAS 123R, could make it more difficult and expensive for us to grant stock options to employees in the future, and require us to modify our equity granting strategy, including reducing the level of equity awards we grant. If employees believe that the incentives that they would receive under a modified strategy are less attractive, we may find it difficult to attract, retain and motivate employees. In addition, the use of alternative equity incentives may increase our compensation expense and may negatively impact our earnings. To the extent that new regulations make it more difficult or expensive to grant equity instruments to employees, we may incur increased compensation costs, further change our equity compensation strategy or find it increasingly difficult to attract, retain and motivate employees, each of which could materially and adversely affect our business, financial condition or results of operations.

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

From our inception in January 1994, we have made a substantial number of strategic acquisitions. From June 2005 to August 2006, we acquired Plumtree Software, Inc., a publicly traded software company, as well as six smaller companies in targeted cash acquisitions, each of which has presented an integration challenge to our business operations. In addition, integration of acquired companies, divisions and products involves the assimilation of potentially conflicting products and operations, including the maintenance of effective internal controls, which diverts 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. Further, while we may desire 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, retain key employees of the acquired companies, or execute successfully the strategy driving the acquisition. 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 we or the acquired companies have established. In addition, we may have product liability or intellectual property liability associated with the sale of the acquired company’s products.

Acquisitions also expose us to the risk of claims by terminated employees, shareholders of the acquired companies or other third parties related to the transaction. Finally, if we undertake future acquisitions, we may issue dilutive securities, assume or incur additional debt obligations, incur large one-time expenses, utilize substantial portions of our cash, 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 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, 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 statement of income. The timing of such an impairment (if any) of goodwill acquired in past and future transactions is uncertain and difficult to predict. If future events cause additional impairment of any intangible assets acquired in our past or future acquisitions, we may have to record additional charges relating to such assets sooner than we expect which would cause our profits to decline. We are 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. For example, in the quarter ended October 31, 2001, we took an asset impairment charge of $80.1 million related to past acquisitions. At July 31, 2007, we had remaining net goodwill and net acquired intangible assets of approximately $281.8 million. In the quarter ended April 30, 2007, we took an additional charge of approximately $3.8 million in connection with impairment of goodwill related to our acquisition of Connectera. If we are required to take such additional impairment charges, the amounts could have a material adverse effect on our results of operations.

We face risks in connection with Plumtree’s government contracts which may adversely affect our results of operations.

We face risks associated with the businesses and operations of Plumtree, which we acquired on October 20, 2005. Plumtree derived a significant portion of its software license and service revenue from government customers. We have assumed Plumtree’s business with the United States government and other domestic and international public entities, including the risks associated with such business, such as the susceptibility to unpredictable governmental budgetary and policy changes. Sales to government entities can be adversely affected by budgetary cycles, changes in policy and other political events outside of our control, such as the outbreak of hostilities overseas and domestic terrorism. Governments often retain the ability to cancel contracts at their convenience in times of emergency or under other circumstances. Some of Plumtree’s government customers have experienced budgetary constraints due to decreased federal funding to state and local governments. Additionally, the government may require special intellectual property rights and other license terms generally more favorable to the customer than those typical in non-government contracts. These requirements involve more licensing cost and increased contract risk for us. The government procurement process in general can be long and complex and being a government vendor subjects us to additional regulations.

In addition, we have conducted an initial internal investigation into Plumtree’s compliance with, and we are subject to an ongoing review in relation to, Plumtree’s contract with the U.S. General Services Administration (“GSA”) which may adversely impact our financial position, liquidity and results of operations. The U.S. government often retains the right to audit its vendors for compliance. In February 2005, Plumtree became aware that in connection with certain sales made under its GSA contract, Plumtree may not have complied fully with the terms of the “Price Reductions” clause of such contract. As a result, Plumtree voluntarily offered the GSA a temporary price reduction. In response, Plumtree was informed that the matter would be considered further within the GSA. Plumtree commenced an internal investigation into this matter in the second quarter of 2005 and, with the assistance of special legal counsel and forensic accountants, concluded that a damage payment or future discounts off of the GSA price list might be due to the GSA under the GSA contract pursuant to the “Price Reductions” clause. In the quarter ended June 30, 2005, Plumtree established a $1.5 million contingent contract reserve for the potential damage payment or future discounts off the GSA price list related to the GSA contract matter. BEA has reviewed the results of the internal investigation and based on our assessment we have recorded $1.5 million as the fair value of the contingency as of October 20, 2005. In January 2006, we completed this self-audit, which was consistent with the original assessment, and reported these results to the GSA. The GSA has indicated that it would like us to perform an additional review of the period from March 31, 2005 through June 30, 2005. We are currently assessing the GSA’s desire for this additional period. However we have not commenced such additional review and have not recorded any additional contingency accruals related to this issue as of January 31, 2007. There has been no communication from the GSA since April 2006. The final amount of the potential contract damages or future discounts off of the GSA price list is subject to the outcome of final resolution with the GSA. It is possible that the final settlement could exceed the reserve and have a material impact on our financial position, liquidity and results of operations. It is also possible that the GSA may elect to take other action, such as an audit of Plumtree’s compliance with the terms of the applicable GSA contract. Any such audit could prove costly and may distract our management. In addition, as a result of such audit, the U.S. government may require a further discount on future orders under the GSA contract, or seek other remedies. Any such action may adversely affect our financial position, revenue, liquidity and results of operations.

Some provisions in our certificate of incorporation and bylaws, as well as a stockholder rights plan, may have anti-takeover effects.

We have a stockholder rights plan providing for one right for each outstanding share of our common stock. Each right, when exercisable, entitles the registered holder to purchase certain of our securities at a specified purchase price. The rights plan my have the anti-takeover effects of causing substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors. The existence of the rights plan could limit the price that certain investors might be willing to pay in the future for shares of our common stock and could discourage, delay or prevent a merger or acquisition that stockholders may consider favorable. In addition, provisions of our current certificate of incorporation and bylaws, as well as Delaware corporate law, could make it more difficult for a third party to acquire us without the support of our Board of Directors, even if doing so would be beneficial to our stockholders.

The ongoing U.S. military activity in Iraq and any terrorist activities could adversely affect our revenues and operations.

The U.S. military activity in Iraq, terrorist activities and related military and security operations have in the past disrupted economic activity throughout the United States and much of the world. This significantly adversely impacted our operations and our ability to generate revenues in the past and may again in the future. An unfavorable course of events in the future related to the ongoing U.S. military activity in Iraq; any other military or security operations, particularly with regard to the Middle East; any future terrorist activities; or geopolitical tension in other parts of the world could have a similar or worse effect on our operating results, particularly if such attacks or operations occur in the last month or weeks of our quarter or are significant enough to further weaken the U.S. or global economy. In particular, such activities and operations could result in reductions in information technology spending, order deferrals, and reductions or cancellations of customer orders for our products and services.

An unfavorable government review of our income and payroll tax returns or changes in our effective tax rates could adversely affect our operating results.

Our operations are subject to income, payroll and indirect taxes in the United States and in multiple foreign jurisdictions. We exercise judgment in determining our worldwide provision for these taxes, and in the ordinary course of our business there may be transactions and calculations where the ultimate tax determination is uncertain.

Our U.S. federal income tax returns for 2005 through 2006 fiscal years are currently under examination by the IRS. In addition, certain of our U.S. payroll tax returns (primarily related to taxes associated with stock option exercises), and various state and foreign tax returns are under examination by the applicable taxing authorities. While we believe that we have made adequate provisions related to the audits of these tax returns, the final determination of our obligations may exceed the amounts provided for by us in the accompanying consolidated financial statements.

The Audit Committee’s conclusion that certain historical stock option grants were not accounted for correctly has had, and could continue to have, an adverse effect on our financial results.

The Audit Committee has concluded that, primarily from fiscal 1998 through fiscal 2006, a large number of stock options were not accounted for correctly in our financial statements. As a result, we have restated our financial results for the years ended January 31, 1998 through the quarter ended April 31, 2006, and taken substantial compensation charges in each of those periods. We could continue to incur substantial charges in future periods in connection with the results of the review that are not compensation charges. Such charges could include, but are not limited to, payments to employees or taxing authorities arising from potential income tax liabilities pursuant to the U.S. Internal Revenue Code Section 409A.

The Audit Committee’s review of our historical stock option grant practices, together with the preparation of the resulting financial restatements, has consumed considerable amounts of Board member and management time and caused us to incur substantial expenses, which have had and could continue to have an adverse effect on us.

The Audit Committee’s review of our historical stock option grants and the preparation of our restated consolidated financial statements have required us to expend significant Board member and management time, and to incur significant accounting, legal and other expenses. The review and preparation of our financial statements lasted over a year and required numerous meetings of the Audit Committee, the full Board of Directors and members of our senior management. The review has diverted the attention of our Board and management team from the operation of our business and proven to be a significant distraction. In addition, we have incurred substantial expenses in connection with the review, which have had and could continue to have a negative effect on our financial results. The period of time necessary to resolve these ongoing matters is uncertain, and these matters could require significant additional Board and management attention and resources.

The ongoing government inquiries relating to our historical stock option grant practices are time consuming and expensive and could result in injunctions, fines and penalties that may have a material adverse effect on our financial condition and results of operations.

The inquiries by the United States Securities and Exchange Commission (“SEC”) into our historical stock option grant practices are ongoing. We have fully cooperated with the SEC and intend to continue to do so. The period of time necessary to resolve these inquiries is uncertain, and we cannot predict the outcome of these inquiries or whether we will face additional government inquiries, investigations or other actions related to our historical stock option grant practices. These inquiries will likely require us to continue to expend significant management time and incur significant legal and other expenses, and could result in actions seeking, among other things, injunctions against the Company and the payment of significant fines and penalties by the Company, which may have a material adverse effect on our business and earnings.

As a result of the matters identified by the Audit Committee’s review of our historical stock option grant practices, we have failed to comply with SEC reporting requirements and Nasdaq listing requirements and may continue to face compliance issues with both. The continued failure by us to remain in compliance with SEC reporting requirements and Nasdaq listing requirements would likely have a material adverse effect on the Company and our stockholders.

Due to the Audit Committee’s review of our historical stock option grant practices and resulting restatements, we could not file our periodic reports with the SEC on a timely basis and faced the possibility of delisting from Nasdaq. With the filing of our Annual Report on Form 10-K for the year ended January 31, 2007 and Quarterly Reports on Form 10-Q for the quarters ended July 30, 2006, October 31, 2006, April 30, 2007 and July 31, 2007, we believe we have returned to full compliance with SEC reporting requirements and Nasdaq listing requirements and, therefore, that the Nasdaq delisting matter is now closed. However, if the SEC has comments on these reports (or other reports that we previously filed) that require us to file amended reports, or if Nasdaq does not concur that we are in compliance with applicable listing requirements, we may be unable to maintain the listing of our stock on Nasdaq. If this happens, the price of our stock and the ability of our stockholders to trade in our stock could be harmed. In addition, we would be subject to a number of restrictions regarding the registration of our stock under federal securities laws, and we would not be able to issue stock options or other equity awards to our employees or allow them to exercise their outstanding options, which could harm our business.

In addition, if we are not in compliance with our SEC reporting requirements in the future, it could have a negative impact on our reputation, including our relationships with our investors and our customers, our ability to acquire new customers, including new contracts with U.S. federal and other government entities, and, ultimately, our ability to generate revenue. Such lack of current information regarding us could also lead to our inability to access the capital markets for debt or loan financings because investors and lenders would not have information in order to evaluate us.

We have been named as a party to a number of shareholder derivative lawsuits relating to our historical stock option grant practices, and we may be named in additional lawsuits in the future. This litigation could become time consuming and expensive and could have a material adverse effect on our business.

In connection with our historical stock option grant practices and resulting restatements, a number of derivative actions were filed against certain of our current and former directors and officers purporting to assert claims on the Company’s behalf. There may be additional lawsuits of this nature filed in the future. We cannot predict the outcome of these lawsuits, nor can we predict the amount of time and expense that will be required to resolve these lawsuits. If these lawsuits become time consuming and expensive, or if there are unfavorable outcomes in any of these cases, there could be a material adverse effect on our business, financial condition and results of operations.

Our insurance coverage will not cover our total liabilities and expenses in these lawsuits, in part because we have a significant deductible on certain aspects of the coverage. In addition, subject to certain limitations, we are obligated to indemnify our current and former directors, officers and employees in connection with the review of our historical stock option grant practices and the related litigation and government inquiries. We currently hold insurance policies for the benefit of our directors and officers, although our insurance coverage may not be sufficient in some or all of these matters. Furthermore, the insurers may seek to deny or limit coverage in some or all of these matters, in which case we may have to self-fund all or a substantial portion of our indemnification obligations.

We are subject to the risks of additional lawsuits in connection with our historical stock option grant practices, the resulting restatements, and the remedial measures we have taken.

In addition to the possibilities that there may be additional governmental actions and shareholder lawsuits against us, we may be sued or taken to arbitration by former officers and employees in connection with their stock options, employment terminations and other matters. These lawsuits may be time consuming and expensive, and cause further distraction from the operation of our business. The adverse resolution of any specific lawsuit could have a material adverse effect on our business, financial condition and results of operations.

If we fail to maintain effective internal controls or remediate any future material weaknesses in our internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud which could have an adverse effect on our business and operating results and our stock price.

The SEC, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to include a report of management on internal control over financial reporting in their annual reports on Form 10-K that contain an assessment by management of the effectiveness of the Company’s internal control over financial reporting. Effective internal control over financial reporting is essential for us to produce reliable financial reports and prevent fraud. As a result of the Audit Committee’s review into our historical stock option grant practices and related matters, we identified past material weaknesses in our internal controls and procedures (see Item 9A—Controls and Procedures in the Annual Report for the year ended January 31, 2007). A material weakness is a control deficiency, or combination of them, that results in more than a remote likelihood that a material misstatement in our financial statements will not be prevented or detected. A failure to implement and maintain effective internal control over financial reporting could harm our operating results, result in a material misstatement of our financial statements, cause us to fail to meet our financial reporting obligations or prevent us from providing reliable and accurate financial reports or avoiding or detecting fraud.

Failure to comply with applicable corporate governance requirements may cause us to delay filing our periodic reports with the SEC, affect our Nasdaq listing, and adversely affect our stock price.

Federal securities laws, rules and regulations, as well as Nasdaq rules and regulations, require companies to maintain extensive corporate governance measures, impose comprehensive reporting and disclosure requirements, set strict independence and financial expertise standards for audit and other committee members and impose civil and criminal penalties for companies and their chief executive officers, chief financial officers and directors for securities law violations. These laws, rules and regulations have increased and will continue to increase the scope, complexity and cost of our corporate governance, reporting and disclosure practices, which could harm our results of operations and divert management’s attention from business operations.

It may become more difficult and costly to obtain director and officer insurance coverage due to the results of our stock option review.

We expect that the issues arising from our review of stock option grant policies will make it more difficult to obtain director and officer insurance coverage in the future. If we are able to obtain this coverage, it could be significantly more costly than in the past, which would have an adverse effect on our financial results and cash flow. As a result of this and related factors, our directors and officers could face increased risks of personal liability in connection with the performance of their duties. As a result, we may have difficultly attracting and retaining qualified directors and officers, which could adversely affect our business.

Despite recent acquisition speculation and investor actions, a merger, acquisition or other transaction involving us may not occur or may occur at a price per share of our common stock that is below the current trading price, which could harm our stock price.

We face uncertainty concerning our future given certain investors’ calls to auction us, the recent unsolicited cash public offer for us by Oracle at $17.00 per share of our common stock (which offer expired on October 28, 2007), and our board of directors’ stated willingness to negotiate the sale of us at $21.00 per share. As a result of these developments, our stock price has increased substantially in anticipation of a transaction, particularly after the public announcement of Oracle’s offer. There can be no assurance whether a transaction will occur or at what price. If a transaction does not occur, or the market perceives a transaction as unlikely to happen, our stock price may decline.

General customer uncertainty related to acquisition speculation and investor actions could harm our business.

Due to the uncertainty concerning an acquisition of us and the identity of the possible acquiror or its intentions, many of our current and potential customers may decide not to purchase from us or may defer purchasing decisions indefinitely. If our customers delay or defer purchasing decisions, particularly with respect to the million and multimillion dollar license transactions that we rely on, our revenues could materially decline or any anticipated increases in revenue could be lower than expected.

Acquisition speculation and investor actions and could cause us to lose key personnel, prevent us from hiring additional key personnel and distract our management, which could harm our business.

Due to the recent acquisition speculation and investor actions, our current and prospective employees could experience uncertainty about their future roles within BEA as an independent entity or as an acquired business. This uncertainty may harm our ability to attract and retain key management, sales, marketing and technical personnel and may lead to increased employee attrition.

This acquisition speculation and investor activity also has diverted the attention of our management team from the operation of our business. Any failure to attract and retain key personnel and the distraction of our management could harm our business.

We have been named in various stockholder and purported stockholder class action lawsuits for various matters related to the recent acquisition offer and takeover speculation, and we may be named in additional lawsuits in the future. This litigation could become time consuming and expensive, could prevent or delay any transaction and could harm our business.

We and members of our board of directors have been named in six purported stockholder class action complaints, two in the Delaware Chancery court, three in California in the Santa Clara County Superior Court (one of which purports also to be a derivative lawsuit) and one in the federal court for the Northern District of California (which was an amended complaint to the stock option review derivative action). Generally, these actions allege breach of fiduciary duties by our directors by failing to give proper consideration to the October 12, 2007 publicly announced and unsolicited bid by Oracle for us at $17.00 per share of our common stock (which offer expired on October 28, 2007), and seek damages and equitable relief. In addition, a group of affiliated stockholders has brought an action against us and members of our board of directors in Delaware Chancery Court seeking to compel us to hold our annual meeting on or before November 30, 2007, and to enjoin us from taking certain actions pending the annual meeting. For a complete description of these actions, see Item 3. “Legal Proceedings.” We have obligations under certain circumstances to indemnify each of the defendant directors against judgments, fines, settlements and expenses related to claims against such directors and otherwise to the fullest extent permitted under Delaware law and our bylaws and certificate of incorporation. We cannot predict the outcome of these lawsuits, nor can we predict the amount of time and expense that will be required to resolve these lawsuits. If these lawsuits or any future lawsuits become time consuming and expensive, or if there are unfavorable outcomes in any of these cases, any acquisition transaction could be prevented or delayed or our business could be harmed.

We plan to hold our 2007 Annual Meeting of Stockholders (the “2007 Annual Meeting”) on Thursday, February 14, 2008, in Santa Clara, California. Stockholders of record as of the close of business on December 17, 2007 are entitled to notice and to vote at the 2007 Annual Meeting.

The 2007 Annual Meeting date constitutes a change of more than 30 days from the anniversary of our 2006 Annual Meeting of Stockholders. As a result, pursuant to the Securities Exchange Act of 1934, as amended, as well as the requirements for advance notice set forth in our bylaws, we have set a new deadline for the receipt of stockholder proposals submitted for inclusion in our proxy materials for the 2007 Annual Meeting. Taking into consideration the time and process for addressing any deficiencies in proposals that may be submitted, we have determined that the new deadline for delivering stockholder proposals to us will be the close of business on November 26, 2007. Such proposals should be delivered to: BEA Systems, Inc., 2315 North First Street, San Jose, CA 95131, Attention: Secretary. We recommended that such proposals be sent by certified mail, return receipt requested. Such proposals also will need to comply with the rules of the Securities and Exchange Commission regarding the inclusion of stockholder proposals in our proxy materials and may be omitted if not in compliance with applicable requirements.

Solely in connection with the 2007 Annual Meeting, we have waived the advance notice to which we are entitled, as set forth in our bylaws, and will allow stockholders of record to nominate persons for election to the Board of Directors at the 2007 Annual Meeting so long as such nominations are received by the close of business on January 1, 2008. Such nominations should be delivered to: BEA Systems, Inc., 2315 North First Street, San Jose, CA 95131, Attention: Secretary. We recommend that such nominations be sent by certified mail, return receipt requested. Such nominations also will need to comply with all other requirements of our bylaws and applicable law.

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

BEA SYSTEMS, INC.

(Registrant)

/s/ MARK P. DENTINGER

Mark P. Dentinger

Chief Financial Officer and Principal Accounting Officer


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


		Page No.
PART I. FINANCIAL INFORMATION

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited):

	Condensed Consolidated Statements of Income and Comprehensive Income for the three months and six months ended July 31, 2007 and 2006	3

	Condensed Consolidated Balance Sheets as of July 31, 2007 and January 31, 2007	4

	Condensed Consolidated Statements of Cash Flows for the six months ended July 31, 2007 and 2006	5

	Notes to Condensed Consolidated Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

ITEM 3.	Quantitative and Qualitative Disclosure about Market Risk	39

ITEM 4.	Controls and Procedures	42

PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	43

ITEM 1A.	Risk Factors	45

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58

ITEM 3.	Defaults Upon Senior Securities	58

ITEM 4.	Submission of Matters to a Vote of Security Holders	58

ITEM 5.	Other Information	58

ITEM 6.	Exhibits	59

Signatures		60


	Three months ended July 31,						Six months ended July 31,
	2007			2006			2007			2006
Revenues:
License fees	$	123,120		$	135,966		$	237,767		$	268,370
Services		241,495			203,649			472,693			394,481

Total revenues		364,615			339,615			710,460			662,851

Cost of revenues:
Cost of license fees		14,182			16,226			33,927			31,478
Cost of services		73,720			67,756			144,431			130,686

Total cost of revenues		87,902			83,982			178,358			162,164

Gross profit		276,713			255,633			532,102			500,687
Operating expenses:
Sales and marketing		128,109			127,127			256,994			248,077
Research and development		58,902			55,882			120,116			110,858
General and administrative		36,013			32,047			74,167			62,123
Restructuring charge		1,605			—			1,605			—
Acquisition-related in-process research and development		—			—			—			2,700

Total operating expenses		224,629			215,056			452,882			423,758

Income from operations		52,084			40,577			79,220			76,929
Interest and other, net:
Interest expense		(2,103	)		(5,974	)		(5,269	)		(11,998	)
Net gains on sale of minority interest in equity investments		222			—			1,132			10,972
Interest income and other, net		15,433			14,607			32,047			25,284

Total interest and other, net		13,552			8,633			27,910			24,258

Income before provision for income taxes		65,636			49,210			107,130			101,187
Provision for income taxes		18,584			15,194			30,640			32,077

Net income		47,052			34,016			76,490			69,110
Other comprehensive income:
Foreign currency translation adjustments		1,867			3,824			4,175			6,724
Unrealized gain (loss) on available-for-sale investments, net of income taxes		(58	)		361			240			1,045

Comprehensive income	$	48,861		$	38,201		$	80,905		$	76,879

Net income per share:
Basic	$	0.12		$	0.09		$	0.19		$	0.18

Diluted	$	0.11		$	0.08		$	0.18		$	0.17

Number of shares used in per share calculations:
Basic		398,310			393,200			398,310			390,600

Diluted		414,430			408,480			413,520			405,830


	July 31, 2007 (Unaudited)			January 31, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	830,683		$	867,294
Restricted cash		1,266			1,413
Short-term investments		290,313			313,941
Accounts receivable, net		296,213			394,799
Deferred tax assets		118,543			56,767
Other current assets		49,855			46,126

Total current assets		1,586,873			1,680,340
Long-term investments		52,683			93,528
Property and equipment, net		188,724			144,471
Goodwill, net		233,213			233,998
Acquired intangible assets, net		48,599			67,959
Long-term restricted cash		2,371			2,372
Long-term deferred tax assets		112,255			166,027
Other long-term assets		10,185			10,147

Total assets	$	2,234,903		$	2,398,842

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	25,597		$	27,521
Accrued liabilities		87,315			93,507
Restructuring obligations		3,168			3,089
Accrued payroll and related liabilities		82,594			105,797
Accrued income taxes		14,446			120,156
Deferred revenues		407,925			449,282
Deferred tax liabilities		4,788			4,788
Current portion of notes payable and other obligations		565			1,302

Total current liabilities		626,398			805,442
Notes payable and other long-term obligations		16,720			228,790
Long-term income tax liabilities		132,551			—
Commitments and contingencies
Stockholders’ equity:
Common stock		456			456
Additional paid-in capital		1,926,244			1,902,657
Treasury stock, at cost		(478,249	)		(478,249	)
Retained earnings		(5,793	)		(72,416	)
Accumulated other comprehensive income		16,576			12,162

Total stockholders’ equity		1,459,234			1,364,610

Total liabilities and stockholders’ equity	$	2,234,903		$	2,398,842


	Six months ended July 31,
	2007			2006
Operating activities:
Net income	$	76,490		$	69,110
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		11,292			11,405
Stock based compensation expense		23,900			33,586
Excess tax benefit from stock-based payment arrangements		(33	)		(6,076	)
Amortization and impairment charges related to acquired intangible assets		20,102			18,602
Acquisition-related in-process research and development		—			2,700
Changes in operating assets and liabilities		23,572			34,563
Other		1,109			(10,228	)

Net cash provided by operating activities		156,432			153,662

Investing activities:
Purchases of land, building and property and equipment		(159,206	)		(10,080	)
Proceeds from land sale		105,547			—
Payments for acquisitions, net of cash acquired		(578	)		(83,495	)
Purchases of available-for-sale investments		(188,722	)		(257,036	)
Proceeds from maturities of available-for-sale investments		158,950			237,209
Proceeds from sales of available-for-sale investments		96,425			85,113
Proceeds from sales of minority interest in equity investments		910			11,610

Net cash provided by (used in) investing activities		13,326			(16,679	)

Financing activities:
Repurchase of short-term convertible subordinated notes		—			(208,562	)
Repayment of credit facility		(215,000	)		—
Excess tax benefit from stock-based payment arrangements		33			6,076
Net proceeds received for employee stock purchases		168			74,719
Purchases of treasury stock		—			—

Net cash used in financing activities		(214,799	)		(127,767	)

Net (decrease) increase in cash and cash equivalents		(45,041	)		9,216
Effect of exchange rate changes on cash and cash equivalents		8,430			14,903
Cash and cash equivalents at beginning of period		867,294			1,017,772

Cash and cash equivalents at end of period	$	830,683		$	1,041,891


	Preliminary Purchase Price
Acquisition of the outstanding common stock of Flashline	$	43,014
Estimated acquisition related transaction costs		606

Total preliminary purchase price	$	43,620


	As of July 31, 2007
Cash and short-term investments	$	176
Accounts receivable		262
Intangible assets, net		7,100
Goodwill		29,214
Deferred tax assets		6,109
Accounts payable and other accrued liabilities		(566	)
Notes Payable and other long-term liabilities		(120	)
Deferred revenue		(255	)
In-process research and development		1,700

Total preliminary purchase price	$	43,620


	Preliminary Fair Value		Estimated Useful Life
Purchased technology	$	5,500	3 years
Non-compete agreements		700	1 years
Customer base		900	4 years

Total intangible assets	$	7,100


	Purchase Price
Acquisition consideration for Fuego	$	86,036
Acquisition related transaction costs		2,383

Total purchase price	$	88,419


	As of July 31, 2007
Cash and short-term investments	$	5,821
Accounts receivable, net		3,481
Prepaids and other current assets		212
Fixed assets		44
Intangible assets, net		18,300
Goodwill		54,878
Deferred tax assets		7,276
Accounts payable and other accrued liabilities		(2,400	)
Deferred revenue		(1,893	)
In-process research and development		2,700

Total preliminary purchase price	$	88,419


	Three months ended July 31,		Six months ended July 31,
	2007	2006	2007	2006
Risk-free interest rate	4.5%	4.9%	4.5%	4.9%
Expected volatility	27%	30%	27-33%	30-70%
Expected term	3.7-4.4 years	3.6-4.4 years	3.7-4.6 years	3.6-4.4 years
Expected dividends	none	none	none	none


	Options Outstanding		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Options outstanding at January 31, 2007	65,811		$	12.37
Grants	7,033		$	12.31
Exercises	—		$	—
Forfeitures or expirations	(1,667	)	$	10.48

Options outstanding at July 31, 2007	71,177		$	12.43	5.91	$	187,710

Vested and expected to vest options at July 31, 2007	67,703		$	12.47	5.84	$	184,293

Exercisable options at July 31, 2007	52,246		$	12.92	5.35	$	158,239


	Restricted Stock Awards Outstanding		Weighted-Average Grant Date Fair Value
Unvested restricted stock at January 31, 2007	1,609		$	10.76
Granted during second quarter fiscal 2008	—			—
Vested during second quarter fiscal 2008	—			—
Forfeited during second quarter fiscal 2008	(55	)		11.83

Unvested restricted stock at July 31, 2007	1,554		$	10.72


	Three months ended July 31, 2006	Six months ended July 31, 2006
Risk-free interest rate	5.2%	5.2%
Expected volatility	37%	37%
Expected term	6 months	6 months
Expected dividends	none	none


	July 31, 2007			January 31, 2007
Gross carrying amount of goodwill	$	366,557		$	367,342
Accumulated amortization of goodwill		(133,344	)		(133,344	)

Net carrying amount of goodwill	$	233,213		$	233,998


	July 31, 2007
	Gross carrying amount		Accumulated amortization			Net carrying amount
Purchased technology	$	201,756	$	(167,695	)	$	34,061
Non-compete agreements		32,146		(31,913	)		233
Patents and trademarks		13,275		(13,275	)		—
Other intangible assets (distribution rights, purchased software, customer base)		54,409		(40,104	)		14,305

Total	$	301,586	$	(252,987	)	$	48,599


	January 31, 2007
	Gross carrying amount		Accumulated amortization			Net carrying amount
Purchased technology	$	201,349	$	(151,237	)	$	50,112
Non-compete agreements		32,146		(30,588	)		1,558
Patents and trademarks		13,275		(13,275	)		—
Other intangible assets (distribution rights, purchased software, customer base)		54,409		(38,120	)		16,289

Total	$	301,179	$	(233,220	)	$	67,959


	For the six months ended July 31,
	2007		2006
Purchased technology	$	13,322	$	15,345
Non-compete agreements		1,025		1,500
Other intangible assets (distribution rights, purchased software, customer base)		1,983		1,757

Total	$	16,330	$	18,602


	Future amortization
Six months ending January 31, 2008	$	10,425
Fiscal year ending January 31, 2009		16,774
Fiscal year ending January 31, 2010		12,032
Fiscal year ending January 31, 2011		7,593
Thereafter		1,775

Total	$	48,599


	July 31, 2007			January 31, 2007
Land	$	8,034		$	105,016
Building		127,224			—
Computer hardware and software		108,540			108,655
Furniture and equipment		40,519			39,404
Leasehold improvements		62,274			53,158
Furniture and equipment under capital leases		3,153			3,153

		349,744			309,386
Accumulated depreciation and amortization		(161,020	)		(164,915	)

Total property and equipment	$	188,724		$	144,471


	Facilities consolidation
Accrued at January 31, 2006	$	9,681
Additional charges accrued during fiscal 2007 included in operating expenses		454
Cash payments during fiscal 2007		(2,011	)

Accrued at January 31, 2007		8,124
Additional charges accrued during fiscal 2008 included in operating expenses		1,605
Cash payments during the six months ended July 31, 2007		(1,282	)

Accrued at July 31, 2007	$	8,447


	Balances at
	July 31, 2007		January 31, 2007
License fees	$	8,565	$	13,797
Services		399,360		435,485

Total deferred revenues	$	407,925	$	449,282


	July 31, 2007
	Capital leases			Other obligations
Six months ending January 31, 2008	$	105		$	2,024
Fiscal year ending January 31, 2009		211			3,187
Fiscal year ending January 31, 2010		211			3,159
Fiscal year ending January 31, 2011		211			2,936
Fiscal year ending January 31, 2012		211			1,320
Thereafter		525			3,461

Total minimum lease payments and total other obligations		1,474		$	16,087

Amounts representing interest on capital lease		(276	)

Present value of minimum lease payments		1,198
Less: capital lease obligation, current (reflected in other obligations)		(171	)

Capital lease obligation, long term (reflected in other long-term obligations)	$	1,027


	Three months ended July 31,				Percentage change		Six months ended July 31,				Percentage change
	2007		2006		Percentage change		2007		2006		Percentage change
Total revenues	$	364,615	$	339,615	7.4	%	$	710,460	$	662,851	7.2	%


	Three months ended July 31, 2007		Percentage of total revenues		Three months ended July 31, 2006		Percentage of total revenues		Six months ended July 31, 2007		Percentage of total revenues		Six months ended July 31, 2006		Percentage of total revenues
Americas	$	173,207	47.5	%	$	182,505	53.7	%	$	349,307	49.2	%	$	356,584	53.8	%
European, Middle East and Africa region (“EMEA”)		126,036	34.6	%		107,235	31.6	%		240,880	33.9	%		208,648	31.5	%
Asia/Pacific region (“APAC”)		65,372	17.9	%		49,875	14.7	%		120,273	16.9	%		97,619	14.7	%

Total revenues	$	364,615	100.0	%	$	339,615	100.0	%	$	710,460	100.0	%	$	662,851	100.0	%


Contractual obligations	Total payments due		Remainder of fiscal 2008		Fiscal 2009 and 2010		Fiscal 2011 and 2012		Fiscal 2013 and thereafter
Other obligations	$	2,094	$	1,996	$	54	$	44	$	—
Operating leases		188,008		24,650		77,492		48,869		36,997
Capital lease		1,324		95		378		378		473

Total contractual obligations	$	191,426	$	26,471	$	77,924	$	49,291	$	37,470


	Local currency contract amount		Contract amount		Fair market value at July 31, 2007 (USD)
	(in thousands)		(in thousands)		(in thousands)
Contract to Buy US $
Argentine peso	3,100	ARS	1,006	USD	14
Australian dollar	3,900	AUD	3,272	USD	(44	)
British pound	8,900	GBP	18,347	USD	273
Brazilian real	6,275	BRL	3,303	USD	(31	)
Canadian dollar	4,200	CAD	3,960	USD	18
Chinese yuan	38,550	CNY	5,096	USD	(2	)
Euros	83,464	EUR	113,398	USD	(1,061	)
Israeli shekel	8,550	ILS	2,039	USD	53
Indian Rupee	237,800	INR	5,806	USD	(68	)
Japanese yen	2,710,000	JPY	22,475	USD	(577	)
Korean won	30,600,000	KRW	33,185	USD	(112	)
Mexican peso	71,000	MXN	6,544	USD	108
New Zealand dollar	700	AUD	513	USD	(17	)
Polish zloty	2,200	PLN	808	USD	14
Singapore dollar	2,100	SGD	1,377	USD	(12	)
Swedish krona	25,675	SEK	3,778	USD	(50	)
Swiss franc	2,100	CHF	1,752	USD	(1	)
Taiwan dollar	17,700	TWD	535	USD	(3	)

					(1,498	)

Contract to Sell US $
Argentine peso	3,100	ARS	1,006	USD	(14	)
Australian dollar	2,100	AUD	1,715	USD	70
Brazilian real	3,000	BRL	1,527	USD	67
British pounds	12,925	GBP	25,582	USD	652
Canadian dollar	11,520	CAD	10,750	USD	71
Chinese yuan	44,800	CNY	5,923	USD	(10	)
Danish kroner	17,400	DKK	3,214	USD	(10	)
Euros	60,375	EUR	81,723	USD	1,121
Israeli shekel	7,400	ILS	1,864	USD	(141	)
Indian Rupee	71,200	INR	1,755	USD	3
Japanese yen	1,460,000	JPY	12,149	USD	295
Mexican peso	19,000	MXN	1,763	USD	(35	)
New Zealand dollar	700	AUD	533	USD	(1	)
Singapore dollar	6,700	SGD	4,455	USD	(14	)
Swedish krona	47,000	SEK	7,052	USD	65
Swiss franc	3,500	CHF	2,892	USD	44

					2,163

Contract to Buy Euro €
Danish kroner	50,000	DKK	9,183	EUR	(8	)
British pound	13,500	GBP	27,209	EUR	(139	)
Norwegian krone	11,000	NOK	1,856	EUR	(29	)
Swedish krona	36,000	SEK	5,335	USD	(18	)
Swiss franc	5,000	CHF	4,152	EUR	(23	)

					(217	)

Contract to Sell Euro €
Danish kroner	26,000	DKK	4,772	EUR	7
Norwegian krone	6,000	NOK	1,011	EUR	17
Swedish krona	18,000	SEK	2,680	EUR	(2	)
Swiss franc	2,300	CHF	1,902	EUR	15

					37

Total					485


Exhibit		Description
10.1		Waiver No. 4 to the Credit Agreement, dated July 9, 2007, among the Company, JPMorgan Chase Bank, National Association, as Administrative Agent, Citicorp USA, Inc., as Syndication Agent, Bank of America, N.A., Comerica Bank and Deutsche Bank AG New York Branch, as Co-Documentation Agents, and the lenders party thereto

10.2		Form of Notice of Grant of Stock Options and Option Agreement and form of Non-Qualified Stock Option Agreement under the Registrant’s 2006 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on May 29, 2007, Commission File No. 000-22369)*

10.3		Form of Notice of Restricted Stock Unit Award and form of Restricted Stock Unit Award Agreement under the Registrant’s 2006 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on May 29, 2007, Commission File No. 000-22369)*

31.1		Certification of Alfred S. Chuang, Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Mark P. Dentinger, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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