##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE THREE MONTHS ENDED JUNE 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number
1-15681
 
 webMethods, Inc.
 (Exact name of Registrant as Specified in its Charter)
 Delaware
    
    54-1807654(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)3877 Fairfax Ridge Road, South Tower, Fairfax, Virginia
    
    22030(Address of Principal Executive Offices)
    
    (Zip Code)
 (703) 460-2500
  
 
 þ o
 þ o




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WEBMETHODS, INC.
 QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 2005
TABLE OF CONTENTS
 Part
I Financial InformationItem 1
Financial StatementsCondensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets (unaudited) as of June 30, 2005 and March 31, 2005Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)  Three months ended June 30, 2005 and 2004Condensed Consolidated Statements of Cash Flows (unaudited)  Three months ended June 30, 2005 and 2004Notes to Condensed Consolidated Financial Statements (unaudited)Item 2 Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3 Quantitative and Qualitative Disclosures About Market RiskItem 4 Controls and ProceduresPart II Other InformationItem 1 Legal ProceedingsItem 6 Exhibits
 2




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##### 



PART I
FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
 WEBMETHODS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 JUNE 30,
    
    MARCH 31,2005
    
    2005(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    62,506
    
    
    $
    57,209Marketable securities available for sale
    
    
    79,956
    
    
    
    78,332Accounts receivable, net of allowance of $1,147 and $1,862
    
    
    43,777
    
    
    
    47,326Prepaid expenses and other current assets
    
    
    6,067
    
    
    
    6,401Total current assets
    
    
    192,306
    
    
    
    189,268Marketable securities available for sale
    
    
    1,232
    
    
    
    14,513Property and equipment, net
    
    
    10,615
    
    
    
    10,342Goodwill
    
    
    46,704
    
    
    
    46,704Intangibles assets, net
    
    
    7,791
    
    
    
    8,390Other assets
    
    
    5,561
    
    
    
    6,127Total assets
    
    $
    264,209
    
    
    $
    257,344LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    8,325
    
    
    $
    8,673Accrued expenses
    
    
    12,422
    
    
    
    16,506Accrued salaries and commissions
    
    
    9,804
    
    
    
    12,219Deferred revenue
    
    
    40,916
    
    
    
    43,055Current portion of capital lease obligations
    
    
    408
    
    
    
    475Total current liabilities
    
    
    71,875
    
    
    
    80,928Capital lease obligations, net of current portion
    
    
    269
    
    
    
    139Other long term liabilities
    
    
    3,214
    
    
    
    3,374Long term deferred revenue
    
    
    5,324
    
    
    
    6,371Total liabilities
    
    
    80,682
    
    
    
    90,812Commitments and contingenciesStockholders equity:Common stock, $0.01 par value; 500,000,000 shares authorized; 53,518,054 and
53,346,623 shares issued and outstanding
    
    
    535
    
    
    
    533Additional paid-in capital
    
    
    525,304
    
    
    
    524,487Deferred warrant charge
    
    
    (1,819
    )
    
    
    (2,480
    )Accumulated deficit
    
    
    (340,738
    
    
    
    (340,224
    )Accumulated other comprehensive gain
    
    
    245
    
    
    
    2,216Total stockholders equity
    
    
    183,527
    
    
    
    184,532Total liabilities and stockholders equity
    
    $
    264,209
    
    
    $
    275,344
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 3




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##### 



WEBMETHODS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
 THREE MONTHS ENDED JUNE 30,2005
    
    2004(in thousands, except per share data)Revenue:License
    
    $
    18,467
    
    
    $
    14,806Professional services
    
    
    11,683
    
    
    
    12,524Maintenance
    
    
    17,585
    
    
    
    14,607Total revenue
    
    
    47,735
    
    
    
    41,937Cost of revenue:Amortization of intangibles
    
    
    599
    
    
    
    599License
    
    
    214
    
    
    
    620Professional services and maintenance
    
    
    13,554
    
    
    
    14,273Total cost of revenue
    
    
    14,367
    
    
    
    15,492Gross profit
    
    
    33,368
    
    
    
    26,445Operating expenses:Sales and marketing:Amortization of deferred warrant charge
    
    
    661
    
    
    
    661Other sales and marketing costs
    
    
    16,614
    
    
    
    21,114Research and development
    
    
    11,118
    
    
    
    11,050General and administrative
    
    
    6,214
    
    
    
    5,073Restructuring costs
    
    
    288
    
    
    
    Total operating expenses
    
    
    34,895
    
    
    
    37,898Operating loss
    
    
    (1,527
    )
    
    
    (11,453
    )Interest income
    
    
    966
    
    
    
    553Interest expense
    
    
    (17
    )
    
    
    (27
    )Other income
    
    
    206
    
    
    
    112Loss before income taxes
    
    
    (372
    )
    
    
    (10,815
    )Provision for income taxes
    
    
    142
    
    
    
    4Net loss
    
    $
    (514
    )
    
    $
    (10,819
    )Basic and diluted net loss per share
    
    $
    (0.01
    )
    
    $
    (0.20
    )Shares used in computing basic and diluted net loss per share
    
    
    53,375,463
    
    
    
    58,827,120Comprehensive loss:Net loss
    
    $
    (514
    )
    
    $
    (10,819
    )Other comprehensive income (loss):Unrealized loss on securities available for sale
    
    
    138
    
    
    
    (429
    )Foreign currency cumulative translation adjustment
    
    
    (2,110
    )
    
    
    (630
    )Total comprehensive loss
    
    $
    (2,486
    )
    
    $
    (11,878
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 4




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##### 



WEBMETHODS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 THREE MONTHS ENDED JUNE 30,2005
    
    2004(in thousands)Cash flows from operating activities:Net loss
    
    $
    (514
    )
    
    $
    (10,819
    )Adjustments to reconcile net loss to net cash used in by operating activities:Depreciation and amortization
    
    
    1,392
    
    
    
    1,704(Recovery of) provision for doubtful accounts
    
    
    (117
    )
    
    
    228Amortization of deferred warrants charge
    
    
    661
    
    
    
    661Amortization of acquired intangibles
    
    
    599
    
    
    
    599Amortization of deferred rent
    
    
    (114
    )
    
    
    Increase (decrease) in cash resulting from changes in assets and liabilities:Accounts receivable
    
    
    2,806
    
    
    
    9,003Prepaid expenses and other current assets
    
    
    251
    
    
    
    (1,317
    )Other non-current assets
    
    
    476
    
    
    
    397Accounts payable
    
    
    (81
    )
    
    
    (2,117
    )Accrued expenses
    
    
    (4,007
    )
    
    
    (1,962
    )Accrued salaries and commissions
    
    
    (2,225
    )
    
    
    (2,659
    )Deferred revenue
    
    
    (2,282
    )
    
    
    (1,077
    )Net cash used in operating activities
    
    
    (3,155
    )
    
    
    (7,359
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,497
    )
    
    
    (1,647
    )Net maturities (purchases) of marketable securities available for sale
    
    
    11,795
    
    
    
    (3,831
    )Net cash provided by/(used in) investing activities
    
    
    10,298
    
    
    
    (5,478
    )Cash flows from financing activities:Short-term borrowings
    
    
    
    
    
    
    2,627Payments on short-term borrowings
    
    
    
    
    
    
    (2,461
    )Payments on capital leases
    
    
    (178
    )
    
    
    (311
    )Proceeds from exercise of stock options and stock issued under the ESPP
    
    
    819
    
    
    
    1,821Net cash provided by financing activities
    
    
    641
    
    
    
    1,676Effect of exchange rate on cash and cash equivalents
    
    
    (2,487
    )
    
    
    (858
    )Net increase/(decrease) in cash and cash equivalents
    
    
    5,297
    
    
    
    (12,019
    )Cash and cash equivalents at beginning of period
    
    
    57,209
    
    
    
    75,462Cash and cash equivalents at end of period
    
    $
    62,506
    
    
    $
    63,443
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 5




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##### 



WEBMETHODS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 1. BASIS OF PRESENTATION
  2. PRO FORMA STOCK BASED COMPENSATION
   THREE MONTHS ENDED JUNE 30,2005
    
    2004(in thousands except per share data)Net loss attributable to common stockholders, as reported
    
    $
    (514
    )
    
    $
    (10,819
    )Less: Stock-based compensation expense determined under fair value method
    
    
    (4,028
    )
    
    
    (10,442
    )Net loss attributable to common stockholders, pro forma
    
    
    (4,542
    )
    
    
    (21,261
    )Basic and diluted net loss per common share, as reported
    
    
    (.01
    )
    
    
    (.20
    )Basic and diluted net loss per common share, pro forma
    
    
    (.09
    )
    
    
    (.40
    )
 3. COMPUTATION OF NET LOSS PER SHARE
  4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (UNAUDITED)
 THREE MONTHS ENDED JUNE 30,2005
    
    2004(in thousands)Cash paid during the period for interest
    
    $
    17
    
    
    $
    27Non-cash investing and financing activities:Equipment purchased under capital lease
    
    $
    270
    
    
    $
    Change in net unrealized gain or (loss) on marketable securities
    
    $
    138
    
    
    $
    (429
    )
 6




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##### 



5. SEGMENT INFORMATION
  THREE MONTHS ENDEDJUNE 30,REVENUE
    
    2005
    
    2004(in thousands)Americas
    
    $
    30,168
    
    
    $
    25,550Europe
    
    
    10,809
    
    
    
    7,773Japan
    
    
    2,571
    
    
    
    4,796Asia Pacific
    
    
    4,187
    
    
    
    3,818Total
    
    $
    47,735
    
    
    $
    41,937
 AS OF
    
    AS OFJUNE 30,
    
    MARCH 31,LONG LIVED ASSETS
    
    2005
    
    2005(in thousands)Americas
    
    $
    66,880
    
    
    $
    67,572Europe
    
    
    1,583
    
    
    
    1,852Japan
    
    
    1,539
    
    
    
    1,509Asia Pacific
    
    
    669
    
    
    
    630Total
    
    $
    70,671
    
    
    $
    71,563
 6. RESTRUCTURING AND RELATED CHARGES
      7




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##### 



Excess
    
    
    
    
    
    
    
    SeveranceFacilities
    
    Excess
    
    Excess
    
    AndSanta Clara, CA
    
    Facilities
    
    Facilities
    
    Relatedand Fairfax, VA
    
    Berkeley, CA
    
    Fairfax, VA
    
    Benefits
    
    TotalBalance at March 31, 2005
    
    $
    534
    
    
    $
    1,007
    
    
    $
    2,900
    
    
    $
    
    
    
    $
    4,441First Quarter Fiscal
2006 charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    288
    
    
    
    288Cash payments made in
first quarter of fiscal
2006
    
    
    (43
    )
    
    
    (91
    )
    
    
    (124
    )
    
    
    (246
    )
    
    
    (504
    )Balance at June 30, 2005
    
    $
    491
    
    
    $
    916
    
    
    $
    2,776
    
    
    $
    42
    
    
    $
    4,225
  7. BORROWINGS
    8




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ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  OVERVIEW
 Background
   
    
    eliminating significant costs from the organizations information technology environment,
    
    automating and streamlining interactions with their customers and suppliers,
    
    becoming more competitive by capturing more market share in terms of increased revenue from new and existing customers,
    
    gaining more timely access to information to make better decisions about the business, and
    
    allowing staff to focus their attention on higher value business activities.
  9




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Overview of First Quarter of Fiscal 2006
   Critical Accounting Policies and Estimates
   Revenue Recognition
   10




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Allowance for Doubtful Accounts
  Business Combinations
    Goodwill and Intangible Assets
  Acquired In-process Research and Development
  Foreign Currency Effects
  Accounting for Income Taxes
  11




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Restructuring and Related Charges
  Litigation and Contingencies
  RESULTS OF OPERATIONS
  June 30,
    
    Percentage
    
    June 30,2005
    
    Change
    
    2004($ in thousands)Total revenue
    
    $
    47,735
    
    
    
    14
    %
    
    $
    41,937Gross profit
    
    $
    33,368
    
    
    
    26
    %
    
    $
    26,445% of total revenue
    
    
    70
    %
    
    
    
    
    
    
    63
    %Total operating expenses
    
    $
    34,895
    
    
    
    (8
    )%
    
    $
    37,898% of total revenue
    
    
    73
    %
    
    
    
    
    
    
    90
    %Operating loss
    
    $
    (1,527
    )
    
    
    (87
    )%
    
    $
    (11,453
    )% of total revenue
    
    
    (3
    )%
    
    
    
    
    
    
    (27
    )%Net loss
    
    $
    (514
    )
    
    
    (95
    )%
    
    $
    (10,819
    )% of total revenue
    
    
    (1
    )%
    
    
    
    
    
    
    (26
    )%
   Revenue
  June 30,
    
    Percentage
    
    June 30,2005
    
    Change
    
    2004($ in thousands)License
    
    $
    18,467
    
    
    
    25
    %
    
    $
    14,806Professional services
    
    
    11,683
    
    
    
    (7
    )%
    
    
    12,524Maintenance
    
    
    17,585
    
    
    
    20
    %
    
    
    14,607Total revenue
    
    $
    47,735
    
    
    
    14
    %
    
    $
    41,937
 12




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June 30,
    
    Percentage
    
    June 30,2005
    
    Change
    
    2004($ in thousands)Americas
    
    $
    30,168
    
    
    
    18
    %
    
    $
    25,550Europe
    
    
    10,809
    
    
    
    39
    %
    
    
    7,773Japan
    
    
    2,571
    
    
    
    (46
    )%
    
    
    4,796Asia Pacific
    
    
    4,187
    
    
    
    10
    %
    
    
    3,818Total revenue
    
    $
    47,735
    
    
    
    14
    %
    
    $
    41,937
     Gross Profit
  Fiscal Quarter EndedJune 30,
    
    June 30,2005
    
    2004License
    
    
    96
    %
    
    
    92
    %Professional services and maintenance
    
    
    54
    %
    
    
    47
    %Total revenue
    
    
    70
    %
    
    
    63
    %
    13




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##### 



Operating Expenses
  Fiscal Quarter EndedJune 30,
    
    Percentage
    
    June 30,2005
    
    Change
    
    2004($ in thousands)Operating Expenses:Sales and marketing*
    
    $
    16,614
    
    
    
    (21
    )%
    
    $
    21,114% of total revenue
    
    
    35
    %
    
    
    
    
    
    
    50
    %Research and development
    
    $
    11,118
    
    
    
    1
    %
    
    $
    11,050% of total revenue
    
    
    23
    %
    
    
    
    
    
    
    26
    %General and administrative
    
    $
    6,214
    
    
    
    22
    %
    
    $
    5,073% of total revenue
    
    
    13
    %
    
    
    
    
    
    
    12
    %Restructuring cost
    
    $
    288
    
    
    
    
    
    
    $
    % of total revenue
    
    
    1
    %
    
    
    
    
    
    
    Warrant charge
    
    $
    661
    
    
    
    0
    %
    
    $
    661% of total revenue
    
    
    1
    %
    
    
    
    
    
    
    2
    %Operating expense
    
    $
    34,895
    
    
    
    (8
    )%
    
    $
    37,898% of total revenue
    
    
    73
    %
    
    
    
    
    
    
    90
    %
 
 *
    
    Excludes amortization of deferred warrant charge.      14




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Interest Income
  Interest Expense
  Other Income (Expense), Net
  Income Taxes
    LIQUIDITY AND CAPITAL RESOURCES
     15




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##### 



RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
   FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
  Our quarterly revenue  especially the amount of license revenue we recognize in a quarter 
and operating results could fluctuate, which could significantly affect the market price of
webMethods common stock.
  
    
    changes in demand for our software products and services;
    
    the timing and terms of large transactions with customers;
    
    the spending environment for business integration and optimization solutions;
    
    competitive pressures;
    
    fluctuations in the revenue and license revenue of our geographic regions;
    
    our ability to execute on our business strategy and sales strategies;
    
    a low number of quota bearing sales representatives experienced with our
solutions, software products and sales processes;
    
    the timing and amount of revenue from acquired technologies or businesses;
    
    the amount and timing of operating expenses and the success of attempts to
increase expense efficiency and, for purposes
 16




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##### 



of operating results determined
in accordance with accounting principals generally accepted in the United
States, the timing and amount of non-recurring or non-cash charges;
    
    delays in the availability of new products or new releases of existing products;
    
    costs of legal compliance, including compliance with the Sarbanes-Oxley Act of
2002 and regulatory requirements and investigating or resolving pending or
threatened legal claims; and
    
    changes that we may make in our business, operations and infrastructure.
   If we fail accurately to forecast our future total revenue, license revenue or operating results,
we may not satisfy the expectations of investors or securities analysts.
   The market price of webMethods common stock fluctuates as a result of factors other than our
quarterly total revenue, license revenue and operating results, including actions taken by or
performance of our competitors, estimates and recommendations of securities analysts, industry
volatility and changes to accounting rules.
  
    
    the overall volatility of the stock market, particularly the stock prices of software and technology companies;
    
    fluctuation in the levels of total revenue, license revenue and operating results of competitors;
    
    changes in securities analysts estimates and recommendations with respect to webMethods common stock or our
industry;
 17




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##### 




    
    rapid developments within our industry; and
    
    changes to accounting rules.
  Our markets are highly competitive, and we may not compete effectively.
   Economic conditions could adversely affect our revenue growth and cause us not to achieve our
forecasts of license revenue and total revenue.
  We rely on strategic alliances with major system integrators and other similar relationships to
promote and implement our software.
  18




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##### 



We have a history of operating losses, and our failure to achieve and sustain profitability
may impact our prospect of achieving our growth targets and may have a material adverse effect on
the market price of webMethods common stock.
  The Sarbanes-Oxley Act of 2002 requires that we undertake periodic evaluations of our internal
control over financial reporting, which may identify material weaknesses that could harm our
reputation and impact the market price of webMethods common stock.
  Our disclosure controls and procedures and our internal control over financial reporting may
not be effective to detect all errors or to detect and deter wrongdoing, fraud or improper
activities in all instances.
  If we fail to attract and retain key executive officers and other key personnel who are
essential to our business, our ability to execute effectively on our business strategy or our
results of operations or financial condition may be adversely affected.
  Third-party claims that we infringe upon their intellectual property rights may be costly to
defend and could damage our business.
  19




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##### 



If we are unable effectively to protect our intellectual property, we may lose a valuable
asset, experience reduced market share or incur costly litigation to protect our rights.
   Our business strategy contemplates possible future acquisitions of companies or technologies
that may result in disruptions to our business, integration difficulties, increased debt or
contingent liabilities, dilution to our stockholders or other adverse effects on future financial
results.
  Treating stock options and employee stock purchase plan participation as a compensation
expense could significantly impair our ability to return to and sustain profitability on a GAAP
basis, and may affect our ability to attract and retain key personnel.
  20




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##### 



If we are unable to adapt and enhance our software products to meet rapid technological changes, to
provide desired product interfaces or to conform to new industry standards, we could lose partners,
customers and future revenue opportunities.
  Our business may be adversely impacted if we do not provide professional services to implement
our solutions or if we are unable to establish and maintain relationships with third-party
implementation providers.
  We may face product liability claims, damage to the reputation of our software and a loss of
revenue if our software products fail to perform as intended or contain significant defects.
  Our financial statements may in the future be impacted by improper activities of our
personnel.
  We intend to continue expanding our international sales efforts, which could subject us to
greater uncertainties and additional risk.
  21




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##### 



Because our software could interfere with the operations of our partners and customers other
network and software applications, we may be subject to potential product liability and warranty
claims by these partners and customers.
  We may not have sufficient resources available to us in the future to take advantage of
certain opportunities, potentially harming our operating results and financial condition.
  Some provisions of the Delaware General Corporation Law, our certificate of incorporation and
our bylaws, as well as our stockholder rights plan, may deter potential acquisition bids,
discourage changes in our management or Board of Directors and have anti-takeover effects.
  Costs of legal investigations and regulatory compliance matters may increase our operating
expenses and impact our operating results.
  22




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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest rate risk.
 Foreign currency exchange rate risk.
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures .
   Changes
 in Internal Control over Financial Reporting
 23




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##### 



PART II
 OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   24




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##### 



ITEM 6. EXHIBITS.
 ExhibitNumber
    
    Description3.1(1)
    
    Fifth Amended and Restated Certificate of Incorporation of webMethods, Inc., as amended3.2(2)
    
    Amended and Restated Bylaws of webMethods, Inc.4.1(3)
    
    Specimen certificate for shares of webMethods, Inc. Common Stock4.2(4)
    
    Rights Agreement dated as of October 18, 2001 between webMethods, Inc. and American Stock Transfer & Trust Company10.2(5)
    
    webMethods, Inc. Amended and Restated Stock Option Plan, as Amended10.3(3)
    
    Employee Stock Purchase Plan10.4(3)
    
    Indemnification Agreement entered into between webMethods, Inc. and each of its directors10.5(6)
    
    Executive Agreement entered into between webMethods, Inc. and certain of its executive officers10.6(7)
    
    Form of Stock Option Agreement for stock option grants to employees or officers other than California residents10.7(8)
    
    Form of Stock Option Agreement for stock option grants to directors10.8(7)
    
    Form of notice of grant of stock option10.9 (9)
    
    Deferred Compensation Plan for Directors, as amended10.10(8)
    
    Consulting Agreement dated October 3, 2004 between Phillip Merrick and webMethods, Inc.31.1*
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2*
    
    Rule 13a-14(a) Certification of Chief Accounting Officer32.1* #
    
    Section 1350 Certification of Chief Executive Officer32.2* #
    
    Section 1350 Certification of Chief Accounting Officer
 
 (1)
    
    Incorporated by reference to webMethods Form 10-K for the year ended March 31, 2002 (File
No. 1-15681).(2)
    
    Incorporated by reference to webMethods Form 10-Q for the three months ended December 31,
2004 (File No. 1-15681).(3)
    
    Incorporated by reference to webMethods Registration Statement on Form S-1, as amended (File
No. 333-91309).(4)
    
    Incorporated by reference to webMethods Registration Statement on Form 8-A (File No.
1-15681).(5)
    
    Incorporated by reference to webMethods Form 10-K for the year ended March 31, 2003 (File
No. 1-15681).(6)
    
    Incorporated by reference to webMethods Form 10-Q for the three months ended June 30, 2004
(File No. 1-15681).(7)
    
    Incorporated by reference to webMethods Form 8-K dated October 2, 2004 (File No. 1-15681).(8)
    
    Incorporated by reference to webMethods Form 10-Q for the three months ended September 30,
2004 (File No. 1-15681).(9)
    
    Incorporated by reference to webMethods definitive proxy statement dated July 29, 2005 (File
No. 1-15681).*
    
    Filed herewith. 25




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##### 



#
    
    This item is furnished as an exhibit to this report but is not filed with the Securities and
Exchange Commission.SIGNATURES
  WEBMETHODS, INC.By:
    
    /s/ DAVID MITCHELLDavid MitchellPresident and Chief Executive OfficerDate: August 9, 2005By:
    
    /s/ MARK WABSCHALLMark WabschallSenior Vice President and Chief Accounting OfficerDate: August 9, 2005
 26




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##### 



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description3.1(1)
    
    Fifth Amended and Restated Certificate of Incorporation of webMethods, Inc., as amended3.2(2)
    
    Amended and Restated Bylaws of webMethods, Inc.4.1(3)
    
    Specimen certificate for shares of webMethods, Inc. Common Stock4.2(4)
    
    Rights Agreement dated as of October 18, 2001 between webMethods, Inc. and American Stock Transfer & Trust Company10.2(5)
    
    webMethods, Inc. Amended and Restated Stock Option Plan, as Amended10.3(3)
    
    Employee Stock Purchase Plan10.4(3)
    
    Indemnification Agreement entered into between webMethods, Inc. and each of its directors10.5(6)
    
    Executive Agreement entered into between webMethods, Inc. and certain of its executive officers10.6(7)
    
    Form of Stock Option Agreement for stock option grants to employees or officers other than California residents10.7(8)
    
    Form of Stock Option Agreement for stock option grants to directors10.8(7)
    
    Form of notice of grant of stock option10.9 (9)
    
    Deferred Compensation Plan for Directors, as amended10.10(8)
    
    Consulting Agreement dated October 3, 2004 between Phillip Merrick and webMethods, Inc.31.1*
    
    Rule 13a-14(a) Certification of Chief Executive Officer31.2*
    
    Rule 13a-14(a) Certification of Chief Accounting Officer32.1* #
    
    Section 1350 Certification of Chief Executive Officer32.2* #
    
    Section 1350 Certification of Chief Accounting Officer
 
 (1)
    
    Incorporated by reference to webMethods Form 10-K for the year ended March 31, 2002 (File
No. 1-15681).(2)
    
    Incorporated by reference to webMethods Form 10-Q for the three months ended December 31,
2004 (File No. 1-15681).(3)
    
    Incorporated by reference to webMethods Registration Statement on Form S-1, as amended (File
No. 333-91309).(4)
    
    Incorporated by reference to webMethods Registration Statement on Form 8-A (File No.
1-15681).(5)
    
    Incorporated by reference to webMethods Form 10-K for the year ended March 31, 2003 (File
No. 1-15681).(6)
    
    Incorporated by reference to webMethods Form 10-Q for the three months ended June 30, 2004
(File No. 1-15681).(7)
    
    Incorporated by reference to webMethods Form 8-K dated October 2, 2004 (File No. 1-15681).(8)
    
    Incorporated by reference to webMethods Form 10-Q for the three months ended September 30,
2004 (File No. 1-15681).(9)
    
    Incorporated by reference to webMethods definitive proxy statement dated July 29, 2005 (File
No. 1-15681).*
    
    Filed herewith.#
    
    This item is furnished as an exhibit to this report but is not filed with the Securities and
Exchange Commission. 27