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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended April 30, 2007

OR



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

Commission File Number: 0-22369



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BEA SYSTEMS, INC.

(Exact name of
registrant as specified in its charter)



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

2315 North First Street

San Jose, California 95131

(Address of principal executive offices)

(408) 570-8000

(Registrants telephone number, including area code)



---

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

Indicate by check mark whether 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):

Large Accelerated
Filer  x    Accelerated Filer ̈Non-Accelerated Filer ̈

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.



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##### Table of Contents

BEA SYSTEMS, INC.

INDEX



|                              |  |                                                                                                                         |  |         
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  | --------
|                              |  |                                                                                                                         |  | Page No.
|EXPLANATORY NOTE              |  |                                                                                                                        
|                              | 
|PART I. FINANCIAL INFORMATION |  |                                                                                                                        
|                              |  |                                                                                                                        
|ITEM 1.                       |  | Condensed Consolidated Financial Statements (Unaudited):                                                                |  |         
|                              |  |                                                                                                                        
|                              |  | Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended April 30, 2007 and 2006 |  | 4       
|                              |  |                                                                                                                        
|                              |  | Condensed Consolidated Balance Sheets as of April 30, 2007 and January 31, 2007                                         |  | 5       
|                              |  |                                                                                                                        
|                              |  | Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2007 and 2006                      |  | 6       
|                              |  |                                                                                                                        
|                              |  | Notes to Condensed Consolidated Financial Statements                                                                    |  | 7       
|                              |  |                                                                                                                        
|ITEM 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                   |  | 34      
|                              |  |                                                                                                                        
|ITEM 3.                       |  | Quantitative and Qualitative Disclosure about Market Risk                                                               |  | 63      
|                              |  |                                                                                                                        
|ITEM 4.                       |  | Controls and Procedures                                                                                                 |  | 65      
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                        
|                              |  |                                                                                                                        
|ITEM 1.                       |  | Legal Proceedings                                                                                                       |  | 66      
|                              |  |                                                                                                                        
|ITEM 1A.                      |  | Risk Factors                                                                                                            |  | 68      
|                              |  |                                                                                                                        
|ITEM 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                             |  | 81      
|                              |  |                                                                                                                        
|ITEM 3.                       |  | Defaults Upon Senior Securities                                                                                         |  | 81      
|                              |  |                                                                                                                        
|ITEM 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                     |  | 81      
|                              |  |                                                                                                                        
|ITEM 5.                       |  | Other Information                                                                                                       |  | 81      
|                              |  |                                                                                                                        
|ITEM 6.                       |  | Exhibits                                                                                                                |  | 82      
|                              | 
|Signatures                    |  | 83                                                                                                                     



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##### Table of Contents

Explanatory Note

Restatement of Financial Information. In this Quarterly Report on Form 10-Q as of and
for the quarter ended April 30, 2007, BEA Systems, Inc. (the Company or we) restated its Condensed Consolidated Statements of Income and Cash Flows for the three months ended April 30, 2006 as a result of an
independent stock option review initiated by the Companys Board of Directors and conducted by its Audit Committee. This restatement is more fully described in Note 2, Restatement of Consolidated Financial Statements, to
Condensed Consolidated Financial Statements and in Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations. In our Annual Report on Form 10-K as of and for the year ended January 31,
2007, we have restated our Consolidated Balance Sheet as of January 31, 2006 and our Consolidated Statements of Income and Comprehensive Income, Shareholders Equity and Cash Flows for each of the fiscal years ended January 31, 2006
and 2005.

Financial information included in the reports on Form 10-K, Form 10-Q and Form 8-K filed by the Company prior to
December 4, 2006, and the related opinions of its independent registered public accounting firm, and all earnings press releases and similar communications issued by the Company prior to December 4, 2006 should not be relied upon and are
superseded in their entirety by our 2007 Form 10-K and other reports on Form 10-Q and Form 8-K filed by the Company with the Securities and Exchange Commission on or after December 4, 2006.

Independent Review Overview.On August 14, 2006, the Audit Committee recommended to the Board, and the Board agreed, that the Audit Committee
retain independent counsel to assist with a thorough review of the Companys historical stock option grant practices (Independent Review). The Audit Committee conducted the Independent Review with the assistance of
independent legal counsel Simpson Thacher & Bartlett LLP (Simpson Thacher) and forensic accountants Navigant Consulting, Inc. (Navigant), collectively the (Review Firms). The
Independent Review, which commenced in August 2006 and encompassed all of the Companys stock option grants from January 1996 through June 2006 (Review Period), excluding stock options acquired as part of business
combinations, consisted of a review of the Companys historic stock option granting practices, including a review of whether we used appropriate measurement dates, and, therefore, correctly accounted for stock option grants made under our
equity award programs.



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|ITEM 1. | Condensed Consolidated Financial Statements
|------- | -------------------------------------------

BEA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(in
thousands, except per share data)

(Unaudited)



|                                                                       |  |                             |         |   |                      |   |         |  
|---------------------------------------------------------------------- |  | --------------------------- | ------- | - | -------------------- | - | ------- | -
|                                                                       |  | Three months endedApril 30, |        
|                                                                       |  | 2007                        |         |   | 2006 As Restated (1) |  
|Revenues:                                                              |  |                             |         |   |                      |   |         |  
|License fees                                                           |  | $                           | 114,647 |   |                      | $ | 132,404 |  
|Services                                                               |  |                             | 231,198 |   |                      |   | 190,832 |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Total revenues                                                         |  |                             | 345,845 |   |                      |   | 323,236 |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Cost of revenues:                                                      |  |                             |         |   |                      |   |         |  
|Cost of license fees                                                   |  |                             | 19,745  |   |                      |   | 15,252  |  
|Cost of services                                                       |  |                             | 70,710  |   |                      |   | 62,930  |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Total cost of revenues                                                 |  |                             | 90,455  |   |                      |   | 78,182  |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Gross profit                                                           |  |                             | 255,390 |   |                      |   | 245,054 |  
|Operating expenses:                                                    |  |                             |         |   |                      |   |         |  
|Sales and marketing                                                    |  |                             | 128,885 |   |                      |   | 120,950 |  
|Research and development                                               |  |                             | 61,214  |   |                      |   | 54,976  |  
|General and administrative                                             |  |                             | 38,154  |   |                      |   | 30,076  |  
|Acquisitionrelated in-process research and development                |  |                             |        |   |                      |   | 2,700   |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Total operating expenses                                               |  |                             | 228,253 |   |                      |   | 208,702 |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Income from operations                                                 |  |                             | 27,137  |   |                      |   | 36,352  |  
|Interest and other, net:                                               |  |                             |         |   |                      |   |         |  
|Interest expense                                                       |  |                             | (3,166  | ) |                      |   | (6,024  | )
|Net gains on sale of equity investments                                |  |                             | 910     |   |                      |   | 10,972  |  
|Interest income and other                                              |  |                             | 16,614  |   |                      |   | 10,677  |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Total interest and other, net                                          |  |                             | 14,358  |   |                      |   | 15,625  |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Income before provision for income taxes                               |  |                             | 41,495  |   |                      |   | 51,977  |  
|Provision for income taxes                                             |  |                             | 12,057  |   |                      |   | 16,883  |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Net income                                                             |  |                             | 29,438  |   |                      |   | 35,094  |  
|Other comprehensive income:                                            |  |                             |         |   |                      |   |         |  
|Foreign currency translation adjustments                               |  |                             | 2,308   |   |                      |   | 2,900   |  
|Unrealized gain on available-for-sale investments, net of income taxes |  |                             | 298     |   |                      |   | 684     |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Comprehensive income                                                   |  | $                           | 32,044  |   |                      | $ | 38,678  |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Net income per share:                                                  |  |                             |         |   |                      |   |         |  
|Basic                                                                  |  | $                           | 0.07    |   |                      | $ | 0.09    |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Diluted                                                                |  | $                           | 0.07    |   |                      | $ | 0.09    |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Number of shares used in per share calculations:                       |  |                             |         |   |                      |   |         |  
|Basic                                                                  |  |                             | 398,310 |   |                      |   | 388,240 |  
|                                                                       |  |                             |         |   |                      |   |         |  
|Diluted                                                                |  |                             | 412,610 |   |                      |   | 403,060 |  
|                                                                       |  |                             |         |   |                      |   |         |  

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|(1) | See Note 2, Restatement of Consolidated Financial Statements, in Notes to Consolidated Financial Statements of this Form 10-Q.
|--- | --------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to condensed consolidated financial statements.



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BEA SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



|                                                       |  |                            |           |   |                             |   |           |  
|------------------------------------------------------ |  | -------------------------- | --------- | - | --------------------------- | - | --------- | -
|                                                       |  | April 30, 2007 (unaudited) |           |   | January 31, 2007 (audited*) |  
|ASSETS                                                 |  |                            |           |   |                             |   |           |  
|Current assets:                                        |  |                            |           |   |                             |   |           |  
|Cash and cash equivalents                              |  | $                          | 942,917   |   |                             | $ | 867,294   |  
|Restricted cash                                        |  |                            | 1,413     |   |                             |   | 1,413     |  
|Short-term investments                                 |  |                            | 342,350   |   |                             |   | 313,941   |  
|Accounts receivable, net                               |  |                            | 305,380   |   |                             |   | 394,799   |  
|Deferred tax assets                                    |  |                            | 128,882   |   |                             |   | 56,767    |  
|Prepaid expenses and other current assets              |  |                            | 49,818    |   |                             |   | 46,126    |  
|                                                       |  |                            |           |   |                             |   |           |  
|Total current assets                                   |  |                            | 1,770,760 |   |                             |   | 1,680,340 |  
|Long-term investments                                  |  |                            | 48,913    |   |                             |   | 93,528    |  
|Property and equipment, net                            |  |                            | 188,664   |   |                             |   | 144,471   |  
|Goodwill, net                                          |  |                            | 233,226   |   |                             |   | 233,998   |  
|Acquired intangible assets, net                        |  |                            | 55,834    |   |                             |   | 67,959    |  
|Long-term restricted cash                              |  |                            | 2,371     |   |                             |   | 2,372     |  
|Long-term deferred tax asset                           |  |                            | 112,602   |   |                             |   | 166,027   |  
|Other long-term assets                                 |  |                            | 9,858     |   |                             |   | 10,147    |  
|                                                       |  |                            |           |   |                             |   |           |  
|Total assets                                           |  | $                          | 2,422,228 |   |                             | $ | 2,398,842 |  
|                                                       |  |                            |           |   |                             |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                   |  |                            |           |   |                             |   |           |  
|Current liabilities:                                   |  |                            |           |   |                             |   |           |  
|Accounts payable                                       |  | $                          | 31,119    |   |                             | $ | 27,521    |  
|Accrued liabilities                                    |  |                            | 98,922    |   |                             |   | 93,507    |  
|Restructuring obligations                              |  |                            | 2,000     |   |                             |   | 3,089     |  
|Accrued payroll and related liabilities                |  |                            | 71,100    |   |                             |   | 105,797   |  
|Accrued income taxes                                   |  |                            | 18,632    |   |                             |   | 120,156   |  
|Deferred revenues                                      |  |                            | 434,722   |   |                             |   | 449,282   |  
|Deferred tax liabilities                               |  |                            | 4,788     |   |                             |   | 4,788     |  
|Current portion of notes payable and other obligations |  |                            | 607       |   |                             |   | 1,302     |  
|                                                       |  |                            |           |   |                             |   |           |  
|Total current liabilities                              |  |                            | 661,890   |   |                             |   | 805,442   |  
|Long-term income tax liabilities                       |  |                            | 130,456   |   |                             |   |          |  
|Notes payable and other long-term obligations          |  |                            | 230,735   |   |                             |   | 228,790   |  
|                                                       |  |                           
|Commitments and contingencies                          |  |                            |           |   |                             |   |           |  
|Stockholders equity:                                  |  |                            |           |   |                             |   |           |  
|Common stock                                           |  |                            | 456       |   |                             |   | 456       |  
|Additional paid-in capital                             |  |                            | 1,915,017 |   |                             |   | 1,902,657 |  
|Treasury stock, at cost                                |  |                            | (478,249  | ) |                             |   | (478,249  | )
|Accumulated deficit                                    |  |                            | (52,844   | ) |                             |   | (72,416   | )
|Accumulated other comprehensive income                 |  |                            | 14,767    |   |                             |   | 12,162    |  
|                                                       |  |                            |           |   |                             |   |           |  
|Total stockholders equity                             |  |                            | 1,399,147 |   |                             |   | 1,364,610 |  
|                                                       |  |                            |           |   |                             |   |           |  
|Total liabilities and stockholders equity             |  | $                          | 2,422,228 |   |                             | $ | 2,398,842 |  
|                                                       |  |                            |           |   |                             |   |           |  

---

|* Note: | The condensed consolidated balance sheet at January 31, 2007 has been derived from the audited consolidated 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.
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See
accompanying notes to condensed consolidated financial statements.



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BEA SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)



|                                                                                  |  |                              |          |   |                      |   |           |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | -------- | - | -------------------- | - | --------- | -
|                                                                                  |  | Three months ended April 30, |         
|                                                                                  |  | 2007                         |          |   | 2006 As Restated (1) |  
|Operating activities:                                                             |  |                              |          |   |                      |   |           |  
|Net income                                                                        |  | $                            | 29,438   |   |                      | $ | 35,094    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |          |   |                      |   |           |  
|Depreciation                                                                      |  |                              | 5,572    |   |                      |   | 5,819     |  
|Stock-based compensation expense                                                  |  |                              | 12,169   |   |                      |   | 15,385    |  
|Excess tax benefit from stock-based payment arrangements                          |  |                              | (18      | ) |                      |   | (3,315    | )
|Amortization and impairment charges related to acquired intangible assets         |  |                              | 12,867   |   |                      |   | 8,697     |  
|Acquisitionrelated in-process research and development                           |  |                              |         |   |                      |   | 2,700     |  
|Changes in operating assets and liabilities                                       |  |                              | 34,331   |   |                      |   | 37,257    |  
|Other                                                                             |  |                              | 720      |   |                      |   | 548       |  
|                                                                                  |  |                              |          |   |                      |   |           |  
|Net cash provided by operating activities                                         |  |                              | 95,079   |   |                      |   | 102,185   |  
|                                                                                  |  |                              |          |   |                      |   |           |  
|Investing activities:                                                             |  |                              |          |   |                      |   |           |  
|Purchases of land, building and property and equipment                            |  |                              | (148,257 | ) |                      |   | (4,867    | )
|Proceeds from sale of land                                                        |  |                              | 105,547  |   |                      |   |          |  
|Payments for acquisitions, net of cash acquired                                   |  |                              | 459      |   |                      |   | (79,795   | )
|Purchases of available-for-sale short-term investments                            |  |                              | (124,930 | ) |                      |   | (114,467  | )
|Proceeds from maturities of available-for-sale short-term investments             |  |                              | 54,047   |   |                      |   | 31,580    |  
|Proceeds from sales of available-for-sale short-term investments                  |  |                              | 88,236   |   |                      |   | 175,301   |  
|                                                                                  |  |                              |          |   |                      |   |           |  
|Net cash (used in) provided by investing activities                               |  |                              | (24,898  | ) |                      |   | 7,752     |  
|                                                                                  |  |                              |          |   |                      |   |           |  
|Financing activities:                                                             |  |                              |          |   |                      |   |           |  
|Repurchase of short-term convertible subordinated notes                           |  |                              |         |   |                      |   | (208,562  | )
|Excess tax benefit from stock-based payment arrangements                          |  |                              | 18       |   |                      |   | 3,315     |  
|Net proceeds received for employee stock purchases                                |  |                              |         |   |                      |   | 46,763    |  
|                                                                                  |  |                              |          |   |                      |   |           |  
|Net cash provided by (used in) financing activities                               |  |                              | 18       |   |                      |   | (158,484  | )
|                                                                                  |  |                              |          |   |                      |   |           |  
|Net increase (decrease) in cash and cash equivalents                              |  |                              | 70,199   |   |                      |   | (48,547   | )
|Effect of exchange rate changes on cash and cash equivalents                      |  |                              | 5,424    |   |                      |   | 2,740     |  
|Cash and cash equivalents at beginning of period                                  |  |                              | 867,294  |   |                      |   | 1,017,772 |  
|                                                                                  |  |                              |          |   |                      |   |           |  
|Cash and cash equivalents at end of period                                        |  | $                            | 942,917  |   |                      | $ | 971,965   |  
|                                                                                  |  |                              |          |   |                      |   |           |  

---

|(1) | See Note 2, Restatement of Consolidated Financial Statements, in Notes to Consolidated Financial Statements of this Form 10-Q.
|--- | --------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to condensed consolidated financial statements.



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BEA SYSTEMS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation and Significant Accounting Policies

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 months ended April 30, 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.

Principles of consolidation

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.

Use of estimates

The preparation of the financial statements in accordance with generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ materially from those estimates.

Revenue recognition

The Company recognizes revenues in accordance with the American Institute of
Certified Public Accountants (AICPA) Statement of Position 97-2, Software Revenue Recognition, as amended.

Revenue from
software license agreements is recognized when the basic 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.



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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 and the allowance for doubtful accounts

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 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 the allowance charges associated with liquidity concerns are recorded as general and administrative expenses. These estimates are
based on multiple sources of information including: assessing the credit worthiness of our customers, 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 occur on a case by case basis net of any
amounts that may be collected.

Impairment of long lived assets

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

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.



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Facilities Consolidation Charges.

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 April 30, 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 April 30, 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 April 30, 2007 by $2.1 million.

Income taxes

Realization of our deferred tax assets is primarily dependent on future U.S. taxable income. FAS 109 Accounting for Income Taxes 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 $226.7 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.

Projects funded by third parties

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 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 of our operating expenses.

Business Combinations

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



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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.

Effect of new accounting pronouncements

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 April 30, 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).



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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.

Note 2. Restatement of Consolidated Financial Statements

Background of the Stock Option Review, Findings and Restatement of Consolidated Financial Statements

Independent Review Overview

On August 14, 2006, the Audit Committee of the Board of Directors of the Company recommended to the Board, and the Board agreed, that
the Audit Committee retain independent counsel to assist with a thorough review of the Companys historical stock option grant practices (Independent Review). The Audit Committee conducted the Independent Review with the
assistance of independent legal counsel Simpson Thacher & Bartlett LLP (Simpson Thacher) and forensic accountants Navigant Consulting, Inc. (Navigant), collectively the (Review
Firms). The Independent Review, which commenced in August 2006 and encompassed all of the Companys stock option grants from January 1996 through June 2006 (Review Period), excluding stock options acquired as part
of business combinations, consisted of a review of the Companys historic stock option granting practices, including a review of whether we used appropriate measurement dates, and, therefore, correctly accounted for stock option grants made
under our equity award programs.

Stock Option Grant Analysis

Prior to February 1, 2006, we accounted for stock-based employee compensation plans under the measurement and recognition provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employee (APB 25) APB 25 defines the measurement date for determining stock-based compensation expense as the first date on which both (1) the number of shares that an individual employee is entitled to receive,
and (2) the option or purchase price, are known.

For grants made in the period from April 11, 1997 through February 5, 2003
for which there is reliable evidence supporting a measurement date under APB 25, primarily Board or Compensation Committee approval, the Company used the date of reliable evidence as the new measurement date. For those grants made in this period
where there is no reliable evidence supporting an earlier measurement date under APB 25, the Company has determined that the date the stock option was entered into the Companys E*Trade Equity Edge stock administration database
(Equity Edge) is the appropriate new measurement date. Throughout this period, the Companys stock administration function entered the option grant information for approved grants into Equity Edge, and the median time
difference between the effective date of a UWC and the subsequent entry into Equity Edge was 13 days. Using these new measurement dates, and after accounting for forfeitures, the Company has recognized incremental stock-based compensation expense of
$242.8 million on a pre-tax basis over the respective options vesting terms.

For grants made in the period from
February 6, 2003 through May 31, 2006, the Company has concluded that its receipt of the last required signature where the dated signature is determined to be reliable is the appropriate new measurement date for calculating additional
stock-based compensation expense under APB 25. Using these measurement dates, and after accounting for forfeitures, the Company has recognized incremental stock-based compensation expense of $3.7 million on a pre-tax basis over the respective
options vesting terms.



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Five Measurement Date Rules. The Company has taken the position that, with respect to
option grants for which the recorded measurement date was not supported by sufficient evidence of finality and therefore not accounted for properly, the appropriate new measurement date may be established in one of five ways:



| | (1) | When there is evidence of Board or Compensation Committee approval, the Board or Compensation Committee approval or meeting date is the new measurement date;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | For the period from February 6, 2003 through May 31, 2006 when the dated signatures on a UWC are determined to be reliable, the date of last required signature on the UWC,
or if the signature is not dated, the fax return date, is the new measurement date;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | For the period from April 11, 1997 through February 5, 2003 when the dated signature on and purported effective date of the UWC are determined to not be reliable, the
Equity Edge entry date is the new measurement date;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | For the period from April 11, 1997 through February 5, 2003 when the dated signature on and purported effective date of the UWC are determined to not be reliable, but where
other evidence exists to demonstrate that finality occurred prior to the Equity Edge entry date, the date of reliable grant information is the new measurement date. In this circumstance, the Company found emails, employee correspondence, and Equity
Edge grant information related to 344 grants that supported the fact that these grants had been previously entered into Equity Edge and subsequently re-entered to adjust only the tax designation of the options (incentive versus nonqualified stock
options). The Company concluded that since no other attribute of the grant was changed, the initial entry into Equity Edge, which was commensurate with the other grants on the related authorizing document, was the most appropriate new measurement
date;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | When the grant date is prior to the employee providing services to the Company, the first day of work is the new measurement date.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------

Summary of Stock-Based Compensation Recognized due to New Measurement Dates. Below is a summary of the stock-based compensation recognized
by the Company by measurement date rule:



|                                                     |  |                                               |   |  |                        |  |                                        |        
|---------------------------------------------------- |  | --------------------------------------------- | - |  | ---------------------- |  | -------------------------------------- | -------
|                                                     |  |                                               |   |  | (Amounts in thousands)
|Type                                                 |  | Number of grantsrequiring newmeasurement date |   |  | Total Number ofoptions |  | Compensationexpense, net offorfeitures
|April 11, 1997 through February 5, 2003              |  |                                               |   |  |                        |  |                                        |        
|1) Equity Edge entry date                            |  | 20,754                                        |   |  | 99,559                 |  | $                                      | 204,004
|2) Board approval                                    |  | 486                                           |   |  | 21,253                 |  |                                        | 28,208 
|3) Reliable evidence prior to Equity Edge entry date |  | 344                                           |   |  | 1,288                  |  |                                        | 6,946  
|4) Date employee began services                      |  | 9                                             |   |  | 474                    |  |                                        | 3,587  
|                                                     |  |                                               |   |  |                        |  |                                        |        
|Subtotal                                             |  | 21,593                                        |   |  | 122,574                |  |                                        | 242,745
|                                                     |  |                                               |  
|February 6, 2003 through May 31, 2006                |  |                                               |   |  |                        |  |                                        |        
|5) Last required signature on a UWC                  |  | 12,533                                        |   |  | 47,164                 |  |                                        | 3,727  
|                                                     |  |                                               |   |  |                        |  |                                        |        
|Total                                                |  | 34,126                                        | * |  | 169,738                |  | $                                      | 246,472
|                                                     |  |                                               |   |  |                        |  |                                        |        

---

|* | Does not include those grants subject to variable accounting.
|- | -------------------------------------------------------------

Stock
Option Grants Subject to Variable Accounting

National Insurance Contribution (NIC) Tax.The Company has also
concluded that certain of its stock options grants are subject to variable accounting.

In May 2001, the Company modified its stock
option grant agreements in the United Kingdom (U.K.) to transfer the Companys National Insurance Contribution (NIC) tax liability to employees. In conjunction with its modified stock option agreements, BEA
and its U.K. employees executed Joint Election Forms pursuant to which the parties agreed to pass the Companys NIC tax liability to the employees, which in turn enabled the employees to obtain tax relief against their taxable income from the
U.K. taxing authorities. Pursuant to applicable U.K. tax requirements, the Company did not utilize the modified stock option agreements and Joint Election Forms until it had received approval from relevant U.K. taxing authorities.



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Although the Companys stock administration function implemented the appropriate NIC tax withholding
upon exercise of a U.K. employees stock options subject to the tax transfer, the Companys local payroll department mistakenly reimbursed the withheld amount to each employee in a subsequent payroll cycle. The Company continued this
practice through August 22, 2006. The Company has concluded that, per EITF Issue No. 00-23, Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44 (EITF 00-23), because
the Company in substance provided the employee with a cash bonus tied to the intrinsic value of the options upon exercise, the exercise price of these options was not fixed, and the Company must apply variable accounting to each stock option granted
to employees in the U.K. in the period in which the Company maintained this practice. Accordingly, 1,413 grants totaling 5.0` million stock options granted from May 1, 2001 through January 31, 2006 were subject to variable accounting.
The Company has recognized net incremental stock-based compensation expense of $4.3 million net of forfeitures and adjustments to remeasure the award at intrinsic value on a pre-tax basis through January 31, 2006.

On August 22, 2006, the Company ceased reimbursing employees for the NIC tax liability. On that date, the awards were effectively modified. However,
because the Company was subject to the requirements of FAS 123(R) on that date, and because the modification reduced the fair value of the options, the modification did not have an accounting consequence.

Other Variable Awards. In addition, the Company concluded that one grant of 400,000 stock options in fiscal year 2000 to a former Section 16 officer
was subject to variable accounting due to the terms and conditions of that grant. The former Section 16 officer asserted this grant as originally priced had an incorrect exercise price. Rather than re-price the stock options, the Company
offered him a cash bonus payable upon exercise of the vested stock options (in effect a re-pricing under FIN 44). At the time of the agreement, the Company accrued the intrinsic value of the cash bonus and amortized the expense over the vesting
period of the stock options, but did not account for the stock option grant as a variable award.

The Company has recognized net
stock-based compensation expense of $3.4 million net of forfeitures on a pre-tax basis through Q1 of fiscal year 2004, which is the fiscal period in which this variable award ceased based on the termination of the Section 16 officer.

Stock Option Grant Modifications Related to Current and Terminated Employees

Grant Modifications-Terminated Employees. For much of the period under review, departing employees frequently were given separation
agreements, termination agreements, or leaves of absence in lieu of or in addition to severance payments. Typically, such arrangements related to the Company (1) permitting employees additional time to vest their stock options following their
cessation of services to the Company; and (2) permitting employees additional time to exercise their stock options, beyond the period of time provided for such exercises under the employees stock option grant agreement. Such arrangements
constitute modifications to the original option grants and compensation expense must be recognized in the period of the modification, which the Company did not do.

The Company analyzed the circumstances surrounding all 5,148 terminations from April 1997 through June 2006, which included the review of 1,273 termination agreements, of which eight were for Section 16 officers.
The Company concluded that the terms and conditions of 975 termination agreements, eight of which were for Section 16 officers, resulted in modifications of the underlying stock options. Although these arrangements embody the terms and
conditions of the termination of the employee from the Company, the Company did not have adequate business processes to ensure that the terms and conditions of such arrangements were communicated to the accounting and finance personnel for
appropriate consideration. The Company has recognized incremental stock-based compensation expense related to these modifications of $98.5 million, $44.8 million on a pre-tax basis related to the eight modifications for Section 16 officers and
$53.7 million related to 967 modifications for rank-and-file employees.

In addition, the Company reviewed the termination data in the
Companys Peoplesoft ERP database and Equity Edge for the remaining 3,875 terminations, including the terminations of eight Section 16 officers. The Company determined that 1,223 of such terminations resulted in modifications of the
underlying stock options, of which three were for Section 16 officers. The Company did not have adequate business processes to ensure that data was accurately and consistently captured and entered to its Peoplesoft ERP and Equity Edge systems
such that the resulting data input did not mistakenly result in a systemic extension of either vesting or the time period to exercise upon termination. The Company has recognized incremental stock-based compensation expense related to these
modifications of $73.4 million on a pre-tax basis, $15.5 million related to the three modifications for Section 16 officers and $57.9 million related to 1,220 modifications for rank-and-file employees.

In total, the Company has recognized incremental stock-based compensation expense associated with such modifications of $171.9 million on a pre-tax basis
in the period of modification.

Grant Modifications-Active Employees. In some circumstances the Company modified grants to
active employees. These modifications fall into four categories, and the total compensation expense associated with these modifications is $4.3 million net of forfeitures on a pre-tax basis.



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In the first circumstance, employees who had properly entered a LOA were allowed to vest their stock
options in circumstances where the Companys policy did not permit such vesting. Such arrangements constitute modifications to the original option grants and compensation expense must be re-measured pursuant to FIN 44 in the period of
modification, which the Company did not do. The Company has recognized incremental stock-based compensation expense associated with such modifications of $1.6 million on a pre-tax basis in the period of modification.

In the second circumstance, certain employees were (1) granted options, for five grants, that were subsequently cancelled and either immediately or
shortly thereafter reissued at a lower price; (2) granted additional options, for five grants, immediately or shortly after an initial grant, at a lower price than the initial grant, and the initial grant was immediately or shortly thereafter
cancelled; and (3) granted options, for 43 grants to 32 grant recipients, of which the Company concluded that 19 were modifications, that were subsequently modified through a change in price after the initial entry into Equity Edge. Under GAAP
this cancellation and replacement is a re-pricing that requires compensation expense to be recognized and adjusted quarterly for as long as the re-priced option remains outstanding. The Company failed to record this expense. The Company has
recognized incremental stock-based compensation expense associated with such modifications of $1.0 million net of forfeitures on a pre-tax basis in the period of modification.

In the third circumstance, there was one instance of a change in status of a Section 16 officer from a Director to a consultant. Upon a change of
status to a consultant, compensation expense must be measured pursuant to EITF Issue No. 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services
relating to options that vest during the consulting period. The Company previously did not do this measurement. The Company has recognized incremental stock-based compensation expense associated with this change of status of $1.3 million net of
forfeitures on a pre-tax basis in the period of the change in status.

In the fourth circumstance, there was one instance of a change to
the vesting schedule of a rank-and-file employee. Such an arrangement constitutes a modification to the original option grants and compensation expense must be recognized over the required service period, which the Company did not do. The Company
has recognized incremental stock-based compensation expense associated with such a modification of $0.4 million on a pre-tax basis commencing in the period of modification.

Employer and Employee Tax Liabilities Penalties and Interest

The Company identified numerous
instances of stock options that were originally classified as incentive stock options (ISOs) that (1) due to the new measurement dates should have been non-qualified stock options (NQSOs)
(Reclassified), and (2) due to termination and other modifications the unexercised stock options at modification date should have been NQSOs (Modified). In regards to Reclassified ISOs, a majority of the
historical stock option grants that were issued as ISOs should have been NQSOs because due to the new measurement dates they were issued at a discount to fair market value (FMV). The difference between the FMV of the
Companys stock and the strike price on these Reclassified stock options at exercise date should have been subject to withholdings for income and employment taxes. In regards to Modified ISOs, the unexercised portion of the ISOs that were not
already Reclassified due to new measurement dates should have been NQSOs at the time upon the modification, which included allowing terminated employees to continue to vest. The difference between the FMV of the Companys stock and the strike
price on these Modified stock options at exercise date should have been subject to withholdings for income and employment taxes.

The
Company performed a grant-by-grant examination of all options requiring measurement date changes and calculated the requisite employment taxes that should have been accrued upon subsequent exercise of the ISOs that should have been NQSOs. The
Company concluded that the liability for (1) under-withheld employee income taxes, (2) employer and employee-borne employment taxes; and (3) all respective interest and penalties should be recorded in the period these liabilities
arose as evaluated under Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (FAS 5). However, for the fiscal years 1998 through 2003, the corresponding statute of limitations expired before
the amounts were paid and therefore, the liabilities were reversed as the corresponding statute of limitations expired. The Company intends to assume the employees remaining obligation for these taxes.

The total additional expense of these additional taxes, penalties, and interest, net of reversal due to the expiration of the respective statute of
limitations, is $2.8 million on a pre-tax basis.

Internal Revenue Code Section 409A

Certain adjustments to the measurement dates of stock options that resulted in additional stock-based compensation expense also illuminated an additional
and separate exposure for employee-borne taxes under Internal Revenue Code (IRC) Section 409A (409A). The tax is a 20% assessment on certain types of equity award income, including gains on discounted
options. The state of California also assesses this tax. Because the Companys employees were unaware of the



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tax at the time their options were granted and unaware that some options they received would subject them to these taxes, the Company entered into
arrangements with both the IRS and the state of California in February 2007 to discharge these obligations, on behalf of its employees, directly with the taxing authorities for all periods through December 31, 2006. The Company also paid the
associated penalties and interest.

The Company concluded that the expense associated with discharging its employees 409A exposure
for all periods through December 31, 2006 should be reflected in the Companys fiscal Q1 of 2008 financial statements since that is the period in which the Company made the decision to assume these obligations. The Company accrued $4.9
million on a pre-tax basis in Q1FY08 in estimation of the amount of these obligations.

In addition, the Company intends to provide its
employees with the opportunity to remedy their outstanding stock options that are subject to potential penalties under 409A. The resulting financial impact will be reflected in the period in which the remedial action is finalized.

Purchase Accounting

Over the periods affected by the
additional stock-based compensation expense, the Company made several business and asset acquisitions for which net deferred tax liabilities (DTLs) were recorded in purchase accounting for taxable temporary differences acquired
and/or recorded in the purchase accounting. In connection with these acquisitions the Company was required to reduce its valuation allowance based on the DTLs recorded in the purchase accounting as they provided a source of future taxable income to
recognize certain of the Companys deferred tax assets. Prior to the restatement, these reductions in the valuation allowance related entirely to excess stock option tax benefits and therefore they were accounted for with a credit directly to
equity consistent with FAS No. 109, Accounting for Income Taxes (FAS 109), paragraphs 36(e) and 37.

The additional
stock-based compensation expense recognized as a result of revised measurement dates impacted the original purchase accounting in that a significant portion of the reduction in the Companys valuation allowance reduced in connection with the
relevant acquisitions are no longer excess stock option deductions. As a result, reductions in the Companys valuation allowance in connection with the relevant acquisitions are accounted for as part of the acquisition purchase price (i.e.,
reductions in goodwill and, in certain circumstances, identifiable intangible assets) rather than as the recognition of excess stock option deduction benefits accounted for directly to equity.

Therefore, the reduction in goodwill and intangible assets as a result of the additional stock-based compensation reduced the related amortization of
those intangibles by $11.4 million. These intangible assets that were adjusted were fully amortized by January 31, 2006.

Judgment

In light of the significant judgment required in establishing revised measurement dates, alternate approaches to those used by us would have resulted
in different compensation expense charges than those recorded by us in our restated financial statements. In those cases where the Company concluded that the Equity Edge entry date was the most appropriate new measurement date, we considered various
alternate approaches. However, we concluded, based on a variety of factors, that none of the alternative approaches was as reliable as the Equity Edge entry date. The Company believes that the approaches it used were the most appropriate under the
circumstances.



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Summary of Stock-Based Compensation Adjustments and Related Issues

The summary of the incremental stock-based compensation after considering forfeitures and related issues on a pre-tax and after tax basis for the fiscal
years ended January 31, 1998 through January 31, 2006 from the review is as follows (in thousands):



|            |  |                         |         |   |                            |   |         |  
|----------- |  | ----------------------- | ------- | - | -------------------------- | - | ------- | -
|Fiscal Year |  | Pre-Tax Expense(Income) |         |   | After Tax Expense (Income) |  
|1998        |  | $                       | 827     |   |                            | $ | 827     |  
|1999        |  |                         | 2,983   |   |                            |   | 2,983   |  
|2000        |  |                         | 29,754  |   |                            |   | 29,752  |  
|2001        |  |                         | 185,125 |   |                            |   | 159,272 |  
|2002        |  |                         | 109,399 |   |                            |   | 100,347 |  
|2003        |  |                         | 66,623  |   |                            |   | 42,961  |  
|2004        |  |                         | 42,701  |   |                            |   | 10,638  |  
|            |  |                         |         |   |                            |   |         |  
|Subtotal    |  |                         | 437,412 |   |                            |   | 346,782 |  
|2005        |  |                         | (10,662 | ) |                            |   | (14,641 | )
|2006        |  |                         | (2,762  | ) |                            |   | (427    | )
|            |  |                         |         |   |                            |   |         |  
|Total       |  | $                       | 423,988 |   |                            | $ | 331,714 |  
|            |  |                         |         |   |                            |   |         |  

Effects of Restatement Adjustments

The impact of recognizing additional stock compensation and other adjustments on each component of stockholders equity at the end of each year is
summarized as follows (in thousands):



|            |  |                                           |         |   |                            |   |          |                                       |  |   |                                   |   |  |   |         |  
|----------- |  | ----------------------------------------- | ------- | - | -------------------------- | - | -------- | ------------------------------------- |  | - | --------------------------------- | - |  | - | ------- | -
|Fiscal Year |  | Common stock andAdditional paid-incapital |         |   | Deferred stockcompensation |   |          | Retained earnings(accumulateddeficit) |  |   | Net impact tostockholders equity |  
|1998        |  | $                                         | 2,858   |   |                            | $ | (2,117   | )                                     |  | $ | (827                              | ) |  | $ | (86     | )
|1999        |  |                                           | 10,413  |   |                            |   | (7,585   | )                                     |  |   | (2,983                            | ) |  |   | (155    | )
|2000        |  |                                           | 139,367 |   |                            |   | (110,688 | )                                     |  |   | (29,754                           | ) |  |   | (1,075  | )
|2001        |  |                                           | 170,119 |   |                            |   | (33,954  | )                                     |  |   | (159,272                          | ) |  |   | (23,107 | )
|2002        |  |                                           | 75,600  |   |                            |   | 1,859    |                                       |  |   | (100,347                          | ) |  |   | (22,888 | )
|2003        |  |                                           | (20,939 | ) |                            |   | 57,090   |                                       |  |   | (42,961                           | ) |  |   | (6,810  | )
|2004        |  |                                           | (48,272 | ) |                            |   | 52,197   |                                       |  |   | (10,638                           | ) |  |   | (6,713  | )
|            |  |                                           |         |   |                            |   |          |                                       |  |   |                                   |   |  |   |         |  
|Subtotal    |  |                                           | 329,146 |   |                            |   | (43,198  | )                                     |  |   | (346,782                          | ) |  |   | (60,834 | )
|            |  |                                           |         |   |                            |   |          |                                       |  |   |                                   |   |  |   |         |  
|2005        |  |                                           | (12,425 | ) |                            |   | 27,601   |                                       |  |   | 14,641                            |   |  |   | 29,817  |  
|2006        |  |                                           | 9,279   |   |                            |   | 7,273    |                                       |  |   | 427                               |   |  |   | 16,979  |  
|            |  |                                           |         |   |                            |   |          |                                       |  |   |                                   |   |  |   |         |  
|Total       |  | $                                         | 326,000 |   |                            | $ | (8,324   | )                                     |  | $ | (331,714                          | ) |  | $ | (14,038 | )
|            |  |                                           |         |   |                            |   |          |                                       |  |   |                                   |   |  |   |         |  



16



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##### Table of Contents

The following tables present the effects of adjustments made to our previously reported selected
quarterly financial information (in thousands, except for per share amounts):



|                                                        |  |                                   |         |   |             |   |        |             |  |   |         |  
|------------------------------------------------------- |  | --------------------------------- | ------- | - | ----------- | - | ------ | ----------- |  | - | ------- | -
|                                                        |  | Three months ended April 30, 2006 |        
|                                                        |  | As previouslyreported             |         |   | Adjustments |   |        | As restated | 
|Revenues:                                               |  |                                   |         |   |             |   |        |             |  |   |         |  
|License fees                                            |  | $                                 | 132,404 |   |             | $ |       |             |  | $ | 132,404 |  
|Services                                                |  |                                   | 190,832 |   |             |   |       |             |  |   | 190,832 |  
|                                                        |  |                                   |         |   |             |   |        |             |  |   |         |  
|Total revenues                                          |  |                                   | 323,236 |   |             |   |       |             |  |   | 323,236 |  
|Cost of revenues:                                       |  |                                   |         |   |             |   |        |             |  |   |         |  
|Cost of license fees                                    |  |                                   | 15,266  |   |             |   | (14    | )           |  |   | 15,252  |  
|Cost of services                                        |  |                                   | 63,576  |   |             |   | (646   | )           |  |   | 62,930  |  
|                                                        |  |                                   |         |   |             |   |        |             |  |   |         |  
|Total cost of revenues                                  |  |                                   | 78,842  |   |             |   | (660   | )           |  |   | 78,182  |  
|                                                        |  |                                   |         |   |             |   |        |             |  |   |         |  
|Gross profit                                            |  |                                   | 244,394 |   |             |   | 660    |             |  |   | 245,054 |  
|Operating expenses:                                     |  |                                   |         |   |             |   |        |             |  |   |         |  
|Sales and marketing                                     |  |                                   | 122,217 |   |             |   | (1,267 | )           |  |   | 120,950 |  
|Research and development                                |  |                                   | 55,699  |   |             |   | (723   | )           |  |   | 54,976  |  
|General and administrative                              |  |                                   | 30,178  |   |             |   | (102   | )           |  |   | 30,076  |  
|Facilities consolidation                                |  |                                   |        |   |             |   |       |             |  |   |        |  
|Acquisition-related in-process research and development |  |                                   | 2,700   |   |             |   |       |             |  |   | 2,700   |  
|                                                        |  |                                   |         |   |             |   |        |             |  |   |         |  
|Total operating expenses                                |  |                                   | 210,794 |   |             |   | (2,092 | )           |  |   | 208,702 |  
|                                                        |  |                                   |         |   |             |   |        |             |  |   |         |  
|Income from operations                                  |  |                                   | 33,600  |   |             |   | 2,752  |             |  |   | 36,352  |  
|Interest and other, net:                                |  |                                   |         |   |             |   |        |             |  |   |         |  
|Interest expense                                        |  |                                   | (6,024  | ) |             |   |       |             |  |   | (6,024  | )
|Net gains on sale of equity investments                 |  |                                   | 10,972  |   |             |   |       |             |  |   | 10,972  |  
|Interest income and other                               |  |                                   | 10,677  |   |             |   |       |             |  |   | 10,677  |  
|                                                        |  |                                   |         |   |             |   |        |             |  |   |         |  
|Total interest and other, net                           |  |                                   | 15,625  |   |             |   |       |             |  |   | 15,625  |  
|                                                        |  |                                   |         |   |             |   |        |             |  |   |         |  
|Income before provision for income taxes                |  |                                   | 49,225  |   |             |   | 2,752  |             |  |   | 51,977  |  
|Provision for income taxes                              |  |                                   | 13,971  |   |             |   | 2,912  |             |  |   | 16,883  |  
|                                                        |  |                                   |         |   |             |   |        |             |  |   |         |  
|Net income                                              |  | $                                 | 35,254  |   |             | $ | (160   | )           |  | $ | 35,094  |  
|                                                        |  |                                   |         |   |             |   |        |             |  |   |         |  
|Net income per share:                                   |  |                                   |         |   |             |   |        |             |  |   |         |  
|Basic                                                   |  | $                                 | 0.09    |   |             |   |       |             |  | $ | 0.09    |  
|Diluted                                                 |  | $                                 | 0.09    |   |             |   |       |             |  | $ | 0.09    |  



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##### Table of Contents

|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|----------------------------------------------------------- |  | --------------------- | --------- | - | ----------- | - | -------- | ----------- |  | - | --------- | -
|                                                            |  | As of April 30, 2006  |          
|                                                            |  | As previouslyreported |           |   | Adjustments |   |          | As restated | 
|ASSETS                                                      |  |                       |           |   |             |   |          |             |  |   |           |  
|Current Assets:                                             |  |                       |           |   |             |   |          |             |  |   |           |  
|Cash and cash equivalents                                   |  | $                     | 971,965   |   |             | $ |         |             |  | $ | 971,965   |  
|Restricted cash                                             |  |                       | 1,666     |   |             |   |         |             |  |   | 1,666     |  
|Short-term investments                                      |  |                       | 297,325   |   |             |   |         |             |  |   | 297,325   |  
|Accounts receivable, net of allowance for doubtful accounts |  |                       | 242,461   |   |             |   |         |             |  |   | 242,461   |  
|Prepaid expenses and other current assets                   |  |                       | 89,647    |   |             |   | (2,993   | )           |  |   | 86,654    |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|Total current assets                                        |  |                       | 1,603,064 |   |             |   | (2,993   | )           |  |   | 1,600,071 |  
|Long-term investments                                       |  |                       | 45,490    |   |             |   |         |             |  |   | 45,490    |  
|Property and equipment, net                                 |  |                       | 341,991   |   |             |   |         |             |  |   | 341,991   |  
|Goodwill, net                                               |  |                       | 207,501   |   |             |   | (7,288   | )           |  |   | 200,213   |  
|Acquired intangible assets, net                             |  |                       | 88,540    |   |             |   |         |             |  |   | 88,540    |  
|Long-term restricted cash                                   |  |                       | 2,644     |   |             |   |         |             |  |   | 2,644     |  
|Other long-term assets                                      |  |                       | 37,926    |   |             |   | (413     | )           |  |   | 37,513    |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|Total assets                                                |  | $                     | 2,327,156 |   |             | $ | (10,694  | )           |  | $ | 2,316,462 |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                        |  |                       |           |   |             |   |          |             |  |   |           |  
|Current liabilities:                                        |  |                       |           |   |             |   |          |             |  |   |           |  
|Accounts payable                                            |  | $                     | 24,019    |   |             | $ |         |             |  | $ | 24,019    |  
|Accrued liabilities                                         |  |                       | 93,386    |   |             |   | 2,837    |             |  |   | 96,223    |  
|Restructuring obligations                                   |  |                       | 3,198     |   |             |   |         |             |  |   | 3,198     |  
|Accrued payroll and related liabilities                     |  |                       | 72,742    |   |             |   |         |             |  |   | 72,742    |  
|Accrued income taxes                                        |  |                       | 74,696    |   |             |   | 287      |             |  |   | 74,983    |  
|Deferred revenue                                            |  |                       | 365,003   |   |             |   |         |             |  |   | 365,003   |  
|Convertible subordinated notes                              |  |                       | 255,250   |   |             |   |         |             |  |   | 255,250   |  
|Current portion of notes payable and other obligations      |  |                       | 933       |   |             |   |         |             |  |   | 933       |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|Total current liabilities                                   |  |                       | 889,227   |   |             |   | 3,124    |             |  |   | 892,351   |  
|Long-term deferred tax liabilities                          |  |                       | 1,283     |   |             |   |         |             |  |   | 1,283     |  
|Notes payable and other long-term obligations               |  |                       | 227,632   |   |             |   |         |             |  |   | 227,632   |  
|Convertible subordinated notes                              |  |                       |          |   |             |   |         |             |  |   |          |  
|Commitments and contingencies                               |  |                       |           |   |             |   |          |             |  |   |           |  
|Stockholders equity:                                       |  |                       |           |   |             |   |          |             |  |   |           |  
|Common stock                                                |  |                       | 449       |   |             |   |         |             |  |   | 449       |  
|Additional paid-in capital                                  |  |                       | 1,390,050 |   |             |   | 318,053  |             |  |   | 1,708,103 |  
|Treasury stock, at cost                                     |  |                       | (478,249  | ) |             |   |         |             |  |   | (478,249  | )
|Retained earnings/(Accumulated deficit)                     |  |                       | 290,052   |   |             |   | (331,871 | )           |  |   | (41,819   | )
|Accumulated other comprehensive income                      |  |                       | 6,712     |   |             |   |         |             |  |   | 6,712     |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|Total stockholders equity                                  |  |                       | 1,209,014 |   |             |   | (13,818  | )           |  |   | 1,195,196 |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|Total liabilities and stockholders equity                  |  | $                     | 2,327,156 |   |             | $ | (10,694  | )           |  | $ | 2,316,462 |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  

Note 3. Business Combinations

Fiscal 2007 Acquisitions

Flashline, Inc.

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.



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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 April 30, 2007. The total preliminary purchase price is $43.6 million,
including the estimated acquisition related transaction costs, and is comprised of (in thousands):



|                                                         |  |                            |       
|-------------------------------------------------------- |  | -------------------------- | ------
|                                                         |  | 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
|                                                         |  |                            |       

Preliminary Purchase price allocation

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 April 30, 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 related 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):



|                                               |  |                      |        |  
|---------------------------------------------- |  | -------------------- | ------ | -
|                                               |  | As of April 30, 2007 |       
|Cash and short-term investments                |  | $                    | 176    |  
|Accounts receivable                            |  |                      | 262    |  
|Deferred Tax Asset                             |  |                      | 6,109  |  
|Intangible assets, net                         |  |                      | 7,100  |  
|Goodwill                                       |  |                      | 29,227 |  
|Accounts payable and other accrued liabilities |  |                      | (579   | )
|Notes Payable and other long-term liabilities  |  |                      | (120   | )
|Deferred revenue                               |  |                      | (255   | )
|In-process research and development            |  |                      | 1,700  |  
|                                               |  |                      |        |  
|Total preliminary purchase price               |  | $                    | 43,620 |  
|                                               |  |                      |        |  

The acquisition 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.

Intangible assets

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



|                        |  |                        |       |                       |        
|----------------------- |  | ---------------------- | ----- | --------------------- | -------
|                        |  | 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 |                       |        
|                        |  |                        |       |                       |        

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.



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Deferred revenue

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.

Fuego, Inc.

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 (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 for changes in estimates through February 28, 2007.

The total purchase price is $88.4 million, including the acquisition related transaction costs, and is comprised of (in thousands):



|                                      |  |                |       
|------------------------------------- |  | -------------- | ------
|                                      |  | Purchase Price
|Acquisition consideration for Fuego   |  | $              | 86,036
|Acquisition related transaction costs |  |                | 2,383 
|                                      |  |                |       
|Total purchase price                  |  | $              | 88,419
|                                      |  |                |       

Purchase price allocation

The total purchase price has been allocated to Fuegos net tangible and identifiable intangible assets based on their estimated fair values as of
February 28, 2006, and adjusted as necessary for changes in estimates through April 30, 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. In addition, upon finalization of the combined companys legal entity structure, additional adjustments to deferred taxes may be required. The following is the purchase price allocation (in thousands):



|                                               |  |                      |        |  
|---------------------------------------------- |  | -------------------- | ------ | -
|                                               |  | As of April 30, 2007 |       
|Cash and short-term investments                |  | $                    | 5,821  |  
|Accounts receivable, net                       |  |                      | 3,481  |  
|Prepaids and other current assets              |  |                      | 212    |  
|Fixed assets                                   |  |                      | 44     |  
|Deferred tax asset                             |  |                      | 7,276  |  
|Intangible assets, net                         |  |                      | 18,300 |  
|Goodwill                                       |  |                      | 54,878 |  
|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 |  
|                                               |  |                      |        |  

The acquisition related IPR&D, which was valued at $2.7 million, related primarily to the
Fuego 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 February 28, 2006.



20



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##### Table of Contents

Intangible assets

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):



|                        |  |                        |        |                       |        
|----------------------- |  | ---------------------- | ------ | --------------------- | -------
|                        |  | Preliminary Fair Value |        | Estimated Useful Life
|Purchased technology    |  | $                      | 12,800 |                       | 3 years
|Customer base           |  |                        | 5,500  |                       | 4 years
|                        |  |                        |        |                       |        
|Total intangible assets |  | $                      | 18,300 |                       |        
|                        |  |                        |        |                       |        

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 contracts and related relationships with Fuegos existing customers.

Deferred revenue

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 $.3 M.

Note 4. Stock-Based
Compensation

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):



|                                                   |  |                             |        |   |                      |   |        |  
|-------------------------------------------------- |  | --------------------------- | ------ | - | -------------------- | - | ------ | -
|                                                   |  | Three months endedApril 30, |       
|                                                   |  | 2007                        |        |   | 2006 As Restated (1) |  
|Cost of license fees                               |  | $                           | 34     |   |                      | $ | 62     |  
|Cost of services                                   |  |                             | 1,496  |   |                      |   | 2,309  |  
|Sales and marketing                                |  |                             | 4,155  |   |                      |   | 5,335  |  
|Research and development                           |  |                             | 2,678  |   |                      |   | 3,691  |  
|General and administrative                         |  |                             | 3,806  |   |                      |   | 3,997  |  
|                                                   |  |                             |        |   |                      |   |        |  
|Stock-based compensation before income taxes       |  |                             | 12,169 |   |                      |   | 15,394 |  
|Income tax benefit                                 |  |                             | (2,541 | ) |                      |   | (3,482 | )
|                                                   |  |                             |        |   |                      |   |        |  
|Total stock-based compensation expense after taxes |  | $                           | 9,628  |   |                      | $ | 11,912 |  
|                                                   |  |                             |        |   |                      |   |        |  

---

|(1) | See Note 2, Restatement of Consolidated Financial Statements, in Notes to Consolidated Financial Statements of this Form 10-Q.
|--- | --------------------------------------------------------------------------------------------------------------------------------

Valuation Assumptions for Stock Options

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.



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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 months ended April 30, 2007 and April 30, 2006:



|                        |  |                              |   |  |               |  
|----------------------- |  | ---------------------------- | - |  | ------------- | -
|                        |  | Three months ended April 30, |  
|                        |  | 2007                         |   |  | 2006          |  
|Risk-free interest rate |  | 4.5                          | % |  | 4.9           | %
|Expected volatility     |  | 33                           | % |  | 45-70         | %
|Expected term           |  | 3.7-4.6years                 |   |  | 3.6-4.4 years |  
|Expected dividends      |  | none                         |   |  | None          |  

The weighted-average fair value of options granted during the three months ended April 30,
2007 and 2006 was $3.92 and $5.46, respectively.

Stock Options

A summary of stock option activity during the quarter ended April 30, 2007 is as follows (in thousands, except years and per-share amounts):



|                                              |  |                  |   |  |                                 |       |                                                        |      |                           |   |        
|--------------------------------------------- |  | ---------------- | - |  | ------------------------------- | ----- | ------------------------------------------------------ | ---- | ------------------------- | - | -------
|                                              |  | Number of Shares |   |  | Weighted-Average Exercise Price |       | Weighted-Average Remaining Contractual
Term (in Years) |      | Aggregate Intrinsic Value
|Outstanding at January 31, 2007               |  | 65,811           |   |  | $                               | 12.37 |                                                        |      |                           |   |        
|Grants                                        |  | 5,632            |   |  | $                               | 12.28 |                                                        |      |                           |   |        
|Exercises                                     |  |                 |   |  | $                               |      |                                                        |      |                           |   |        
|Forfeitures or expirations                    |  | (707             | ) |  | $                               | 10.54 |                                                        |      |                           |   |        
|                                              |  |                  |   |  |                                 |       |                                                        |      |                           |   |        
|Outstanding at April 30, 2007                 |  | 70,736           |   |  | $                               | 12.38 |                                                        | 6.17 |                           | $ | 163,531
|                                              |  |                  |   |  |                                 |       |                                                        |      |                           |   |        
|Vested and expected to vest at April 30, 2007 |  | 66,818           |   |  | $                               | 12.44 |                                                        | 6.07 |                           | $ | 159,519
|                                              |  |                  |   |  |                                 |       |                                                        |      |                           |   |        
|Exercisable at April 30, 2007                 |  | 49,452           |   |  | $                               | 13.00 |                                                        | 5.43 |                           | $ | 132,929
|                                              |  |                  |   |  |                                 |       |                                                        |      |                           |   |        

The aggregate intrinsic value of options outstanding at April 30, 2007 is calculated as the
difference between the exercise price of the underlying options and the market price of our common stock for the 34.9 million shares that had exercise prices that were lower than the market price of our common stock as of April 30, 2007.
There were no options exercised during the quarter ended April 30, 2007. The Company settles employee stock option exercises with newly issued common shares.



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##### Table of Contents

As of April 30, 2007, there was $60.7 million of total unrecognized compensation cost related
to unvested stock options which is expected to be recognized over a weighted-average period of 2.7 years.

Restricted Stock Awards

The following table summarizes our restricted stock award activity for the quarter ended April 30, 2007 (in thousands, except per share amounts):



|                                              |  |                  |   |  |                                        |      
|--------------------------------------------- |  | ---------------- | - |  | -------------------------------------- | -----
|                                              |  | Number of Shares |   |  | Weighted-Average Grant Date Fair
Value
|Unvested restricted stock at January 31, 2007 |  | 1,609            |   |  | $                                      | 10.76
|Granted during first quarter fiscal 2008      |  |                 |   |  |                                        |     
|Vested during first quarter fiscal 2008       |  |                 |   |  |                                        |     
|Forfeited during first quarter fiscal 2008    |  | (4               | ) |  |                                        | 13.16
|                                              |  |                  |   |  |                                        |      
|Unvested restricted stock at April 30, 2008   |  | 1,605            |   |  | $                                      | 10.75
|                                              |  |                  |   |  |                                        |      

As of April 30, 2007, there was $4.5 million of total unrecognized compensation cost
related to restricted stock which is expected to be recognized over a weighted-average period of 2.2 years. No restricted stock awards vested during the quarter ended April 30, 2007.

Employee Stock Purchase Plan

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 months ended April 30, 2006 ESPP awards were valued using the following weighted-average assumptions:



|                        |  |                                 
|----------------------- |  | --------------------------------
|                        |  | Three months endedApril 30, 2006
|Risk-free interest rate |  | 5.2%                            
|Expected volatility     |  | 37%                             
|Expected term           |  | 6 months                        
|Expected dividends      |  | none                            

As of April 30, 2007, there was $0.6 million of total unrecognized compensation costs
related to the ESPP that is expected to be fully recognized during the next 0.6 years.

Note 5. Acquired Intangible Assets and Goodwill

The following tables provide a summary of the carrying amount of goodwill (in thousands):



|                                     |  |                |          |   |                  |   |          |  
|------------------------------------ |  | -------------- | -------- | - | ---------------- | - | -------- | -
|                                     |  | April 30, 2007 |          |   | January 31, 2007 |  
|Gross carrying amount of goodwill    |  | $              | 366,570  |   |                  | $ | 367,342  |  
|Accumulated amortization of goodwill |  |                | (133,344 | ) |                  |   | (133,344 | )
|                                     |  |                |          |   |                  |   |          |  
|Net carrying amount of goodwill      |  | $              | 233,226  |   |                  | $ | 233,998  |  
|                                     |  |                |          |   |                  |   |          |  

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):



|                                                                                 |  |                       |         |                          |   |          |                     |  |   |       
|-------------------------------------------------------------------------------- |  | --------------------- | ------- | ------------------------ | - | -------- | ------------------- |  | - | ------
|                                                                                 |  | April 30, 2007       
|                                                                                 |  | Gross carrying amount |         | Accumulated amortization |   |          | Net carrying amount
|Purchased technology                                                             |  | $                     | 201,756 |                          | $ | (161,876 | )                   |  | $ | 39,880
|Non-compete agreements                                                           |  |                       | 32,146  |                          |   | (31,488  | )                   |  |   | 658   
|Patents and trademarks                                                           |  |                       | 13,275  |                          |   | (13,275  | )                   |  |   |      
|Other intangible assets (distribution rights, purchased software, customer base) |  |                       | 54,409  |                          |   | (39,113  | )                   |  |   | 15,296
|                                                                                 |  |                       |         |                          |   |          |                     |  |   |       
|Total                                                                            |  | $                     | 301,586 |                          | $ | (245,752 | )                   |  | $ | 55,834
|                                                                                 |  |                       |         |                          |   |          |                     |  |   |       



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##### Table of Contents

|                                                                                 |  |                       |         |                          |   |          |                     |  |   |       
|-------------------------------------------------------------------------------- |  | --------------------- | ------- | ------------------------ | - | -------- | ------------------- |  | - | ------
|                                                                                 |  | 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
|                                                                                 |  |                       |         |                          |   |          |                     |  |   |       

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



|                                                                                 |  |                                      |       |                     |   |      
|-------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | ------------------- | - | -----
|                                                                                 |  | For the three months ended April 30,
|                                                                                 |  | 2007                                 |       | 2006 As Restated(1)
|Purchased technology                                                             |  | $                                    | 7,502 |                     | $ | 7,126
|Non-compete agreements                                                           |  |                                      | 600   |                     |   | 750  
|Patents and trademarks                                                           |  |                                      |      |                     |   |     
|Other intangible assets (distribution rights, purchased software, customer base) |  |                                      | 992   |                     |   | 821  
|                                                                                 |  |                                      |       |                     |   |      
|Total                                                                            |  | $                                    | 9,094 |                     | $ | 8,697
|                                                                                 |  |                                      |       |                     |   |      

---

|(1) | See Note 2, Restatement of Consolidated Financial Statements, in Notes to Consolidated Financial Statements of this Form 10-Q.
|--- | --------------------------------------------------------------------------------------------------------------------------------

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.

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



|                                    |  |                     |       
|----------------------------------- |  | ------------------- | ------
|                                    |  | Future amortization
|Nine months ending January 31 2008  |  | $                   | 17,661
|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                          |  |                     | 1,774 
|                                    |  |                     |       
|Total                               |  | $                   | 55,834
|                                    |  |                     |       



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##### Table of Contents

Note 6. Property and Equipment

Property and equipment consist of the following (in thousands):



|                                             |  |                |          |   |                  |   |          |  
|-------------------------------------------- |  | -------------- | -------- | - | ---------------- | - | -------- | -
|                                             |  | April 30, 2007 |          |   | January 31, 2007 |  
|Land                                         |  | $              | 8,034    |   |                  | $ | 105,016  |  
|Building                                     |  |                | 127,224  |   |                  |   |         |  
|Computer hardware and software               |  |                | 112,503  |   |                  |   | 108,655  |  
|Furniture and equipment                      |  |                | 41,658   |   |                  |   | 39,404   |  
|Leasehold improvements                       |  |                | 66,336   |   |                  |   | 53,158   |  
|Furniture and equipment under capital leases |  |                | 3,153    |   |                  |   | 3,153    |  
|                                             |  |                |          |   |                  |   |          |  
|                                             |  |                | 358,908  |   |                  |   | 309,386  |  
|Accumulated depreciation and amortization    |  |                | (170,244 | ) |                  |   | (164,915 | )
|                                             |  |                |          |   |                  |   |          |  
|Total Property and equipment, net            |  | $              | 188,664  |   |                  | $ | 144,471  |  
|                                             |  |                |          |   |                  |   |          |  

An equipment capital lease for $1.6 million was entered into in fiscal 2005 and accumulated
amortization was $1.4 million at April 30, 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 million 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.

Note 7. Restructuring Charges

Facilities Consolidation

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.



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##### Table of Contents

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 April 30, 2007, $7.6 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 $2.1 million.

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



|                                                                             |  |                          |        |  
|---------------------------------------------------------------------------- |  | ------------------------ | ------ | -
|                                                                             |  | 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  |  
|Cash payments during the three months ended April 30, 2007                   |  |                          | (489   | )
|                                                                             |  |                          |        |  
|Accrued at April 30, 2007                                                    |  | $                        | 7,635  |  
|                                                                             |  |                          |        |  

Office Lease

On August 14, 2006, the Company entered into a new office lease in San Francisco to enable consolidation of the three current San Francisco office locations, including two acquired with the acquisition of
Plumtree Software, Inc. in October 2005. The new office lease commenced on August 14, 2006 and terminates on December 31, 2016. During the renovation period from lease commencement through April 2007, the Company expects to record rent
expense for both the new and existing office space. These charges resulted in an increase in operating expenses of approximately $1.4 million in the first quarter of fiscal 2008.

In the second quarter of fiscal 2008, the Company occupied new 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 expects to incur a facilities consolidation charge of $2.5 million. If actual facts and circumstances
prove to be materially different than those of which we are aware today, managements estimates could materially change.

Note 8. Deferred
Revenues

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



|                        |  |                |         |                  |   |        
|----------------------- |  | -------------- | ------- | ---------------- | - | -------
|                        |  | Balances at   
|                        |  | April 30, 2007 |         | January 31, 2007
|License fees            |  | $              | 5,797   |                  | $ | 13,797 
|Services                |  |                | 428,925 |                  |   | 435,485
|                        |  |                |         |                  |   |        
|Total deferred revenues |  | $              | 434,722 |                  | $ | 449,282
|                        |  |                |         |                  |   |        

Deferred services revenues include customer support and maintenance, consulting and education. The
composition of deferred services revenues are predominantly deferred customer support 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.



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##### Table of Contents

Note 9. Notes Payable and Other Obligations

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



|                                                       |  |                |         |                  |   |        
|------------------------------------------------------ |  | -------------- | ------- | ---------------- | - | -------
|                                                       |  | April 30, 2007 |         | January 31, 2007
|Current portion of notes payable and other obligations |  | $              | 607     |                  | $ | 1,302  
|                                                       |  |                |         |                  |   |        
|Other long-term obligations                            |  | $              | 14,665  |                  | $ | 12,678 
|Capital lease                                          |  |                | 1,070   |                  |   | 1,112  
|Credit facility                                        |  |                | 215,000 |                  |   | 215,000
|                                                       |  |                |         |                  |   |        
|Notes payable and other long-term obligations          |  | $              | 230,735 |                  | $ | 228,790
|                                                       |  |                |         |                  |   |        

Other long-term obligations include an accrual of $5.6 million related to the facilities
consolidation.

Notes payable and other obligations consists 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):



|                                                                               |  |                |       |   |                   |   |       
|------------------------------------------------------------------------------ |  | -------------- | ----- | - | ----------------- | - | ------
|                                                                               |  | Capital leases |       |   | Other obligations
|Nine months ending January 31, 2008                                            |  | $              | 158   |   |                   | $ | 1,865 
|Fiscal year ending January 31, 2009                                            |  |                | 211   |   |                   |   | 3,359 
|Fiscal year ending January 31, 2010                                            |  |                | 211   |   |                   |   | 3,233 
|Fiscal year ending January 31, 2011                                            |  |                | 211   |   |                   |   | 3,004 
|Fiscal year ending January 31, 2012                                            |  |                | 211   |   |                   |   | 1,675 
|Thereafter                                                                     |  |                | 525   |   |                   |   | 1,965 
|                                                                               |  |                |       |   |                   |   |       
|Total minimum lease payments and total other obligations                       |  |                | 1,527 |   |                   | $ | 15,101
|                                                                               |  |                |       |   |                   |   |       
|Amounts representing interest on capital lease                                 |  |                | (286  | ) |                   |   |       
|                                                                               |  |                |       |   |                   |   |       
|Present value of minimum lease payments                                        |  |                | 1,241 |   |                   |   |       
|Less: capital lease obligation, current (reflected in other obligations)       |  |                | (171  | ) |                   |   |       
|                                                                               |  |                |       |   |                   |   |       
|Capital lease obligation, long term (reflected in other long-term obligations) |  | $              | 1,070 |   |                   |   |       
|                                                                               |  |                |       |   |                   |   |       

Credit facility

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 5.8 percent as of April 30, 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 and March 9, 2007 the Company was granted Waiver No. 1. Waiver No. 2 and Waiver No. 3 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 and April 30, 2007, respectively.
Waiver No. 3 was granted from the date of Waiver No. 3 through the earlier to occur of (i) July 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.



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Note 10. Income Taxes

The Company has provided income tax expense of $12.1 million and $16.9 million for the three months ended April 30, 2007 and 2006, respectively. The Company has provided for income taxes for the three months
ended April 30, 2007 based on a projected annual 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 quarter of fiscal 2008 reflects 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 first quarter of fiscal 2008 reflects a 5 percentage point
reduction as compared to the projected annual effective tax rate for the first quarter of fiscal 2007 due to a benefit of lower non-deductible stock option compensation expense and higher annual projected low taxed foreign earnings. The
Companys projected 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 actual effective tax rate for the three months
ended April 30, 2006 was 32 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. The Company historically classified accruals for tax uncertainties in current liabilities as accrued income taxes and, where appropriate, as a reduction to deferred tax assets. As a result of the adoption of
FIN48, we have reclassified $95 million from accrued income taxes to long-term income tax liabilities. In addition, we further increased long-term income tax liabilities by $26 million, increased current deferred tax assets by $4 million and
increased long-term deferred tax assets by $22 million. Upon adoption, the total amount of gross unrecognized tax benefits was $139.8 million. Included in the 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 $1.4 million for the three months ended April 30, 2007. Interest and penalties for
the same period increased by approximately $1.0 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.

Note 11. Accumulated Other Comprehensive Income

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



|                                                  |  |                |        |   |                  |   |        |  
|------------------------------------------------- |  | -------------- | ------ | - | ---------------- | - | ------ | -
|                                                  |  | April 30, 2007 |        |   | January 31, 2007 |  
|Foreign currency translation adjustments          |  | $              | 14,842 |   |                  | $ | 12,534 |  
|Unrealized loss on available-for-sale investments |  |                | (75    | ) |                  |   | (372   | )
|                                                  |  |                |        |   |                  |   |        |  
|Total accumulated other comprehensive income      |  | $              | 14,767 |   |                  | $ | 12,162 |  
|                                                  |  |                |        |   |                  |   |        |  



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Note 12. Treasury Stock

In September 2001, March 2003, May 2004, and March 2005, the Board of Directors approved stock repurchases that in aggregate equaled $600.0 million of the Companys common stock under a share repurchase
program (the Share Repurchase Program). In the three months ended April 30, 2007, no shares were repurchased leaving approximately $121.7 million of the approval limit available for share repurchases under the Share Repurchase
Program. During fiscal 2008, we anticipate repurchases will continue to be made opportunistically. Repurchases are a function of market opportunities based on certain price and volume parameters. See Note 17 Subsequent Events for Board of Director
approval for additional funds for the Share Repurchase Program.

Note 13. Minority Interest in Equity Investments

In the first quarter of fiscal 2007, 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 equity investment was a privately held company acquired by a third
party in March 2006, which resulted in an $8.3 million net gain.

Note 14. Net Income Per Share

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):



|                                                                                |  |                             |         |                      |   |        
|------------------------------------------------------------------------------- |  | --------------------------- | ------- | -------------------- | - | -------
|                                                                                |  | Three months endedApril 30,
|                                                                                |  | 2007                        |         | 2006 As Restated (1)
|Numerator:                                                                      |  |                             |         |                      |   |        
|Numerator for basic and diluted net income per share:                           |  |                             |         |                      |   |        
|Net income                                                                      |  | $                           | 29,438  |                      | $ | 35,094 
|                                                                                |  |                             |         |                      |   |        
|Denominator:                                                                    |  |                             |         |                      |   |        
|Denominator for basic net income per share:                                     |  |                             |         |                      |   |        
|Weighted average shares outstanding                                             |  |                             | 398,310 |                      |   | 388,240
|Weighted average shares subject to repurchase and shares held in escrow         |  |                             |        |                      |   |       
|                                                                                |  |                             |         |                      |   |        
|Denominator for basic net income per share, weighted average shares outstanding |  |                             | 398,310 |                      |   | 388,240
|Weighted average dilutive potential common shares:                              |  |                             |         |                      |   |        
|Options and shares subject to repurchase and shares held in escrow              |  |                             | 14,300  |                      |   | 14,820 
|                                                                                |  |                             |         |                      |   |        
|Denominator for diluted net income per share                                    |  |                             | 412,610 |                      |   | 403,060
|                                                                                |  |                             |         |                      |   |        
|Basic net income per share                                                      |  | $                           | 0.07    |                      | $ | 0.09   
|                                                                                |  |                             |         |                      |   |        
|Diluted net income per share                                                    |  | $                           | 0.07    |                      | $ | 0.09   
|                                                                                |  |                             |         |                      |   |        

---

|(1) | See Note 2, Restatement of Consolidated Financial Statements, in Notes to Consolidated Financial Statements of this Form 10-Q.
|--- | --------------------------------------------------------------------------------------------------------------------------------

The computation of diluted net income per share for the three months ended April 30, 2007 and 2006 excludes the impact of options to purchase
24.3 million and 18.4 million shares of common stock, respectively, as such impact would be anti-dilutive. The computation of diluted net income per share for the three months ended April 30, 2006 also excludes the conversion of the
$255 million 4% Convertible Subordinated Notes due December 15, 2007 (2007 Notes) which are convertible into 7.4 million shares of common stock at April 30, 2006, as such impact would be anti-dilutive. These options could
be dilutive in the future.



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Note 15. Related Party Transactions

Common board members or executive officers

The Company occasionally sells software products or services to companies that have board members or executive officers that are also on the Companys Board of Directors. The total revenues recognized by the Company from such customers
in the three months ended April 30, 2007 and 2006 were insignificant.

Note 16. Commitments and Contingencies

Litigation and Other Claims

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 matter 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



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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.



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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.

Warranties and Indemnification

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 April 30, 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 April 30, 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.

Note 17. Subsequent
Events

Status of Nasdaq Listing

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.

Credit facility

On and July 9,
2007 and October 9, 2007, the Company the Company was granted Waiver No. 4 and 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,



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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 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.

Share Repurchase Program

In May 2007, the Board of Directors approved additional stock repurchases of $500.0 million, bringing the aggregate amount to $1.1 billion of the
Companys common stock under a share repurchase program (the Share Repurchase Program) and leaving approximately $621.7 million of the approval limit available for share repurchases under the Share Repurchase Program.



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|ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion of the financial condition and results of operations of BEA Systems, Inc. (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;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the effect of volatility of licensing revenues on our ability to accurately forecast revenues, expenses and operating results;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effect of the length of our sales cycle on our revenues;
| | - |  | ------------------------------------------------------------



| |  |  | the restructuring of our sales force, our sales through distribution channels and the resulting effect on our margins and revenues;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | our competition and technology, market and industry conditions and our need to adapt to such conditions;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the dependence of our growth on the implementation and introduction of our new product initiatives;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | protection of our intellectual property rights;
| | - |  | -----------------------------------------------



| |  |  | defense against potential intellectual property claims against us and our exposure to litigation if our products contain software defects;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effect of our relationships with third-party vendors on the supply of our products;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | risks attendant to conducting international operations;
| | - |  | -------------------------------------------------------



| |  |  | the effect of changes in accounting regulations on our revenue and profits;
| | - |  | ---------------------------------------------------------------------------



| |  |  | the effect of changes in taxes we owe on our profitability;
| | - |  | -----------------------------------------------------------



| |  |  | our inability to manage growth;
| | - |  | -------------------------------



| |  |  | the importance of hiring and retaining key personnel;
| | - |  | -----------------------------------------------------



| |  |  | the integration of our past and future acquisitions;
| | - |  | ----------------------------------------------------



| |  |  | risks in connection with Plumtrees government contracts and their effect on our results of operations;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | the effect of U.S. military activity and terrorism on our revenues and operations;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the effect of government review of our income and payroll tax returns or changes in our effective tax rates on our operating results;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the effect of the incorrect accounting for our stock options on our financial results;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | the time and expense incurred by our review of and financial restatement in connection with our historical stock option practices;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | non-compliance with SEC reporting and Nasdaq listing requirements;
| | - |  | ------------------------------------------------------------------



| |  |  | litigation relating to our historical stock option grant practices;
| | - |  | -------------------------------------------------------------------



| |  |  | effective internal controls over financial reporting;
| | - |  | -----------------------------------------------------



| |  |  | compliance with corporate governance requirements;
| | - |  | --------------------------------------------------



| |  |  | the difficulty of obtaining director and officer insurance coverage due to the results of our stock option review;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | the impact on our business and stock price of any potential acquisition or other transaction involving us;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | any potential acquisition or other transaction involving us and actions by activist investors related thereto;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | the impact of the uncertainty of our future in light of potential acquisitions, especially with respect to our customer and our employees;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | litigation relating to any potential acquisition or other transactions involving us;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | future amortization of acquired intangible assets;
| | - |  | --------------------------------------------------



| |  |  | facilities consolidation charges, for estimated future lease commitments on excess facilities;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | future stock repurchases under our stock repurchase program;
| | - |  | ------------------------------------------------------------



| |  |  | the development of an expanded product set for SOA service infrastructure through expansion in our messaging, portal infrastructure, data integration, security,
Web services management and other technologies;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | our ability to attract Chief Information Officers to choose our products as the architectural foundation of SOA projects to be implemented over a sustained
period of time;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the trend toward increased high dollar transactions;
| | - |  | ----------------------------------------------------



| |  |  | the expectation that future payments of facilities consolidation charges will not significantly impact our liquidity due to our strong cash position;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the realizability of deferred tax assets;
| | - |  | -----------------------------------------



| |  |  | our belief that our tax positions are consistent with the tax laws in the jurisdictions in which we conduct business;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | that we do not anticipate paying any cash dividends in the foreseeable future;
| | - |  | ------------------------------------------------------------------------------



| |  |  | unrecognized compensation costs related to stock options, restricted stock and the ESPP;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | our belief that the amount of liability associated with our current legal proceedings will not materially affect the Companys financial position;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our acquisition strategy to use cash or stock or purchase development teams or technologies to add features or products that complement or expand our products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our belief that the cost of license fees may increase in absolute dollars in fiscal 2007;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | the requirement that we must maintain certain covenants, including liquidity, leverage and profitability ratios associates with our long term debt facility;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significant cash and/or financing resources needed for the construction of office facilities and the adequacy of our facilities;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | the estimate and fluctuation of interest payments;
| | - |  | --------------------------------------------------



| |  |  | sufficiency of existing cash;
| | - |  | -----------------------------



| |  |  | the dependence on continued expansion of international operations;
| | - |  | ------------------------------------------------------------------



| |  |  | our initiative to recruit and train a large number of consultants employed by SIs and to embed our technology in products that our ISV customers offer;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the need to expand our relationships with third parties in order to support license revenue growth;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | the dependence on our ability to attract and retain qualified sales, technical and support personnel;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | the intention to expand our global organization;
| | - |  | ------------------------------------------------



| |  |  | continued adoption of Java technologies;
| | - |  | ----------------------------------------



| |  |  | the dependence on continued growth in the use of the Web to run software applications;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | the intention to make additional acquisitions in the future;
| | - |  | ------------------------------------------------------------



| |  |  | significant accounting charges as a result of expensing stock option grants and awards under FAS 123(R);
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | the dependence on our proprietary technology;
| | - |  | ---------------------------------------------



| |  |  | the need to continue to improve our operational, financial, disclosure and management controls, reporting systems and procedures and information technology
infrastructure;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the update of our management information systems to integrate financial and other reporting;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | the development and roll out of information technology initiatives;
| | - |  | -------------------------------------------------------------------



| |  |  | the dependence on future performance to meet our debt service obligations;
| | - |  | --------------------------------------------------------------------------



| |  |  | the requirement of substantial amounts of cash to fund scheduled payments of principal and interest on our indebtedness, future capital expenditures, payments on
our operating leases and any increased working capital requirements;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our recognition of Fuego and Plumtree support contracts over their respective renewal periods;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | our focus to expand our product set by expanding our existing application infrastructure products and service infrastructure products and broadening our
application infrastructure products into targeted emerging use cases;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the inherent volatility of transactions greater than $1 million; and
| | - |  | --------------------------------------------------------------------



| |  |  | our initiative to further establish and expand relationships with our distributors.
| | - |  | -----------------------------------------------------------------------------------



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.



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Overview

BEA® Systems, Inc. (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. Typically, our first fiscal quarter
license revenues are 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



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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.

Background of the Stock Option Review, Findings and Restatement of Consolidated Financial Statements

Independent Review Overview

On
August 14, 2006, the Audit Committee of the Board of Directors of the Company recommended to the Board, and the Board agreed, that the Audit Committee retain independent counsel to assist with a thorough review of the Companys



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historical stock option grant practices (Independent Review). The Audit Committee conducted the Independent Review with the assistance of
independent legal counsel Simpson Thacher & Bartlett LLP (Simpson Thacher) and forensic accountants Navigant Consulting, Inc. (Navigant), collectively the (Review Firms). The
Independent Review, which commenced in August 2006 and encompassed all of the Companys stock option grants from January 1996 through June 2006 (Review Period), excluding stock options acquired as part of business
combinations, consisted of a review of the Companys historic stock option granting practices, including a review of whether we used appropriate measurement dates, and, therefore, correctly accounted for stock option grants made under our
equity award programs.

Scope and Findings of the Independent Review

The Independent Review encompassed the period January 1996 through June 2006 and covered all stock options granted by the Company, excluding stock options assumed as part of business combinations. The Company
determined that stock options assumed in acquisitions and included in the determination of the purchase price were measured at the fair value of the stock options on the date specified in EITF Issue No. 99-12, Determination of the
Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination and compensation cost was measured when the acquisition closed.

As part of the Independent Review, the Review Firms examined various and extensive data and documentation, including, but not limited to:



| |  |  | More than 4.5 million pages of hardcopy and electronic documents, including documents from approximately 30 custodians, as well as Company records from the
Human Resources Department, Stock Administration Department, Finance Department, and Legal Department;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Actions by Unanimous Written Consent related to the Companys stock options (UWCs) and other granting actions from approximately January
1996 through June 2006;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Board meeting minutes and related materials from approximately January 1996 through June 2006;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | Audit Committee meeting minutes and related materials from approximately August 1997 through June 2006;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | Compensation Committee meeting minutes and related materials from approximately March 1998 through June 2006;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | Over 1,200 employee separation agreements from approximately April 1997 through June 2006;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | The Companys E*Trade Equity Edge Stock Administration database (Equity Edge), as of October 2006;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | Reports generated from the Peoplesoft Enterprise Resource Planning application (Peoplesoft ERP);
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | The Companys publicly filed 10-Ks, 10-Qs, Proxy Statements, Form 4s, Form 5s, as well as 8-Ks relating to the Companys stock options, from approximately
April 1997 to June 2006.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, Simpson Thacher interviewed certain individuals that were part of the option
granting process for the time period under review, including current and former Section 16 officers, Directors, rank-and-file employees and outside advisors. With one exception, Simpson Thacher was able to interview all of the individuals that
they had sought to interview as part of the Independent Review. One former employee, a stock administration staff member who voluntarily left the Company before the commencement of the Independent Review, declined to be interviewed.

Statistical analyses were utilized to determine if grants had been made at or near monthly lows, or if specific grants had unusual positive returns that
were preceded by unusual price decreases (V flag). The first analysis included 319 grant dates from April 11, 1997 through December 31, 2002. Of the 319 grant dates analyzed, 36 received a V flag. In addition,
28 grant dates were at monthly lows, including 11 of the 36 grant dates that received a V flag. The monthly lows and the V flags included grants to rank-and-file employees and Section 16 officers. Assuming the grant dates were
selected randomly, the probability of 36 grant dates having a V flag is less than 1%, and the probability of 28 grant dates being at a monthly low is also less than 1%.

The second analysis focused on a subset of the first analysis and included nine grant dates where a UWC was used to grant stock options to the Chief
Executive Officers (CEO) and either the former or current CEO was the sole signatory on the UWC (the grant dates ranged from March 1998 to July 2002). Of the nine grant dates analyzed, 4 received a V flag. Three of
those four grant dates as well as two additional grant dates (five in total) were at monthly lows. Assuming the grant dates were selected randomly, the probability of four grant dates having a V flag is less than 1%, and the probability of five
grant dates being at a monthly low is less than 1%.



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The third analysis focused on grant dates outside of the Companys pre-determined grant date cycle
subsequent to February 5, 2003. Seven grant dates were analyzed, of which one grant date received a V flag and no grant dates were at monthly lows. The result of this third analysis was not statistically significant.

These results, in conjunction with the initial document review, supported the Independent Reviews determination that a sample population of the
grants could not be relied upon and instead a review of all grants would be necessary.

In addition, the results of the statistical
analysis, in conjunction with emails and interviews, were consistent with the notion that some grant dates appeared to have been chosen with the benefit of hindsight.

The principal findings of the Independent Review as publicly disclosed on February 14, 2007, and as updated through the date of this filing, are as follows:



| |  |  | Most options granted from April 1997 to June 2006 were approved via UWCs. The Company used the effective date on the UWC as the grant date, and as per the
Companys stock option plans used the closing price of the trading day immediately prior to the grant date as the exercise price for the options. During that time period, the majority of grants were not final as of the effective date stated on
the face of the UWC. As a result, the grant date recorded by the Company was not the appropriate accounting measurement date, resulting in compensation expense that, in most instances, was not recorded;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | With respect to a number of grants, most made on or prior to February 5, 2003 when certain structural changes were made to the stock option granting process,
some members of senior management appear to have chosen grant dates with the benefit of hindsight. These grants were approved by CEO execution of UWCs. The UWC approving such grants reflects the chosen date of the grant rather than the date of the
approval. As a result, the grant date recorded by the Company was not the appropriate accounting measurement date, resulting in compensation expense that, in most instances, was not recorded;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Prior to November 2004, administrative errors prevented some stock option grants from being approved in a timely fashion. These errors were subsequently remedied by
providing the affected employees with grants effective as of the date the grant would have occurred had no errors been made. The grants were either made in a subsequent UWC or Board Resolution with an earlier effective date or by
amendment to a prior UWC or Board Resolution. The appropriate accounting measurement date for these delayed grants was the date the grants were actually approved, not the earlier date. Recording the appropriate accounting measurement date in the
majority of instances would have resulted in compensation expense, and in these instances the Company failed to record the required expense;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In certain instances, employees were permitted to begin a leave of absence (LOA) upon being hired, allowing the employees to receive a stock
option grant and specific exercise price as of their hire date without providing service during the LOA. In these instances, generally accepted accounting principles (GAAP) requires compensation cost to be measured when the
employee begins to provide service; however, the Company failed to do so and, as a result, failed to record the required expense;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For much of the period under review, departing employees frequently were given LOAs, separation agreements or termination agreements in lieu of or in addition to
severance payments. For certain of these termination arrangements, it appears the purpose was to provide the employees extended option vesting and exercising privileges without requiring the grantee to provide any substantive future service. Under
GAAP, such agreements constitute modifications to the original option grants and compensation expense must be re-measured. The Company failed to re-measure the compensation cost resulting from these options and to record the required compensation
expense;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Certain employees were granted options that were later modified, or cancelled and thereafter reissued at a lower price. For a few of these grants, the purpose
appears to have been to give the grantee a lower exercise price. Under GAAP this is a re-pricing that requires compensation expense to be recognized and, if it qualifies for variable accounting treatment (which would be the case for all re-pricings
after the effective date of FASB Interpretation 44 Accounting for Certain Transactions Involving Stock Compensation(FIN 44)), to be adjusted quarterly for as long as the re-priced option remains outstanding. In these
instances, the Company failed to record this expense;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | The actions described in the categories listed above were applicable broadly across the Companys employee base; and
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | In some instances, grants were given to Section 16 officers on the approval of the CEO but without the approval of the Compensation Committee, as required by
the Companys stock option plan and Compensation Committee charter. The failure to have the Compensation Committee approve these grants did not result in an accounting consequence. The Board has now ratified these grants.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Stock Option Grant Analysis

The Company has organized its stock option grants into categories based on grant type and the process by which the grant was finalized. All option amounts and stock prices are adjusted for two 2:1 stock splits. The Company analyzed the
evidence from the Audit Committees Independent Review related to each category including, but not limited to, physical documents, electronic documents, underlying electronic data about documents and witness interviews. In addition, all
non-acquisition stock option grants in Equity Edge were compared with the corresponding authorizing documents. Based on the relevant facts and circumstances, the Company applied the applicable accounting standards in effect at that time to
determine, for every grant within each category, the proper measurement date. If the measurement date was not the recorded grant date, accounting adjustments were made as required, resulting in stock-based compensation expense and related tax
effects.

From January 1996, the beginning of the Review Period, through April 10, 1997, the day before the Companys initial
public offering (IPO), the Company made 763 grants totaling 28.1 million stock options on 21 authorizing documents. The Company concluded that the cheap stock charge recognized by the Company at the time of the
IPO was an appropriate measurement of compensation expense related to pre-IPO options.

From April 11, 1997 through May 31, 2006,
the Company made 37,817 grants totaling 194.7 million stock options on 312 authorizing documents. Based on the results of the Independent Review, the Company concluded that 35,449 individual grants totaling 174.8 million stock options to
the Companys rank-and-file employees, Section 16 officers, and Directors, or 93.7% of all grants in this period, required new measurement dates. Of the 35,449 grants with new measurement dates, the market value of the shares underlying
27,087, or 76.4%, grants on the new measurement dates was higher than the market value of the shares on the originally designated grant date, and thus gave rise to an aggregate incremental intrinsic value charge under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). For the remaining 8,362 grants, the market value on the new measurement date was lower than the historical market value and there was no
accounting impact. Of the 35,449 stock option grants requiring new measurement dates, 1,323 grants should also have been subject to variable accounting.

In June 2006, the Company made 149 grants totaling 1.1 million stock options on three authorizing documents. The Independent Review included these grants within the scope of its review. The Company concluded that
due to changes in the Companys processes beginning June 2006, these grants were properly accounted for.

Since the Company concluded
that stock option grants in the time periods of January 1996 through April 10, 1997 and periods subsequent to May 31, 2006 were properly accounted for, the Company has focused its analysis on the time period from April 11, 1997
through May 31, 2006. The Company separated its stock option grant analysis, for those grants between April 11, 1997 and May 31, 2006, into two distinct time periods based on the processes that the Company had in place during those
time periods, as follows.

Stock Option Grants from April 11, 1997 through February 5, 2003. During this period,
the number of Company employees grew from approximately 600 to almost 3,100. To support this rapid growth and to achieve its recruiting and retention objectives, the Company relied heavily on its equity award programs as a recruiting and retention
tool. The Companys practice was to grant stock options to almost all full-time employees worldwide in connection with their joining the Company. Furthermore, employees generally received additional option grants over the course of their
employment.



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From April 11, 1997 through February 5, 2003, the Company utilized 208 authorizing documents
granting 22,785 individual grants for an aggregate of 134.9 million stock options. Included in these figures are 44 individual grants covering 533,601 stock options made during this period for which the Company found no authorizing document
(although the grants are reflected in Equity Edge). The Company has fulfilled its obligation for those grants that were exercised, and the Company has an obligation to fulfill for those grants that have not yet been exercised. In addition, the Board
has now ratified these grants for which no authorizing document was found. The Company has concluded that of the 22,785 aforementioned individual grants totaling 134.9 million stock options to the Companys rank-and-file employees,
Section 16 officers, and Directors, 22,218 individual grants totaling 125.0 million stock options required new measurement dates; the remaining 567 grants, all of which were granted on Exhibit As (as described below) did not require
new measurement dates.

The Companys primary method for granting stock options was by UWC executed by the CEO, and a secondary method
was by means of a schedule, known as an Exhibit A (Exhibit A), presented and approved at Board meetings. Unless otherwise indicated on an authorizing document, the Company measured compensation cost based on the printed
or typewritten effective date on the UWC or the Board meeting date for Exhibit As.

On June 9, 1997, the Board delegated to
Mr. William Coleman, the Companys Chairman of the Board and CEO from inception of the Company through October 1, 2001 (Mr. Coleman), the authority to grant stock options to employees. The date of the first UWC
Mr. Coleman approved under this delegation was June 26, 1997. From January 1, 1996, and prior to the June 26, 1997 UWC, stock options were granted primarily via Board Resolution with Exhibit As. Though the Board had
delegated authority to the CEO on June 9, 1997, the Company continued to execute grants that were in proximity to Board meetings by obtaining approval of the Board. On October 2, 2001, Mr. Alfred Chuang (Mr. Chuang)
succeeded Mr. Coleman as CEO and assumed authority to approve grants by UWC.

Once prepared by an human resources representative, a
UWC, which included details of individuals and the number of stock options for each individual, was typically hand delivered to the CEO for approval and his signature. There was no electronic signature process during this time. Additionally, on a
majority of UWCs, the former CEO did not date his signature. In those cases where the CEO did date his signature, various facts and circumstances indicate the unreliability of these signature dates. Further evidence suggests that some UWCs were not
presented to the CEO for signature until after the purported effective date. During this time, there was no formal electronic archiving of authorizing documents, and electronic templates appear to have been used for multiple grants.

Though the practice of the Company was to assign an effective date to a UWC and, unless otherwise indicated, to use that date as the grant date, the
Company found numerous instances of changes made to UWCs after the purported effective date. These changes were (1) to a UWC after its purported effective date but prior to its being signed, and (2) to a signed UWC. Therefore, the Company
concluded that the purported effective date on a UWC could not be relied upon as definitive evidence of finality. Since the CEO signature on the majority of UWCs was not dated, and since in the few instances where the signature was dated other
evidence suggests that this date was not reliable, the Company also concluded that there was not sufficient evidence to determine the date of signature of the final version of the UWCs, and it was therefore inappropriate to use the date of signature
as the new measurement date.

Historically, UWCs were not prepared on a given schedule, but were issued as often as several times per week.
In May 2001, the Company initiated a process of issuing a UWC on a set schedule of every other Wednesday. Though UWCs were prepared with effective dates using this set schedule, the same issues discussed in the above paragraph regarding lack of
finality of the UWC as of the purported effective date continued to exist. Notwithstanding this schedule, there were 15 UWCs with effective dates other than a scheduled UWC date, of which 11 were annual company-wide merit grants or retention grants
and four were new hire grants.

In addition, during this period (April 11, 1997 through February 5, 2003) the Board approved
grants on Exhibit As for grants that were in proximity to Board meetings. The process was generally as follows: the Board approved by Resolution an aggregate number of options and would reference an Exhibit A. The Exhibit A was a standard
inclusion in the information binders distributed before or at each Board meeting, and Exhibit As listed each individual grantee and the corresponding number of options.



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Throughout this period, the Companys stock administration function entered the option grant
information for approved grants into Equity Edge. Once input to Equity Edge, notifications were sent to employees. Due to personnel turnover and a lack of extrinsic evidence, the available documentation to validate the various historical
notification processes was sparse, but evidence suggests in all instances the grant notifications were subsequent to the entry of the information into Equity Edge. In addition, once input to Equity Edge, the grant data was subsequently sent to the
Companys designated broker(s) that employed online stock option tracking features. Data could only be viewed by employees using the online features for stock option tracking. For the online brokers, the data was exported to the broker through
Equity Edge, and it appears that stock administration would export the data within a couple of weeks of entering the grant to Equity Edge.

Options were granted primarily to three categories of individuals: (1) rank-and-file employees, (2) Section 16 officers, and (3) Directors. The Company made grants for a variety of different reasons and primarily
characterized them as (1) grants to new and existing employees, both rank-and-file employees and Section 16 officers, for new hires, promotions and other compensation adjustments, as well as grants to Directors; (2) annual merit
grants; and (3) retention grants. In one instance, options were granted to an external consultant under the 1997 Stock Incentive Plan. This grant was not appropriately accounted for at the time under the applicable accounting guidance.

Administrative errors prevented some option grants from being approved in a timely fashion. These errors appear to be primarily related to
grants that had not been timely processed, primarily in the period when these processes were manual. These errors were subsequently remedied by providing the impacted employees with grants effective as of the date the Company believed the grants
should have been made as opposed to the effective date designated on the authorizing document. These grants were made either on a subsequent UWC or Exhibit A with a specified grant date that was different than and prior to the effective date of the
UWC or Exhibit A on which the grant was included. It appears that at least one grant date of November 1, 1999, which was identified on seven subsequent UWCs and two subsequent Exhibit As, may have been chosen with the benefit of
hindsight. From April 11, 1997 through February 5, 2003, the Company recorded 1,871 stock option grants, out of a total of 22,785 stock option grants, with a grant date prior to the effective date of the corresponding UWC or
Exhibit A.

APB 25 defines the measurement date for determining stock-based compensation expense as the first date on which both
(1) the number of shares that an individual employee is entitled to receive, and (2) the option or purchase price, are known. For grants made in this period (April 11, 1997 through February 5, 2003) for which there is reliable
evidence, primarily Board or Compensation Committee approval, supporting a measurement date under APB 25, the Company used the date of reliable evidence as the new measurement date. For those grants made in this period where there is no
reliable evidence supporting an earlier measurement date under APB 25, the Company has determined that the date the stock option was entered into the Companys E*Trade Equity Edge stock administration database is the appropriate new
measurement date. Throughout this period, the Companys stock administration function entered the option grant information for approved grants into Equity Edge, and the median time difference between the effective date of a UWC and the
subsequent entry into Equity Edge was 13 days. Using these new measurement dates, and after accounting for forfeitures, the Company has recognized incremental stock-based compensation expense of $242.8 million on a pre-tax basis over the
respective options vesting terms.

Stock Option Grants from February 6, 2003 through May 31, 2006.During
this period, the number of Company employees increased to approximately 4,000 from less than 3,100; approximately 60% of this net increase was as a result of acquisitions. Though stock options were still a key recruiting and retention tool, the
volume of options granted had declined significantly as compared to the earlier period.

From February 6, 2003 through May 31,
2006, the Company utilized 104 authorizing documents awarding 15,032 individual grants for an aggregate of 59.8 million stock options. Unlike the prior period, authorizing documents were identified for all grants made during this period. The
Company has concluded that of the 15,032 individual grants totaling 59.8 million stock options to the Companys rank-and-file employees, Section 16 officers, and Directors during this period, 13,231 individual grants totaling
49.8 million stock options required new measurement dates.



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In February 2003, the Company implemented a new stock option granting process, which was approved by the
Compensation Committee. The new process required multiple signatures to authorize a UWC. For stock option grants to rank-and-file employees, signatures from the CEO and one Compensation Committee member were required to authorize the grants. For
stock option grants to Section 16 officers and Directors, signatures from the CEO, inside counsel, and two Compensation Committee members were required to authorize the grants. During this period, the Compensation Committee was composed of
either two or three members.

The new process continued the practice of issuing a UWC on every other Wednesday, although not all UWCs were
finalized by the purported effective date. Notwithstanding this schedule, there were 11 UWCs with an effective date other than a scheduled UWC date, of which nine were annual company-wide merit grants or retention grants and two were new hire
grants. Even though the new process required UWCs to be approved by multiple signatories, the Company continued to use the printed or typewritten effective date on the UWC, not the date of the last required signature, as the grant date unless
otherwise indicated on the UWC. Under the new process, the Companys practice was that the inside counsel and the CEO signed the UWC on the same day or prior to obtaining the required signatures from the Compensation Committee members.

Administrative errors continued to prevent some option grants from being approved in a timely fashion. During this period from
February 6, 2003 through May 31, 2006, the Company recorded 43 stock option grants with a grant date prior to the effective date of the corresponding UWC or Exhibit A. During this period from February 6, 2003 through May 31,
2006, the date of the last known occurrence of these administrative errors was on a UWC dated January 2005. By November, 2003, the Company had developed systemic business processes worldwide through its Peoplesoft ERP system that mitigated the
occurrence of such administrative errors, as only one such instance occurred after this date.

In this period (February 6, 2003
through May 31, 2006), the Company has concluded that its receipt of the last required signature where the dated signature is determined to be reliable is the appropriate new measurement date for calculating additional stock-based compensation
expense under APB 25. Using these measurement dates, and after accounting for forfeitures, the Company has recognized incremental stock-based compensation expense of $3.7 million on a pre-tax basis over the respective options vesting
terms.

Five Measurement Date Rules. The Company has taken the position that, with respect to option grants for which the
recorded measurement date was not supported by sufficient evidence of finality and therefore not accounted for properly, the appropriate new measurement date may be established in one of five ways:



| | (1) | When there is evidence of Board or Compensation Committee approval, the Board or Compensation Committee approval or meeting date is the new measurement date;
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | For the period from February 6, 2003 through May 31, 2006 when the dated signatures on a UWC are determined to be reliable, the date of last required signature on the UWC,
or if the signature is not dated, the fax return date, is the new measurement date;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | For the period from April 11, 1997 through February 5, 2003 when the dated signature on and purported effective date of the UWC are determined to not be reliable, the
Equity Edge entry date is the new measurement date;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | For the period from April 11, 1997 through February 5, 2003 when the dated signature on and purported effective date of the UWC are determined to not be reliable, but
where other evidence exists to demonstrate that finality occurred prior to the Equity Edge entry date, the date of reliable grant information is the new measurement date. In this circumstance ,the Company found emails, employee correspondence, and
Equity Edge grant information related to 344 grants that supported the fact that these grants had been previously entered into Equity Edge and subsequently re-entered to adjust only the tax designation of the options (incentive versus nonqualified
stock options). The Company concluded that since no other attribute of the grant was changed, the initial entry into Equity Edge, which was commensurate with the other grants on the related authorizing document, was the most appropriate new
measurement date;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | When the grant date is prior to the employee providing services to the Company, the first day of work is the new measurement date.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------



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Summary of Stock-Based Compensation Recognized due to New Measurement Dates. Below is a
summary of the stock-based compensation, net of forfeitures, recognized by the Company by measurement date rule:



|                                                     |  |                                               |   |  |                        |  |                                        |        
|---------------------------------------------------- |  | --------------------------------------------- | - |  | ---------------------- |  | -------------------------------------- | -------
|                                                     |  |                                               |   |  | (Amounts in thousands)
|Type                                                 |  | Number of grantsrequiring newmeasurement date |   |  | Total Numberof options |  | Compensationexpense, netof forfeitures
|April 11, 1997 through February 5, 2003              |  |                                               |   |  |                        |  |                                        |        
|1) Equity Edge entry date                            |  | 20,754                                        |   |  | 99,559                 |  | $                                      | 204,004
|2) Board approval                                    |  | 486                                           |   |  | 21,253                 |  |                                        | 28,208 
|3) Reliable evidence prior to Equity Edge entry date |  | 344                                           |   |  | 1,288                  |  |                                        | 6,946  
|4) Date employee began services                      |  | 9                                             |   |  | 474                    |  |                                        | 3,587  
|                                                     |  |                                               |   |  |                        |  |                                        |        
|Subtotal                                             |  | 21,593                                        |   |  | 122,574                |  |                                        | 242,745
|February 6, 2003 through May 31, 2006                |  |                                               |   |  |                        |  |                                        |        
|5) Last required signature on a UWC                  |  | 12,533                                        |   |  | 47,164                 |  |                                        | 3,727  
|                                                     |  |                                               |   |  |                        |  |                                        |        
|Total                                                |  | 34,126                                        | * |  | 169,738                |  | $                                      | 246,472
|                                                     |  |                                               |   |  |                        |  |                                        |        

---

|* | Does not include those grants subject to variable accounting or other adjustments described below.
|- | --------------------------------------------------------------------------------------------------

In addition, below is a summary of the stock-based compensation recognized, net of forfeitures, by the Company by rank-and-file employees,
Section 16 officers, and Directors:



|                                       |  |                        |        |      |   |        |  |      |        |       |   |        |  |   |        
|-------------------------------------- |  | ---------------------- | ------ | ---- | - | ------ |  | ---- | ------ | ----- | - | ------ |  | - | -------
|Amounts in thousands                   |  | Year Ended January 31,
|                                       |  | 1998                   |        | 1999 |   | 2000   |  | 2001 |        | 2002 
|Rank-and-file employees                |  | $                      | 143    |      | $ | 1,683  |  | $    | 6,244  |       | $ | 30,043 |  | $ | 40,093 
|Section 16 officers                    |  |                        |       |      |   | 76     |  |      | 2,881  |       |   | 16,805 |  |   | 18,964 
|Directors                              |  |                        |       |      |   |       |  |      | 25     |       |   | 430    |  |   | 1,142  
|                                       |  |                        |        |      |   |        |  |      |        |       |   |        |  |   |        
|Total Fixed Awards, net of forfeitures |  | $                      | 143    |      | $ | 1,759  |  | $    | 9,150  |       | $ | 47,278 |  | $ | 60,199 
|                                       | 
|Amounts in thousands                   |  | Year Ended January 31,
|                                       |  | 2003                   |        | 2004 |   | 2005   |  | 2006 |        | Total
|Rank-and-file employees                |  | $                      | 36,147 |      | $ | 28,259 |  | $    | 13,652 |       | $ | 7,370  |  | $ | 163,634
|Section 16 officers                    |  |                        | 22,551 |      |   | 10,607 |  |      | 4,988  |       |   | 2,522  |  | $ | 79,394 
|Directors                              |  |                        | 998    |      |   | 630    |  |      | 157    |       |   | 62     |  | $ | 3,444  
|                                       |  |                        |        |      |   |        |  |      |        |       |   |        |  |   |        
|Total Fixed Awards, net of forfeitures |  | $                      | 59,696 |      | $ | 39,496 |  | $    | 18,797 |       | $ | 9,954  |  | $ | 246,472
|                                       |  |                        |        |      |   |        |  |      |        |       |   |        |  |   |        

Stock Option Grants Subject to Variable Accounting

National Insurance Contribution (NIC) Tax. The Company has also concluded that certain of its stock options grants are subject
to variable accounting.

In May 2001, the Company modified its stock option grant agreements in the United Kingdom
(U.K.) to transfer the Companys National Insurance Contribution (NIC) tax liability to employees. In conjunction with its modified stock option agreements, the Company and its U.K. employees executed Joint
Election Forms pursuant to which the parties agreed to pass the Companys NIC tax liability to the employees, which in turn enabled the employees to obtain tax relief against their taxable income from the U.K. taxing authorities. Pursuant to
applicable U.K. tax requirements, the Company did not utilize the modified stock option agreements and Joint Election Forms until it had received approval from relevant U.K. taxing authorities.



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##### Table of Contents

Although the Companys stock administration function implemented the appropriate NIC tax withholding
upon exercise of a U.K. employees stock options subject to the tax transfer, the Companys local payroll department mistakenly reimbursed the withheld amount to each employee in a subsequent payroll cycle. The Company continued this
practice through August 22, 2006. The Company has concluded that, per EITF Issue No. 00-23, Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44 (EITF 00-23), because
the Company in substance provided the employee with a cash bonus tied to the intrinsic value of the options upon exercise, the exercise price of these options was not fixed, and the Company must apply variable accounting to each stock option granted
to employees in the U.K. in the period in which the Company maintained this practice. Accordingly, 1,413 grants totaling 5.0 million stock options granted from May 1, 2001 through January 31, 2006 were subject to variable accounting.
The Company has recognized net incremental stock-based compensation expense of $4.3 million, net of forfeitures and adjustments to remeasure the award at intrinsic value, on a pre-tax basis through January 31, 2006.

On August 22, 2006, the Company ceased reimbursing employees for the NIC tax liability. On that date, the awards were effectively modified. However,
because the Company was subject to the requirements of FAS 123(R) on that date, and because the modification reduced the fair value of the options, the modification did not have an accounting consequence.

Other Variable Awards. In addition, the Company concluded that one grant of 400,000 stock options in fiscal year 2000 to a former
Section 16 officer was subject to variable accounting due to the terms and conditions of that grant. The former Section 16 officer asserted this grant as originally priced had an incorrect exercise price. Rather than re-price the stock
options, the Company offered him a cash bonus payable upon exercise of the vested stock options (in effect a re-pricing under FIN 44). At the time of the agreement, the Company accrued the intrinsic value of the cash bonus and amortized the
expense over the vesting period of the stock options, but did not account for the stock option grant as a variable award.

The Company has
recognized net stock-based compensation expense of $3.4 million, net of forfeitures, on a pre-tax basis through the first quarter of fiscal year 2004, which is the fiscal period in which this variable award ceased based on the termination of the
Section 16 officer.

Stock Option Grant Modifications Related to Current and Terminated Employees

Grant Modifications-Terminated Employees. For much of the period under review, departing employees frequently were given separation
agreements, termination agreements, or leaves of absence in lieu of or in addition to severance payments. Typically, such arrangements related to the Company (1) permitting employees additional time to vest their stock options following their
cessation of services to the Company; and (2) permitting employees additional time to exercise their stock options, beyond the period of time provided for such exercises under the employees stock option grant agreement. Such arrangements
constitute modifications to the original option grants and compensation expense must be recognized in the period of the modification, which the Company did not do.

The Company analyzed the circumstances surrounding all 5,148 terminations from April 1997 through June 2006, which included the review of 1,273 termination agreements, of which eight were for Section 16 officers.
The Company concluded that the terms and conditions of 975 termination agreements, eight of which were for Section 16 officers, resulted in modifications of the underlying stock options. Although these arrangements embody the terms and
conditions of the termination of the employee from the Company, the Company did not have adequate business processes to ensure that the terms and conditions of such arrangements were communicated to the accounting and finance personnel for
appropriate consideration. The Company has recognized incremental stock-based compensation expense related to these modifications of $98.5 million on a pre-tax basis, $44.8 million related to the eight modifications for Section 16 officers and
$53.7 million related to 967 modifications for rank-and-file employees.

In addition, the Company reviewed the termination data in the
Companys Peoplesoft ERP and Equity Edge for the remaining 3,875 terminations, including the terminations of eight Section 16 officers. The Company determined that 1,223 of such terminations resulted in modifications of the underlying
stock options, of which three were for Section 16 officers. The Company did not have adequate business processes to ensure that data was accurately and consistently captured and entered to its Peoplesoft ERP and Equity Edge systems such that
the resulting data input did not mistakenly result in a systemic extension of either vesting or the time period to exercise upon termination. The Company has recognized incremental stock-based compensation expense related to these modifications of
$73.4 million on a pre-tax basis, $15.5 million related to the three modifications for Section 16 officers and $57.9 million related to 1,220 modifications for rank-and-file employees.

In total, the Company has recognized, and such recognition has taken place in the period of modification, incremental stock-based compensation expense
associated with such modifications of $171.9 million on a pre-tax basis in the period of modification.



45



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##### Table of Contents

Grant Modifications-Active Employee. In some circumstances the Company modified grants to
active employees. These modifications fall into four categories, and the total compensation expense associated with these modifications is $4.3 million, net of forfeitures, on a pre-tax basis.

In the first circumstance, employees who had properly entered a LOA were allowed to vest their stock options in circumstances where the Companys
policy did not permit such vesting. Such arrangements constitute modifications to the original option grants and compensation expense must be re-measured pursuant to FIN 44 in the period of modification, which the Company did not do. The
Company has recognized incremental stock-based compensation expense associated with such modifications of $1.6 million on a pre-tax basis in the period of modification.

In the second circumstance, certain employees were (1) granted options, for five grants, that were subsequently cancelled and either immediately or shortly thereafter reissued at a lower price; (2) granted
additional options, for five grants, immediately or shortly after an initial grant, at a lower price than the initial grant, and the initial grant was immediately or shortly thereafter cancelled; and (3) granted options, for 43 grants to 32
grant recipients, of which the Company concluded that 19 were modifications, that were subsequently modified through a change in price after the initial entry into Equity Edge. Under GAAP this cancellation and replacement is a re-pricing that
requires compensation expense to be recognized and adjusted quarterly for as long as the re-priced option remains outstanding. The Company failed to record this expense. The Company has recognized incremental stock-based compensation expense
associated with such modifications of $1.0 million, net of forfeitures, on a pre-tax basis in the period of modification.

In the third
circumstance, there was one instance of a change in status of a Section 16 officer from a Director to a consultant. Upon a change of status to a consultant, compensation expense must be measured, which the Company did not do, pursuant to
EITF Issue No. 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services relating to options that vest during the consulting period. The Company
has recognized incremental stock-based compensation expense associated with this change of status of $1.3 million on a pre-tax basis in the period of the change in status.

In the fourth circumstance, there was one instance of a change to the vesting schedule of a rank-and-file employee. Such an arrangement constitutes a
modification to the original option grants and compensation expense must be recognized over the required service period, which the Company did not do. The Company has recognized incremental stock-based compensation expense associated with such a
modification of $0.4 million, net of forfeitures, on a pre-tax basis commencing in the period of modification.

Employer and Employee Tax Liabilities
Penalties and Interest

The Company identified numerous instances of stock options that were originally classified as incentive stock
options (ISOs) that (1) due to the new measurement dates should have been non-qualified Stock Options (NQSOs) (Reclassified), and (2) due to termination and other modifications the
unexercised stock options at modification date should have been NQSOs (Modified). In regards to Reclassified ISOs, a majority of the historical stock option grants that were issued as ISOs should have been NQSOs because due to the
new measurement dates they were issued at a discount to fair market value (FMV). The difference between the FMV of the Companys stock and the strike price on these Reclassifed stock options at exercise date should have been
subject to withholdings for income and employment taxes. In regards to Modified ISOs, the unexercised portion of the ISOs that were not already Reclassified due to new measurement dates should have been NQSOs at the time upon the modification, which
included allowing terminated employees to continue to vest. The difference between the FMV of the Companys stock and the strike price on these Modified stock options at exercise date should have been subject to withholdings for income and
employment taxes.

The Company performed a grant-by-grant examination of all options requiring measurement date changes and calculated the
requisite employment taxes that should have been accrued upon subsequent exercise of the ISOs that should have been NQSOs. The Company concluded that the liability for (1) under-withheld employee income taxes, (2) employer and
employee-borne employment taxes; and (3) all respective interest and penalties should be recorded in the period these liabilities arose as evaluated under Statement of Financial Accounting Standards No. 5, Accounting for
Contingencies (FAS 5). However, for the fiscal years 1998 through 2003, the corresponding statute of limitations expired before the amounts were paid and therefore, the liabilities were reversed as the corresponding statute of
limitations expired. The Company intends to assume the employees obligations for these taxes.

The total additional expense of these
additional taxes, penalties, and interest, net of reversal due to the expiration of the respective statute of limitations, is $2.8 million on a pre-tax basis.



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Internal Revenue Code Section 409A

Certain adjustments to the measurement dates of stock options that resulted in additional stock-based compensation expense also illuminated an additional
and separate exposure for employee-borne taxes under Internal Revenue Code (IRC) Section 409A (409A). The tax is a 20% assessment on certain types of equity award income, including gains on discounted options. The state
of California also assesses this tax. Because the Companys employees were unaware of the tax at the time their options were granted and unaware that some options they received would subject them to these taxes, the Company entered into
arrangements with both the U.S. Internal Revenue Service (IRS) and the state of California in February 2007 to discharge these obligations, on behalf of its employees, directly with the taxing authorities for all periods through
December 31, 2006. The Company also paid the associated penalties and interest.

The Company concluded that the expense associated
with discharging its employees 409A exposure for all periods through December 31, 2006 should be reflected in the Companys first quarter of fiscal year 2008 financial statements since that is the period in which the Company made the
decision to assume these obligations. The Company accrued $4.9 million on a pre-tax basis in the first quarter of fiscal year 2008 in estimation of the amount of these obligations.

In addition, the Company intends to provide its employees with the opportunity to remedy their outstanding stock options that are subject to potential
penalties under 409A. The resulting financial impact will be reflected in the period in which the remedial action is finalized.

Purchase Accounting

Over the periods affected by the additional stock-based compensation expense, the Company made several business and asset acquisitions
for which net deferred tax liabilities (DTLs) were recorded in purchase accounting for taxable temporary differences acquired and/or recorded in the purchase accounting. In connection with these acquisitions the Company was
required to reduce its valuation allowance based on the DTLs recorded in the purchase accounting as they provided a source of future taxable income to recognize certain of the Companys deferred tax assets (DTAs). Prior to
the restatement, these reductions in the valuation allowance related entirely to excess stock option tax benefits and therefore they were accounted for with a credit directly to equity consistent with FAS No. 109, Accounting for Income
Taxes (FAS 109), paragraphs 36(e) and 37.

The additional stock-based compensation expense recognized as a result of
revised measurement dates impacted the original purchase accounting in that a significant portion of the reduction in the Companys valuation allowance reduced in connection with the relevant acquisitions are no longer excess stock option
deductions. As a result, reductions in the Companys valuation allowance in connection with the relevant acquisitions are accounted for as part of the acquisition purchase price (i.e., reductions in goodwill and, in certain circumstances,
identifiable intangible assets) rather than as the recognition of excess stock option deduction benefits accounted for directly to equity.

Therefore, the reduction in goodwill and intangible assets as a result of the additional stock-based compensation reduced the related amortization of those intangibles by $11.4 million. Those intangible assets that were adjusted were fully
amortized by January 31, 2006.

Summary of Stock-Based Compensation Adjustments and Related Issues

The summary of the incremental stock-based compensation after considering forfeitures, and related issues on a pre-tax and after-tax basis for the fiscal
years ended January 31, 1998 through 2006, and for the quarter ended April 30, 2006 is as follows:



47



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|                                         |  |                        |         |   |      |   |         |      |  |   |         |   |  |       |          |   |  |   |          |  
|---------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ----- | -------- | - |  | - | -------- | -
|Amounts in thousands                     |  | Year Ended January 31, |        
|                                         |  | 1998                   |         |   | 1999 |   |         | 2000 |  |   | 2001    |   |  | 2002  |         
|Net income (loss) as reported            |  | $                      | (22,912 | ) |      | $ | (51,582 | )    |  | $ | (19,574 | ) |  | $     | 17,082   |   |  | $ | (35,678  | )
|                                         |  |                        |         |   |     
|New Measurement Date Rules               |  |                        | 143     |   |      |   | 1,759   |      |  |   | 9,150   |   |  |       | 47,278   |   |  |   | 60,199   |  
|Variable-NIC Tax                         |  |                        |        |   |      |   |        |      |  |   |        |   |  |       |         |   |  |   | 495      |  
|Variable-Other                           |  |                        |        |   |      |   |        |      |  |   | 1,724   |   |  |       | 13,925   |   |  |   | (9,909   | )
|Modifications-Terminated Employees       |  |                        | 491     |   |      |   | 1,045   |      |  |   | 17,048  |   |  |       | 99,334   |   |  |   | 44,169   |  
|Modifications-Active Employees           |  |                        | 115     |   |      |   | 26      |      |  |   | 867     |   |  |       | 1,362    |   |  |   | 389      |  
|Employment taxes                         |  |                        | 78      |   |      |   | 153     |      |  |   | 965     |   |  |       | 23,226   |   |  |   | 14,056   |  
|Purchase Accounting                      |  |                        |        |   |      |   |        |      |  |   |        |   |  |       |         |   |  |   |         |  
|Other                                    |  |                        |        |   |      |   |        |      |  |   |        |   |  |       |         |   |  |   |         |  
|                                         |  |                        |         |   |      |   |         |      |  |   |         |   |  |       |          |   |  |   |          |  
|Increase/(Decrease) in operating expense |  |                        | 827     |   |      |   | 2,983   |      |  |   | 29,754  |   |  |       | 185,125  |   |  |   | 109,399  |  
|                                         |  |                        |         |   |      |   |         |      |  |   |         |   |  |       |          |   |  |   |          |  
|Increase/(Decrease) in tax provision     |  |                        |        |   |      |   |        |      |  |   |        |   |  |       | (25,855  | ) |  |   | (9,052   | )
|                                         |  |                        |         |   |      |   |         |      |  |   |         |   |  |       |          |   |  |   |          |  
|Net income as restated                   |  | $                      | (23,739 | ) |      | $ | (54,565 | )    |  | $ | (49,328 | ) |  | $     | (142,188 | ) |  | $ | (136,025 | )
|                                         |  |                        |         |   |      |   |         |      |  |   |         |   |  |       |          |   |  |   |          |  
|                                         | 
|Amounts in thousands                     |  | Year Ended January 31, |        
|                                         |  | 2003                   |         |   | 2004 |   |         | 2005 |  |   | 2006    |   |  | Total |         
|Net income as reported                   |  | $                      | 83,876  |   |      | $ | 118,674 |      |  | $ | 131,056 |   |  | $     | 142,743  |   |  | $ | 363,685  |  
|                                         |  |                        |         |   |     
|New Measurement Date Rules               |  |                        | 59,696  |   |      |   | 39,496  |      |  |   | 18,797  |   |  |       | 9,954    |   |  |   | 246,472  |  
|Variable-NIC Tax                         |  |                        | 900     |   |      |   | 2,357   |      |  |   | (1,885  | ) |  |       | 2,468    |   |  |   | 4,335    |  
|Variable-Other                           |  |                        | (2,336  | ) |      |   | (43     | )    |  |   |        |   |  |       |         |   |  |   | 3,361    |  
|Modifications-Terminated Employees       |  |                        | 4,876   |   |      |   | 2,964   |      |  |   | 1,065   |   |  |       | 928      |   |  |   | 171,920  |  
|Modifications-Active Employees           |  |                        | 71      |   |      |   | 119     |      |  |   | 1,444   |   |  |       | (128     | ) |  |   | 4,265    |  
|Employment taxes                         |  |                        | 4,878   |   |      |   | 2,785   |      |  |   | (25,333 | ) |  |       | (14,928  | ) |  |   | 5,880    |  
|Purchase Accounting                      |  |                        | (1,462  | ) |      |   | (4,977  | )    |  |   | (4,563  | ) |  |       | (440     | ) |  |   | (11,442  | )
|Other                                    |  |                        |        |   |      |   |        |      |  |   | (187    | ) |  |       | (616     | ) |  |   | (803     | )
|                                         |  |                        |         |   |      |   |         |      |  |   |         |   |  |       |          |   |  |   |          |  
|Increase/(Decrease) in operating expense |  |                        | 66,623  |   |      |   | 42,701  |      |  |   | (10,662 | ) |  |       | (2,762   | ) |  |   | 423,988  |  
|                                         |  |                        |         |   |      |   |         |      |  |   |         |   |  |       |          |   |  |   |          |  
|Increase/(Decrease) in tax provision     |  |                        | (23,662 | ) |      |   | (32,063 | )    |  |   | (3,979  | ) |  |       | 2,335    |   |  |   | (92,276  | )
|                                         |  |                        |         |   |      |   |         |      |  |   |         |   |  |       |          |   |  |   |          |  
|Net income (loss) as restated            |  | $                      | 40,915  |   |      | $ | 108,036 |      |  | $ | 145,697 |   |  | $     | 143,170  |   |  | $ | 31,973   |  
|                                         |  |                        |         |   |      |   |         |      |  |   |         |   |  |       |          |   |  |   |          |  

The reduction in the tax provision for fiscal years 2001 and 2002 is limited by the need to
increase the valuation allowance for deferred tax assets related to additional stock-based compensation deductions. The reduction in the tax provision for fiscal year 2005 is related to release of the Companys valuation allowance. The increase
in the tax provision in fiscal year 2006 is magnified as certain deductions are limited related to officers compensation, the deduction of which is subject to limitations under IRC 162(m).

The following tables present the impact of stock-based compensation and associated tax adjustments made to our previously reported balance sheet and
statements of income:



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Consolidated Balance Sheet as of April 30, 2006 (in thousands):



|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|----------------------------------------------------------- |  | --------------------- | --------- | - | ----------- | - | -------- | ----------- |  | - | --------- | -
|                                                            |  | As of April 30, 2006  |          
|                                                            |  | As previouslyreported |           |   | Adjustments |   |          | As restated | 
|ASSETS                                                      |  |                       |           |   |             |   |          |             |  |   |           |  
|Current Assets:                                             |  |                       |           |   |             |   |          |             |  |   |           |  
|Cash and cash equivalents                                   |  | $                     | 971,965   |   |             | $ |         |             |  | $ | 971,965   |  
|Restricted cash                                             |  |                       | 1,666     |   |             |   |         |             |  |   | 1,666     |  
|Short-term investments                                      |  |                       | 297,325   |   |             |   |         |             |  |   | 297,325   |  
|Accounts receivable, net of allowance for doubtful accounts |  |                       | 242,461   |   |             |   |         |             |  |   | 242,461   |  
|Prepaid expenses and other current assets                   |  |                       | 89,647    |   |             |   | (2,993   | )           |  |   | 86,654    |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|Total current assets                                        |  |                       | 1,603,064 |   |             |   | (2,993   | )           |  |   | 1,600,071 |  
|Long-term investments                                       |  |                       | 45,490    |   |             |   |         |             |  |   | 45,490    |  
|Property and equipment, net                                 |  |                       | 341,991   |   |             |   |         |             |  |   | 341,991   |  
|Goodwill, net                                               |  |                       | 207,501   |   |             |   | (7,288   | )           |  |   | 200,213   |  
|Acquired intangible assets, net                             |  |                       | 88,540    |   |             |   |         |             |  |   | 88,540    |  
|Long-term restricted cash                                   |  |                       | 2,644     |   |             |   |         |             |  |   | 2,644     |  
|Other long-term assets                                      |  |                       | 37,926    |   |             |   | (413     | )           |  |   | 37,513    |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|Total assets                                                |  | $                     | 2,327,156 |   |             | $ | (10,694  | )           |  | $ | 2,316,462 |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                        |  |                       |           |   |             |   |          |             |  |   |           |  
|Current liabilities:                                        |  |                       |           |   |             |   |          |             |  |   |           |  
|Accounts payable                                            |  | $                     | 24,019    |   |             | $ |         |             |  | $ | 24,019    |  
|Accrued liabilities                                         |  |                       | 93,386    |   |             |   | 2,837    |             |  |   | 96,223    |  
|Restructuring obligations                                   |  |                       | 3,198     |   |             |   |         |             |  |   | 3,198     |  
|Accrued payroll and related liabilities                     |  |                       | 72,742    |   |             |   |         |             |  |   | 72,742    |  
|Accrued income taxes                                        |  |                       | 74,696    |   |             |   | 287      |             |  |   | 74,983    |  
|Deferred revenue                                            |  |                       | 365,003   |   |             |   |         |             |  |   | 365,003   |  
|Convertible subordinated notes                              |  |                       | 255,250   |   |             |   |         |             |  |   | 255,250   |  
|Current portion of notes payable and other obligations      |  |                       | 933       |   |             |   |         |             |  |   | 933       |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|Total current liabilities                                   |  |                       | 889,227   |   |             |   | 3,124    |             |  |   | 892,351   |  
|Long-term deferred tax liabilities                          |  |                       | 1,283     |   |             |   |         |             |  |   | 1,283     |  
|Notes payable and other long-term obligations               |  |                       | 227,632   |   |             |   |         |             |  |   | 227,632   |  
|Convertible subordinated notes                              |  |                       |          |   |             |   |         |             |  |   |          |  
|Commitments and contingencies                               |  |                       |           |   |             |   |          |             |  |   |           |  
|Stockholders equity:                                       |  |                       |           |   |             |   |          |             |  |   |           |  
|Common stock                                                |  |                       | 449       |   |             |   |         |             |  |   | 449       |  
|Additional paid-in capital                                  |  |                       | 1,390,050 |   |             |   | 318,053  |             |  |   | 1,708,103 |  
|Treasury stock, at cost                                     |  |                       | (478,249  | ) |             |   |         |             |  |   | (478,249  | )
|Retained earnings/(Accumulated deficit)                     |  |                       | 290,052   |   |             |   | (331,871 | )           |  |   | (41,819   | )
|Accumulated other comprehensive income                      |  |                       | 6,712     |   |             |   |         |             |  |   | 6,712     |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|Total stockholders equity                                  |  |                       | 1,209,014 |   |             |   | (13,818  | )           |  |   | 1,195,196 |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  
|Total liabilities and stockholders equity                  |  | $                     | 2,327,156 |   |             | $ | (10,694  | )           |  | $ | 2,316,462 |  
|                                                            |  |                       |           |   |             |   |          |             |  |   |           |  



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Consolidated Statement of Income for the three months ended April 30, 2006 (in thousands):



|                                                        |  |                                   |         |   |             |   |        |            |  |   |         |  
|------------------------------------------------------- |  | --------------------------------- | ------- | - | ----------- | - | ------ | ---------- |  | - | ------- | -
|                                                        |  | Three months ended April 30, 2006 |        
|                                                        |  | As previouslyreported             |         |   | Adjustments |   |        | Asrestated | 
|Revenues:                                               |  |                                   |         |   |             |   |        |            |  |   |         |  
|License fees                                            |  | $                                 | 132,404 |   |             | $ |       |            |  | $ | 132,404 |  
|Services                                                |  |                                   | 190,832 |   |             |   |       |            |  |   | 190,832 |  
|                                                        |  |                                   |         |   |             |   |        |            |  |   |         |  
|Total revenues                                          |  |                                   | 323,236 |   |             |   |       |            |  |   | 323,236 |  
|Cost of revenues:                                       |  |                                   |         |   |             |   |        |            |  |   |         |  
|Cost of license fees                                    |  |                                   | 15,266  |   |             |   | (14    | )          |  |   | 15,252  |  
|Cost of services                                        |  |                                   | 63,576  |   |             |   | (646   | )          |  |   | 62,930  |  
|                                                        |  |                                   |         |   |             |   |        |            |  |   |         |  
|Total cost of revenues                                  |  |                                   | 78,842  |   |             |   | (660   | )          |  |   | 78,182  |  
|                                                        |  |                                   |         |   |             |   |        |            |  |   |         |  
|Gross profit                                            |  |                                   | 244,394 |   |             |   | 660    |            |  |   | 245,054 |  
|Operating expenses:                                     |  |                                   |         |   |             |   |        |            |  |   |         |  
|Sales and marketing                                     |  |                                   | 122,217 |   |             |   | (1,267 | )          |  |   | 120,950 |  
|Research and development                                |  |                                   | 55,699  |   |             |   | (723   | )          |  |   | 54,976  |  
|General and administrative                              |  |                                   | 30,178  |   |             |   | (102   | )          |  |   | 30,076  |  
|Facilities consolidation                                |  |                                   |        |   |             |   |       |            |  |   |        |  
|Acquisition-related in-process research and development |  |                                   | 2,700   |   |             |   |       |            |  |   | 2,700   |  
|                                                        |  |                                   |         |   |             |   |        |            |  |   |         |  
|Total operating expenses                                |  |                                   | 210,794 |   |             |   | (2,092 | )          |  |   | 208,702 |  
|                                                        |  |                                   |         |   |             |   |        |            |  |   |         |  
|Income from operations                                  |  |                                   | 33,600  |   |             |   | 2,752  |            |  |   | 36,352  |  
|Interest and other, net:                                |  |                                   |         |   |             |   |        |            |  |   |         |  
|Interest expense                                        |  |                                   | (6,024  | ) |             |   |       |            |  |   | (6,024  | )
|Net gains on sale of equity investments                 |  |                                   | 10,972  |   |             |   |       |            |  |   | 10,972  |  
|Interest income and other                               |  |                                   | 10,677  |   |             |   |       |            |  |   | 10,677  |  
|                                                        |  |                                   |         |   |             |   |        |            |  |   |         |  
|Total interest and other, net                           |  |                                   | 15,625  |   |             |   |       |            |  |   | 15,625  |  
|                                                        |  |                                   |         |   |             |   |        |            |  |   |         |  
|Income before provision for income taxes                |  |                                   | 49,225  |   |             |   | 2,752  |            |  |   | 51,977  |  
|Provision for income taxes                              |  |                                   | 13,971  |   |             |   | 2,912  |            |  |   | 16,883  |  
|                                                        |  |                                   |         |   |             |   |        |            |  |   |         |  
|Net income                                              |  | $                                 | 35,254  |   |             | $ | (160   | )          |  | $ | 35,094  |  
|                                                        |  |                                   |         |   |             |   |        |            |  |   |         |  
|Net income per share:                                   |  |                                   |         |   |             |   |        |            |  |   |         |  
|Basic                                                   |  | $                                 | 0.09    |   |             |   |       |            |  | $ | 0.09    |  
|Diluted                                                 |  | $                                 | 0.09    |   |             |   |       |            |  | $ | 0.09    |  



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Judgment

In light of the significant judgment required in establishing revised measurement dates, alternate approaches to those used by us would have resulted in different compensation expense charges than those recorded by us
in our restated financial statements. In those cases where the Company concluded that the Equity Edge entry date was the most appropriate new measurement date, we considered various alternate approaches. However, we concluded, based on a variety of
factors, that none of the alternative approaches was as reliable as the Equity Edge entry date.

The Company prepared a sensitivity
analysis on those grants where the specific timing of the approval or finality of a grant cannot be determined with certainty within a range of likely dates and for which the Company concluded that the Equity Edge entry date, or a date prior to the
Equity Edge entry date when other reliable evidence was available, was the most appropriate new measurement date. Since the median time difference between the UWC effective date and the Equity Edge entry date was 13 days for those UWCs for which the
Company used the Equity Edge entry date as the new measurement date, the Company concluded that this time difference was short enough such that the sensitivity analysis would be a useful indicator. Since the Company is asserting that finality
occurred sometime between the UWC effective date and the Equity Edge entry date, but that it has no evidence to identify the actual date, the Company chose to perform separate sensitivity analyses on the highest and lowest stock prices between the
UWC effective date and the Equity Edge entry date. The Company performed this analysis for the 21,098 grants for which the Equity Edge entry date was used as the new measurement date. The result of the sensitivity analysis by fiscal year, after
considering the effect of forfeitures, is presented below:



|                                                                                            |  |                        |        |      |   |        |  |      |        |       |   |        |  |   |        
|------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- | - | ------ |  | ---- | ------ | ----- | - | ------ |  | - | -------
|Amounts in thousands                                                                        |  | Year Ended January 31,
|                                                                                            |  | 1998                   |        | 1999 |   | 2000   |  | 2001 |        | 2002 
|Compensation expense-Low Stock Price between UWC effective date and Equity Edge entry date  |  | $                      | 61     |      | $ | 353    |  | $    | 3,262  |       | $ | 16,699 |  | $ | 19,419 
|Compensation expense-Recognized                                                             |  |                        | 143    |      |   | 1,759  |  |      | 9,150  |       |   | 47,278 |  |   | 60,199 
|Compensation expense-High Stock Price between UWC effective date and Equity Edge entry date |  |                        | 181    |      |   | 2,707  |  |      | 12,084 |       |   | 68,627 |  |   | 91,797 
|                                                                                            | 
|                                                                                            |  | Year Ended January 31,
|                                                                                            |  | 2003                   |        | 2004 |   | 2005   |  | 2006 |        | Total
|Compensation expense-Low Stock Price between UWC effective date and Equity Edge entry date  |  | $                      | 21,099 |      | $ | 15,390 |  | $    | 8,411  |       | $ | 5,876  |  | $ | 90,570 
|Compensation expense-Recognized                                                             |  |                        | 59,696 |      |   | 39,496 |  |      | 18,797 |       |   | 9,954  |  |   | 246,472
|Compensation expense-High Stock Price between UWC effective date and Equity Edge entry date |  |                        | 85,039 |      |   | 62,294 |  |      | 24,663 |       |   | 11,210 |  |   | 358,602

The Company believes that the approaches it used were the most appropriate under the
circumstances.

Remedial Actions

As a result of its findings, the Audit Committee has made numerous recommendations regarding remedial action, all of which have been approved by the Board of Directors, including:



| |  |  | The Compensation Committee of the Board of Directors will be reconstituted and, in conjunction with the Audit Committee and its advisors will create a new
Compensation Committee charter and new stock option granting process to ensure that the practices identified above will not occur in the future.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Human Resources department will be restructured, and a new Human Resources leader has been recruited. The former Senior Vice President of Human Resources has
left the Company. She voluntarily re-priced her outstanding mis-priced options to the price associated with the correct measurement dates as determined by the Audit Committee. In addition, two other senior employees in the Human Resources department
who were involved in the stock option granting and stock administration processes voluntarily re-priced their outstanding mis-priced stock options to the price associated with the correct measurement dates of those grants as determined by the Audit
Committee.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | The office of the General Counsel will be strengthened by providing that the position will be filled with a new executive officer who reports directly to the CEO
and who also has a reporting responsibility to the Boards Nominating and Governance Committee. It is expected that the new General Counsel will possess substantial experience with compliance issues. The former General Counsel voluntarily
re-priced his outstanding mis-priced stock options to the price associated with the correct measurement dates of those grants as determined by the Audit Committee. He remains at BEA as a vice president in the legal department.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | William Klein, who served as Chief Financial Officer from February 2000 through February 2005 and has served as Executive Vice President of Business Planning and
Corporate Development since 2005, voluntarily repaid BEA all after-tax gains he realized on options resulting from mis-pricings, as determined by the Audit Committee. On a pre-tax basis, Mr. Klein had realized approximately $34,000 of such
gains. Mr. Klein also voluntarily re-priced his outstanding mis-priced options to the prices determined by the Audit Committee as the correct price for each of his grants. Mr. Klein remains at BEA in the position of Vice President of
Business Planning and Corporate Development.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Mark Dentinger, who has served as Executive Vice President and Chief Financial Officer since February 2005, voluntarily re-priced all of his outstanding mis-priced
options to the prices determined by the Audit Committee as the correct price for each of his grants.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Alfred Chuang, who has served as Chief Executive Officer since October 2001, realized a pre-tax gain of approximately $2.45 million related to the mis-pricing of
stock options granted to him in 1998 and 1999, grants that were approved at least two years prior to his becoming the Chief Executive Officer. Although Mr. Chuang was not responsible for the mis-pricing of these grants, the Audit Committee and
the Board of Directors determined that Mr. Chuang should return to BEA the benefit he realized from the mis-pricing. Accordingly, in order to effectuate this, Mr. Chuang and BEA entered into an agreement cancelling outstanding options to
purchase 423,605 shares of BEA common stock. In addition, Mr. Chuang voluntarily re-priced his outstanding mis-priced options to the appropriate prices as determined by the Audit Committee.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | William Coleman, who served as the Companys Chief Executive Officer from 1995 through October 2001, voluntarily repaid BEA the after-tax gains he realized on
exercises of options that the Audit Committee determined were originally mis-priced. On a pre-tax basis, the amount of such gain was approximately $260,000.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | All current independent directors of the Company who have received options that were mis-priced voluntarily re-priced all such outstanding options to the price
associated with the correct measurement dates, as determined by the Audit Committee. None of these directors has realized any gain from the exercise of any mis-priced options.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | As a result of the remedial actions, the exercise price of currently outstanding options held by the directors and officers described above will increase, in the
aggregate, approximately $23 million.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Following the review, the Audit Committee and the Board of Directors expressed
their continued confidence in the leadership and integrity of Mr. Chuang and the current Executive Leadership Team.



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Related Matters before the SEC

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.

Status of Nasdaq Listing

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.



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Results of Operations

The following table sets forth certain line items in BEAs consolidated statements of income as a percentage of total revenues for the three months ended April 30, 2007 and 2006.



|                                                        |  |                             |   |  |                     |  
|------------------------------------------------------- |  | --------------------------- | - |  | ------------------- | -
|                                                        |  | Three months endedApril 30, |  
|                                                        |  | 2007                        |   |  | 2006 As Restated(2) |  
|Revenues:                                               |  |                             |   |  |                     |  
|License fees                                            |  | 33.1                        | % |  | 41.0                | %
|Services                                                |  | 66.9                        |   |  | 59.0                |  
|                                                        |  |                             |   |  |                     |  
|Total revenues                                          |  | 100.0                       |   |  | 100.0               |  
|Cost of revenues:                                       |  |                             |   |  |                     |  
|Cost of license fees (1)                                |  | 17.2                        |   |  | 11.5                |  
|Cost of services (1)                                    |  | 30.6                        |   |  | 33.0                |  
|                                                        |  |                             |   |  |                     |  
|Total cost of revenues                                  |  | 26.2                        |   |  | 24.2                |  
|                                                        |  |                             |   |  |                     |  
|Gross margin                                            |  | 73.8                        |   |  | 75.8                |  
|Operating expenses:                                     |  |                             |   |  |                     |  
|Sales and marketing                                     |  | 37.3                        |   |  | 37.4                |  
|Research and development                                |  | 17.7                        |   |  | 17.0                |  
|General and administrative                              |  | 11.0                        |   |  | 9.3                 |  
|Acquisition-related in-process research and development |  | 0.0                         |   |  | 0.9                 |  
|                                                        |  |                             |   |  |                     |  
|Total operating expenses                                |  | 66.0                        |   |  | 64.6                |  
|                                                        |  |                             |   |  |                     |  
|Income from operations                                  |  | 7.8                         |   |  | 11.2                |  
|Interest and other, net                                 |  | 4.2                         |   |  | 4.9                 |  
|                                                        |  |                             |   |  |                     |  
|Income before provision for income taxes                |  | 12.0                        |   |  | 16.1                |  
|Provision for income taxes                              |  | 3.5                         |   |  | 5.2                 |  
|                                                        |  |                             |   |  |                     |  
|Net income                                              |  | 8.5                         | % |  | 10.9                | %
|                                                        |  |                             |   |  |                     |  

---

|(1) | Cost of license fees and cost of services are stated as a percentage of license fees and services revenue, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(2) | See Note 2, Restatement of Consolidated Financial Statements, in Notes to Consolidated Financial Statements of this Form 10-Q.
|--- | --------------------------------------------------------------------------------------------------------------------------------

Revenues (in thousands):



|               |  |                             |         |            |   |         |  |     |  
|-------------- |  | --------------------------- | ------- | ---------- | - | ------- |  | --- | -
|               |  | Three months endedApril 30, |         | Percentage |  
|               |  | 2007                        |         | 2006       |   | change  | 
|Total revenues |  | $                           | 345,845 |            | $ | 323,236 |  | 7.0 | %

Our revenues are derived from fees for software licenses and services. Services revenues are
comprised of customer support and maintenance, consulting and education. Total revenues increased 7.0 percent for the three months ended April 30, 2007 (the first quarter of fiscal 2008) as compared the three months ended
April 30, 2006 (the first quarter of fiscal 2007) due to a 21.2 percent increase in service revenues offset by a 13.4 percent decrease in license revenue. The increase in services revenues was primarily related to customer support
and maintenance revenues.

Geographically, the Americas (U.S., Canada, Mexico and Latin America) contribution to total revenue declined to
50.9 percent for the first quarter of fiscal 2008 compared to 53.9 percent for the first quarter of fiscal 2007. The EMEA (Europe, Middle East and Africa) contribution increased slightly to 33.2 percent in the first quarter of fiscal 2008 compared
to 31.3 percent in the first quarter of fiscal 2007, and the APAC (Asia Pacific and Japan) contribution increased to 15.9 percent in the first quarter of fiscal 2008 from 14.8 percent for the first quarter of fiscal 2007. Additionally in the first
quarter of fiscal



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2008, EMEA and APAC revenues combined, which grew in absolute dollars year over year, were positively impacted by exchange rates. In the first quarter of
fiscal 2008, total revenues of $345.8 million when translated at constant exchange rates from the same period in the prior year would have been approximately $334.0 million, which is a 3.3 percent increase over total revenues of $323.2 million for
the same quarter in the prior year.

License Fees (in thousands):



|                   |  |                             |         |            |   |         |  |       |   
|------------------ |  | --------------------------- | ------- | ---------- | - | ------- |  | ----- | --
|                   |  | Three months endedApril 30, |         | Percentage |  
|                   |  | 2007                        |         | 2006       |   | change  | 
|Total license fees |  | $                           | 114,647 |            | $ | 132,404 |  | (13.4 | )%

Total license fees decreased 13.4 percent for the first quarter of fiscal 2008 as compared to the
first quarter of fiscal 2007. License fees from the WebLogic product family declined as a percentage of total license fees, but this decline was 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 in the Americas and EMEA declined 23.6 percent and 7.4 percent, respectively, but this decline was offset by a 5.2
percent increase in APAC. In addition, license fees were positively impacted by exchange rates. License fees of $114.6 million when translated at constant exchange rates from the same period in the prior year would have been approximately $110.6
million, which is a 16.5 percent decrease over license fees of $132.4 million for the same quarter in the prior year.

Quarterly revenue
contribution from transactions with license fees greater than $1 million has ranged from approximately 22% to 36% of total license fees over the past eight quarters. Management believes transactions greater than $1 million constitute a significant
portion of total license revenue and 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 greater than $1 million, we have a significant number of small and midsize deals. Our business model generally
begins with smaller deals being seeded into our customers with a goal that these customers will enter into larger more significant transactions over time.

Service Revenues

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.

The following table provides a summary of service revenues (in thousands):



|                                  |  |                             |         |            |   |         |  |      |  
|--------------------------------- |  | --------------------------- | ------- | ---------- | - | ------- |  | ---- | -
|                                  |  | Three months endedApril 30, |         | Percentage |  
|                                  |  | 2007                        |         | 2006       |   | change  | 
|Consulting and education revenues |  | $                           | 47,940  |            | $ | 39,994  |  | 19.9 | %
|Customer support revenues         |  |                             | 183,258 |            |   | 150,838 |  | 21.5 | %
|                                  |  |                             |         |            |   |         |  |      |  
|Total services revenues           |  | $                           | 231,198 |            | $ | 190,832 |  | 21.2 | %
|                                  |  |                             |         |            |   |         |  |      |  

Total services revenues increased 21.2 percent for the first quarter of fiscal 2008 as compared to
the first quarter of fiscal 2007. This increase in services revenue was due to a 21.5 percent increase in customer support and maintenance revenue and a 19.9 percent increase in consulting and education revenues. In the first quarter of fiscal 2008,
service revenues of $231.2 million when translated at constant exchange rates from the same period in the prior year would have been approximately $223.3 million, which is a 17 percent increase over services revenues of $190.8 million for the same
quarter in the prior year.



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The increase in customer support and maintenance revenue for the first quarter of fiscal 2008 compared to
the first quarter 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 first quarter of fiscal 2008 compared to the first quarter of fiscal 2007 was primarily due to a 20.9 percent increase in consulting services

Revenues by Geographic Region

For each of the twelve fiscal quarters ended April 30, 2007, EMEA and APAC revenues
combined as a percentage of total revenues have ranged between 45 percent and 52 percent, composed of 29 percent to 38 percent for EMEA and 14 percent to 17 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):



|                                                 |  |                                 |         |                            |       |   |                                 |   |                            |  |       |  
|------------------------------------------------ |  | ------------------------------- | ------- | -------------------------- | ----- | - | ------------------------------- | - | -------------------------- |  | ----- | -
|                                                 |  | Three monthsendedApril 30, 2007 |         | Percentageof totalrevenues |       |   | Three monthsendedApril 30, 2006 |   | Percentageof totalrevenues | 
|Americas                                         |  | $                               | 176,100 |                            | 50.9  | % |                                 | $ | 174,079                    |  | 53.9  | %
|European, Middle East and Africa region (EMEA) |  |                                 | 114,844 |                            | 33.2  | % |                                 |   | 101,413                    |  | 31.3  | %
|Asia/Pacific region (APAC)                     |  |                                 | 54,901  |                            | 15.9  | % |                                 |   | 47,744                     |  | 14.8  | %
|                                                 |  |                                 |         |                            |       |   |                                 |   |                            |  |       |  
|Total revenues                                   |  | $                               | 345,845 |                            | 100.0 | % |                                 | $ | 323,236                    |  | 100.0 | %
|                                                 |  |                                 |         |                            |       |   |                                 |   |                            |  |       |  

For the first quarter of fiscal 2008, the percentage of total revenue contribution from the
Americas decreased 3.0 percentage points to 50.9 percent from 53.9 percent when compared to the same quarter in the prior fiscal year. This decrease in Americas total revenue was due to a 23.6 percent decrease in license fees partially offset by a
17.1 percent increase in services revenue. The increase in Americas services revenue was due to a 20.0 percent increase in customer support and maintenance revenue in addition to a 7.3 percent increase in consulting and education revenues.
Management believes the decrease in Americas license revenue was impacted by a challenging selling environment and organization changes made in the first quarter of fiscal 2008.

For the first quarter of fiscal 2008, the percentage of total revenue contribution from EMEA increased 1.9 percentage points to 33.2 percent from 31.3
percent when compared to the same quarter in the prior fiscal year. This increase in EMEA total revenue was due to a 26.6 percent increase in services revenue partially offset by a 7.4 percent decrease in license fees. The increase in EMEA services
revenue was due to a 23.0 percent increase in customer support and maintenance revenue in addition to a 40.9 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 quarter of fiscal 2008. In the first quarter of fiscal 2008, total revenues in EMEA of $114.8 million when translated at constant exchange rates from the same period in the prior year would
have been approximately $104.3 million, which is a 2.9 percent increase over total revenues in EMEA of $101.4 million for the same quarter in the prior year.

For the first quarter of fiscal 2008, the percentage of total revenue contribution from APAC increased 1.1 percentage points to 15.9 percent from 14.8 percent when compared to the same quarter in the prior fiscal
year. This increase in APAC total revenue was due to a 25.3 percent increase in services revenue in addition to a 5.2 percent increase in license fees. The increase in APAC services revenue was due to a 23.5 percent increase in customer support and
maintenance revenue and a 38.7 percent decrease in consulting and education revenues. In the first quarter of fiscal 2008, total revenues in APAC of $54.9 million when translated at constant exchange rates from the same period in the prior year
would have been approximately $53.6 million, which is a 12.4 percent increase over total revenues in APAC of $47.7 million for the same quarter in the prior year.



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##### Table of Contents

Cost of Revenues

The following table provides a summary of cost of revenues (in thousands):



|                       |  |                             |        |                      |   |                   |  |      |  
|---------------------- |  | --------------------------- | ------ | -------------------- | - | ----------------- |  | ---- | -
|                       |  | Three months endedApril 30, |        |                      |  
|                       |  | 2007                        |        | 2006 As Restated (1) |   | Percentage change | 
|Cost of license fees   |  | $                           | 19,745 |                      | $ | 15,252            |  | 29.5 | %
|Cost of services       |  |                             | 70,710 |                      |   | 62,930            |  | 12.4 |  
|                       |  |                             |        |                      |   |                   |  |      |  
|Total cost of revenues |  | $                           | 90,455 |                      | $ | 78,182            |  | 15.7 | %
|                       |  |                             |        |                      |   |                   |  |      |  

---

|(1) | See Note 2, Restatement of Consolidated Financial Statements, in Notes to Consolidated Financial Statements of this Form 10-Q.
|--- | --------------------------------------------------------------------------------------------------------------------------------

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



| |  |  | the amortization of certain acquired intangible assets including amortization of purchased technology, non-compete agreements, customer base, patents, trademarks
and distribution rights;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | direct costs and fees paid to third-party contractors in connection with our customer license compliance program;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | royalties and license fees paid to third parties based on a per copy fee or a prepaid fee amortized straight-line over the contractual period; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | costs associated with transferring our software to electronic media; the printing of user manuals; and packaging, distribution and localization costs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

Cost of license fees were 17.2 percent and 11.5 percent of license revenues for the first quarter of fiscal 2008 and
2007, respectively. The increase in the cost of license fees as a percentage of license revenues for the first quarter 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. The company wrote off a small acquisition that was completed in fiscal 2006 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 30.6 percent and 33.0 percent of services revenues for the first quarter of fiscal 2008 and fiscal 2007, respectively. The
2.5 percent decline in cost of services as a percent of services revenue was primarily due to customer support and maintenance where revenues increased and expense remained relatively flat thereby enabling margin improvement. In addition, total
headcount at the end of the period increased 34 people year over year.

The increase in cost of services in absolute dollars was due
primarily to compensation expense. Compensation expense increased approximately $8.0 million for the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007 due to increased employee headcount of 34 people, offset by a $0.8 million
decline in stock-based compensation expense. 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 $70.7 million when translated at constant
exchange rates from the same period in the prior year would have been approximately $69.7 million, which is a 10.5 percent increase over cost of services of $63.1 million for the same quarter in the prior year

Acquired Intangibles Amortization. Total future amortization expense associated with acquired intangibles is approximately $55.8 million
which includes $17.7 million for the remaining nine months of fiscal 2008, $16.8 million for fiscal 2009, $12.0 million for fiscal 2010, $7.6 million for fiscal 2010 and $1.7 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.



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Operating Expenses

Sales and Marketing (in thousands):



|                             |  |                             |         |                      |   |                  |  |     |  
|---------------------------- |  | --------------------------- | ------- | -------------------- | - | ---------------- |  | --- | -
|                             |  | Three months ended April 30 |         |                      |  
|                             |  | 2007                        |         | 2006 As Restated (1) |   | Percentagechange | 
|Sales and marketing expenses |  | $                           | 128,885 |                      | $ | 120,950          |  | 6.6 | %

---

|(1) | See Note 2, Restatement of Consolidated Financial Statements, in Notes to Consolidated Financial Statements of this Form 10-Q.
|--- | --------------------------------------------------------------------------------------------------------------------------------

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 first quarter of fiscal 2008 compared to the first
quarter of fiscal 2007 was primarily due to compensation-related expenses. Compensation-related expenses increased $8.3 million due to (1) an increase of $5.9 million for salary and benefits related to an increase of 93 headcount offset by a
$1.2 million decrease in variable compensation; (2) incremental share-based compensation for stock option modifications and employment taxes totaling $0.9 million associated with the Stock Option Review; and (3) a decrease of $1.1 million
in recurring share-based compensation.

Sales and marketing expenses were adversely impacted by foreign exchange rates. In the first
quarter of fiscal 2008, sales and marketing expenses of $128.9 million when translated at constant exchange rates from the same period in the prior year would have been approximately $127.6 million, which is a 5.5 percent increase over sales and
marketing of $121.0 million for the same quarter in the prior year

Research and Development (in thousands):



|                                  |  |                            |        |                      |   |                   |  |      |  
|--------------------------------- |  | -------------------------- | ------ | -------------------- | - | ----------------- |  | ---- | -
|                                  |  | Three months endedApril 30 |        |                      |  
|                                  |  | 2007                       |        | 2006 As Restated (1) |   | Percentage change | 
|Research and development expenses |  | $                          | 61,214 |                      | $ | 54,976            |  | 11.3 | %

---

|(1) | See Note 2, Restatement of Consolidated Financial Statements, in Notes to Consolidated Financial Statements of this Form 10-Q.
|--- | --------------------------------------------------------------------------------------------------------------------------------

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 increased to 17.7 percent from 17.0 percent for the first quarter of fiscal 2008 compared to the first quarter 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 $6.2 million from the first fiscal quarter of 2008 compared to the first fiscal quarter of 2007. This increase was driven by both organic new product development as well as
an acquired product development team from Flashline. As of April 30, 2007, research and development was comprised of 1,269 employees, 849 were located in the United States and 420 were located outside the United States. The increase in expenses
from the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007 was primarily due to compensation-related expenses. Compensation-related expenses increased $4.0 million due to (1) an increase of $2.8 million for salary and
benefits related to an increase, both through acquisition and organic growth, of 161 headcount; (2) incremental share-based compensation for stock option modifications and employment taxes totaling $2.1 million associated with the stock option
review and (3) offset by a $0.9 million decline in recurring share based compensation.

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



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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. In the first quarter of fiscal 2008, we received $0.1 million of third party reimbursement,
related to the development of ports and integration tools and $0.2 million related to research and development funding. 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. During the first quarter of fiscal 2007, we received a
total of $0.5 million of third party reimbursements which was related to the development of ports and integration tools.

General
and Administrative (in thousands):



|                                    |  |                            |        |                      |   |                   |  |      |  
|----------------------------------- |  | -------------------------- | ------ | -------------------- | - | ----------------- |  | ---- | -
|                                    |  | Three months endedApril 30 |        |                      |  
|                                    |  | 2007                       |        | 2006 As Restated (1) |   | Percentage change | 
|General and administrative expenses |  | $                          | 38,154 |                      | $ | 30,076            |  | 26.9 | %

---

|(1) | See Note 2, Restatement of Consolidated Financial Statements, in Notes to Consolidated Financial Statements of this Form 10-Q.
|--- | --------------------------------------------------------------------------------------------------------------------------------

General and administrative expenses increased $8.1 million for the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007. This
increase in expenses was primarily due to (1) an increase of $3.3 million for third party expenses related to the Companys stock option review; (2) and increase of $1.8 million associated with salary and benefits;
(3) incremental share-based compensation for stock option modifications and employment taxes totaling $1.2 million associated with the stock option review and (4) an increase of $1.1 million for legal expenses primarily associated with
patents.

Other Charges

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.On August 14, 2006, the Company entered into a new office lease in San Francisco to enable consolidation of the three current San Francisco office locations, including two acquired with the
acquisition of Plumtree Software, Inc. in October 2005. The new office lease commenced on August 14, 2006 and terminates on December 31, 2016. During the renovation period from lease commencement through April 2007, the Company expects to
record rent expense for both the new and existing office space. These charges resulted in an increase in operating expenses of approximately $1.4 million in the first quarter of fiscal 2008.

In the second quarter of fiscal 2008, the Company occupied the new 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 expects to incur a facilities consolidation charge of $2.5 million. If actual facts and circumstances
prove to be materially different than those of which we are aware today, managements estimates could materially change.

The Company
moved into the new office space in San Francisco in the second quarter of fiscal 2008.



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Interest and Other, Net

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



|                               |  |                             |        |   |      |   |        |                   |  |       |   
|------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | ----------------- |  | ----- | --
|                               |  | Three months endedApril 30, |        |   |      |  
|                               |  | 2007                        |        |   | 2006 |   |        | Percentage change | 
|Interest expense               |  | $                           | (3,166 | ) |      | $ | (6,024 | )                 |  | 47.4  | % 
|Foreign exchange gain (loss)   |  |                             | 764    |   |      |   | (374   | )                 |  | (n/m  | ) 
|Interest income and other, net |  |                             | 16,760 |   |      |   | 22,023 |                   |  | (23.9 | ) 
|                               |  |                             |        |   |      |   |        |                   |  |       |   
|Total interest and other, net  |  | $                           | 14,358 |   |      | $ | 15,625 |                   |  | (8.1  | )%
|                               |  |                             |        |   |      |   |        |                   |  |       |   

---

n/m  calculation is not meaningful.

Interest expense is a function of 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 correlates with the repurchase of approximately $210 million in face value of convertible subordinated notes in the first quarter of fiscal 2007.

Interest income and other, net decreased $5.3 million for the first quarter of fiscal 2008 compared to the first quarter of fiscal 2007 due to
(1) lower net gains of $10.0 million on the disposition of minority interests due to the disposition in first quarter 2007 of two strategic equity investments of approximately $10.9 million, (2) no gains in fiscal 2008 associated with
retiring a portion of the convertible debt whereas $0.8 million was recognized in the first fiscal quarter of 2007 partially offset by (3) improved yields on our cash, cash equivalents and investment balances which resulted in an increase in
interest income of $4.5 million, (4) the sale of the San Jose Land resulted in a net gain of $0.8 million.

Provision for Income Taxes

We have recorded income tax expense of $12.1 million and $16.9 million for the first 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 first quarter of fiscal 2008 and fiscal 2007, respectively. The first 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 first quarter of fiscal 2008 reflects a 5 percent reduction as compared to the
projected annual effective for the first quarter of fiscal 2007 due to a benefit of lower non-deductible stock option compensation expense and higher projected current year low taxed foreign earnings. Our projected annual effective tax rate for the
first quarter of fiscal 2008 and for 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 $236.7 million are realizable based on the more likely than not standard
required for recognition.

Liquidity and Capital Resources

Cash flows

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 April 30, 2007, cash, cash equivalents (excluding all
restricted cash) and short-term and long-term investments totaled $1,334.2 million versus $1,314.8 million at April 30, 2006.



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In the first quarter of fiscal 2008, net cash provided by operating activities declined $7.1 million when
compared to the first quarter of fiscal 2007 due primarily to the decrease in net income of $5.7 million.

Cash used by investing
activities increased by $32.6 million when comparing cash flows from investing activities for the first quarter of fiscal 2007 and the first quarter of fiscal 2006. The change is primarily due to the purchase of the Sobrato building since the
changes in acquisitions and investments basically net out to zero.

Cash used in financing activities decreased by $158.5 million when
comparing cash flows from financing activities for the first quarter of fiscal 2007 and the first quarter of fiscal 2006. The decrease in cash outflow was due to no financing activities in fiscal 2008 due primarily to the stock option review and the
Companys Form S-8 expiration.

Liquidity

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 April 30, 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.

Contractual Obligations

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, subsequent to quarter-end, the Company repaid the entire $215 million outstanding balance under the credit facility, and the Credit Facility remains in effect. Interest
on this debt is 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 5.8 percent as of
April 30, 2007. In connection with the long-term debt, we must maintain certain covenants, including liquidity, leverage and profitability ratios. See Footnote 17  Subsequent Events discussion on waivers obtained related to these
covenants.

At January 31, 2007, the Company has utilized the majority of its net operating losses for U.S. tax reporting purposes.
However, the Company will recognize 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 April 30, 2007 has been prepared assuming
that the convertible subordinated notes will be repaid in cash upon maturity (in thousands):



|                              |  |                    |         |                          |   |                      |  |                      |         |                            |   |        |  |   |       
|----------------------------- |  | ------------------ | ------- | ------------------------ | - | -------------------- |  | -------------------- | ------- | -------------------------- | - | ------ |  | - | ------
|Contractual obligations       |  | Total payments due |         | Remainder of fiscal 2008 |   | Fiscal 2009 and 2010 |  | Fiscal 2011 and 2012 |         | Fiscal 2013 and thereafter
|Other obligations             |  |                    | 1,986   |                          |   | 1,824                |  |                      | 118     |                            |   |       |  |   | 44    
|Notes payable                 |  |                    | 215,000 |                          |   |                     |  |                      | 215,000 |                            |   |       |  |   |      
|Operating leases              |  |                    | 197,324 |                          |   | 39,767               |  |                      | 74,042  |                            |   | 46,526 |  |   | 36,989
|Capital lease                 |  |                    | 1,527   |                          |   | 158                  |  |                      | 422     |                            |   | 422    |  |   | 525   
|                              |  |                    |         |                          |   |                      |  |                      |         |                            |   |        |  |   |       
|Total contractual obligations |  | $                  | 415,837 |                          | $ | 41,749               |  | $                    | 289,582 |                            | $ | 46,948 |  | $ | 37,558
|                              |  |                    |         |                          |   |                      |  |                      |         |                            |   |        |  |   |       



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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 $1.1 billion of our common stock under a share repurchase
program (the Share Repurchase Program). In the first quarter of fiscal 2008, the Company did not repurchase any shares, and alternatively repurchased subordinated convertible notes (as discussed above). After the additional $500.0
million approved by the Board of Directors in May 2007, approximately $621.7 million remain available for repurchase under the Share Repurchase Program.

Off-balance sheet arrangements

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
April 30, 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
April 30, 2007, we leased facilities and certain equipment under non-cancelable operating leases expiring between 2007 and 2016. Future minimum lease payments under our operating leases as of April 30, 2007 are detailed previously in the
minimum contractual obligations table above.

Related Party Transactions

Common board members or executive officers

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 three months ended
April 30, 2007 and 2006 were insignificant.



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|ITEM 3. | Quantitative and Qualitative Disclosure About Market Risks
|------- | ----------------------------------------------------------

Foreign Exchange

Our revenues originating outside the Americas (U.S., Canada, Mexico and Latin
America) were 49.1 percent and 46.1 percent of total revenues for the three months ended April 30, 2007 and April 30, 2006, respectively. International revenues from each individual country outside of the United States were less than 10
percent of total revenues in the three months ended April 30, 2007, and April 30, 2006 with the exception of United Kingdom $36.2 million or 11.2 percent of the total revenues in the three months ended April 30, 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.

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 April 30, 2006, our transaction exposures amounted to $72.4 million and were offset by foreign currency forward
contracts with a net notional amount of $96.6 million. Based on exposures at April 30, 2007, a 10 percent movement against our portfolio of transaction exposures and hedge contracts would result in a gain or loss of approximately $2.4 million.
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 gains resulting from foreign
currency transactions were approximately $0.7 million for the first quarter of fiscal 2008 and net losses of $0.4 million for the first quarter of fiscal 2007, respectively.

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.



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Our outstanding forward contracts as of April 30, 2007 are presented in the table below and are
recorded on the balance sheet as part of prepaids. 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 April 30, 2007 and the contracted rate. All of these forward contracts mature within 63 days or less as of April 30, 2007.



|                        |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|----------------------- |  | ------------------------------ |  | --- |  | --------------- | - |  | --- |  | ----------------------------------------- | -
|                        |  | Local currency contract amount |  |     |  | Contract amount |   |  |     |  | Fair market value at April 30,
2007 (USD) |  
|                        |  | (in thousands)                 |  |     |  | (in thousands)  |   |  |     |  | (in thousands)                            |  
|Contract to Buy US $    |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|Australian dollar       |  | 12,900                         |  | AUD |  | 10,177          |   |  | USD |  | (515                                      | )
|Brazilian real          |  | 9,500                          |  | BRL |  | 4,514           |   |  | USD |  | (154                                      | )
|British pounds          |  | 3,623                          |  | GBP |  | 7,122           |   |  | USD |  | (123                                      | )
|Canadian dollar         |  | 14,896                         |  | CAD |  | 12,985          |   |  | USD |  | (453                                      | )
|Chinese yuan            |  | 44,710                         |  | CNY |  | 5,821           |   |  | USD |  | (13                                       | )
|Euro                    |  | 51,328                         |  | EUR |  | 68,664          |   |  | USD |  | (218                                      | )
|Indian rupee            |  | 352,000                        |  | INR |  | 7,909           |   |  | USD |  | (636                                      | )
|Israeli shekel          |  | 3,300                          |  | ILS |  | 787             |   |  | USD |  | (33                                       | )
|Japanese yen            |  | 2,270,000                      |  | JPY |  | 19,520          |   |  | USD |  | 400                                       |  
|Korea won               |  | 28,750,000                     |  | KRW |  | 30,455          |   |  | USD |  | (443                                      | )
|Mexican Peso            |  | 36,900                         |  | MXN |  | 3,311           |   |  | USD |  | (45                                       | )
|Singapore dollar        |  | 3,500                          |  | SGD |  | 2,312           |   |  | USD |  | 3                                         |  
|Swiss franc             |  | 870                            |  | CHK |  | 720             |   |  | USD |  | (4                                        | )
|                        |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|                        |  |                                |  |     |  |                 |   |  |     |  | (2,234                                    | )
|                        |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|Contract to Sell US $   |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|Australian dollar       |  | 1,700                          |  | AUD |  | 1,373           |   |  | USD |  | 36                                        |  
|Brazilian real          |  | 6,350                          |  | BRL |  | 3,080           |   |  | USD |  | 41                                        |  
|British pounds          |  | 15,100                         |  | GBP |  | 29,315          |   |  | USD |  | 877                                       |  
|Canadian dollar         |  | 11,750                         |  | CAD |  | 10,010          |   |  | USD |  | 596                                       |  
|Chinese yuan            |  | 51,500                         |  | CNY |  | 6,704           |   |  | USD |  | (25                                       | )
|Danish kroner           |  | 4,600                          |  | DKK |  | 819             |   |  | USD |  | 25                                        |  
|Euro                    |  | 27,802                         |  | EUR |  | 37,000          |   |  | USD |  | (265                                      | )
|Indian rupee            |  | 76,900                         |  | INR |  | 1,786           |   |  | USD |  | 81                                        |  
|Israeli shekel          |  | 11,100                         |  | ILS |  | 2,640           |   |  | USD |  | 120                                       |  
|Japanese yen            |  | 1,010                          |  | JPY |  | 8,618           |   |  | USD |  | (112                                      | )
|Singapore dollar        |  | 18,400                         |  | SGD |  | 12,039          |   |  | USD |  | 121                                       |  
|Swedish krona           |  | 17,800                         |  | SEK |  | 12,541          |   |  | USD |  | 125                                       |  
|Swiss franc             |  | 4,050                          |  | CHK |  | 3,354           |   |  | USD |  | 18                                        |  
|                        |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|                        |  |                                |  |     |  |                 |   |  |     |  | 1,638                                     |  
|                        |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|Contract to Buy Euro   |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|British pounds          |  | 18,450                         |  | GBP |  | 36,842          |   |  | EUR |  | 30                                        |  
|Danish krone            |  | 15,000                         |  | DKK |  | 2,747           |   |  | EUR |  | 0                                         |  
|Norwegian krone         |  | 9,800                          |  | NOK |  | 1,646           |   |  | EUR |  | 1                                         |  
|Swedish krona           |  | 17,000                         |  | SEK |  | ,2488           |   |  | EUR |  | (52                                       | )
|Swiss franc             |  | 5,350                          |  | CHF |  | 4,534           |   |  | EUR |  | 92                                        |  
|                        |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|                        |  |                                |  |     |  |                 |   |  |     |  | 71                                        |  
|                        |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|Contract to Sell Euro  |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|British pounds          |  | 8,950                          |  | GBP |  | (17,934         | ) |  | EUR |  | (73                                       | )
|Norwegian krone         |  | 3,800                          |  | NOK |  | (637            | ) |  | EUR |  | 1                                         |  
|Swiss franc             |  | 2,350                          |  | CHK |  | (1,986          | ) |  | EUR |  | (35                                       | )
|                        |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|                        |  |                                |  |     |  |                 |   |  |     |  | (107                                      | )
|                        |  |                                |  |     |  |                 |   |  |     |  |                                           |  
|Total                   |  |                                |  |     |  |                 |   |  |     |  | (632                                      | )
|                        |  |                                |  |     |  |                 |   |  |     |  |                                           |  



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Interest Rates

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 April 30, 2007, the average holding period until maturity of our cash equivalents, short and
long-term restricted cash and short-term investments was approximately 164 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.

We are exposed to changes in short-term interest rates through the notes payable of $215.0 million, which bear a variable short-term interest rate based
on the London Interbank Offering Rate (LIBOR). The effective annual interest rate on this debt was approximately 5.8 percent as of April 30, 2007. The annual interest expense on this debt will fluctuate from time to time depending
on changes in LIBOR and changes in our financial position as specified in the loan agreement. A 1.0 percent (100 basis point) increase in LIBOR will generate an increase in annual interest expense of approximately $2.4 million. We are also exposed
to changes in short-term interest rates through our invested balances of cash equivalents, restricted cash and short-term investments, the yields on which will fluctuate with changes in short-term interest rates. A 1.0 percent (100 basis point)
decrease in short-term interest rates would result in an annual reduction of interest income of approximately $0.2 million. The annual interest rate on our $255.3 million convertible notes was fixed at 4.0 percent through the maturity date in
December 2006.



|ITEM 4. | Controls and Procedures
|------- | -----------------------

Evaluation of
Disclosure Controls and Procedures

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.

Changes in Internal Control over Financial Reporting

There were no changes in the Companys
internal control over financial reporting during the quarter ended April 30, 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.



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PART II. OTHER INFORMATION



|ITEM 1. | Legal Proceedings
|------- | -----------------

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 matter 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 unsolicted 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



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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.



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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.



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

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.

Risks that May Impact Future Operating Results

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:



| |  |  | difficulty predicting the size and timing of customer orders, including the rate of conversion of our forecasted sales pipeline into contracts,
particularly as we have become more reliant on larger transactions;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to develop, introduce and market, on a timely basis, new products and initiatives, such as our WebLogic Server and WebLogic Platform products, WebLogic
Communications Platform products, WebLogic Time & Event Driven, Real-Time and Virtualization products, and our BEA AquaLogic, business process management (BPM) and service oriented architecture (SOA) products;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the rate of customer acceptance of our new products and products to be introduced in the future, and any order delays caused by customer evaluations of these new
products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | periodic difficulties or changes in the domestic or international economic, business or political environment, particularly affecting the technology industry or
industries from which we derive a significant portion of our revenues, such as the telecommunications industry, including but not limited to corporate or consumer confidence in the economy, uncertainties arising out of possible future terrorist
activities, military and security actions in Iraq and the Middle East in general, and geopolitical instability such as in parts of Asia, all of which have increased the likelihood that customers will unexpectedly delay, cancel or reduce the size of
orders;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | the structure, timing and integration of acquisitions of businesses, products and technologies and the related disruption of our current business;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | fluctuations in foreign currency exchange rates, which could have an adverse impact on our international revenue, particularly in EMEA, if the Euro or British Pound
were to weaken significantly against the U.S. dollar;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the performance of our international business, which accounts for approximately one-half of our consolidated revenues;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



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



| |  |  | changes in our competitors product offerings, marketing programs and pricing policies, and customer order deferrals in anticipation of new products and
product enhancements from us or our competitors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any increased price sensitivity by our customers, particularly in the face of periodic uneven economic conditions and increased competition, including open source
or free competitive software;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the lengthy sales cycle for our products, particularly with regard to WebLogic Communications Platform, WebLogic Platform, and Aqualogic sales, which typically
involve more comprehensive solutions 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, and the discretionary
nature of our customers purchase and budget cycles;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to control costs and expenses, particularly in the face of periodic difficult economic conditions;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | loss of key personnel or inability to recruit and hire qualified additional or replacement key personnel;
| | - |  | ---------------------------------------------------------------------------------------------------------



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



| |  |  | the terms and timing of financing activities;
| | - |  | ---------------------------------------------



| |  |  | potential fluctuations in demand or prices of our products and services;
| | - |  | ------------------------------------------------------------------------



| |  |  | technological changes in computer systems and environments;
| | - |  | -----------------------------------------------------------



| |  |  | our ability to meet our customers service requirements;
| | - |  | --------------------------------------------------------



| |  |  | the seasonality of our sales, particularly license orders, which typically significantly adversely affects our revenue in our first quarter; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | takeover speculation related specifically to us or to consolidation in the software industry generally.
| | - |  | -------------------------------------------------------------------------------------------------------

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.



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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
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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.



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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
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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.



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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
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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.

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

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
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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
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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 January 31, 2007, we had remaining net goodwill and net acquired intangible assets of approximately $301.9 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.



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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.

Stock Option Review Risk Factors

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.



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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



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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 our Form 10-K 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.

Risks related to the Recent Acquisition Speculation and Investor Actions

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.



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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.



|ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Stock Repurchases

None



|ITEM 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None



|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None



|ITEM 5. | Other Information
|------- | -----------------

None



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|ITEM 6. | Exhibits
|------- | --------



|        |  |                                                                                                                                                                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                     
|10.1    |  | Purchase and Sale Agreement, dated February 22, 2007, among the Registrant, The Sobrato Family Foundation and Sobrato-Sobrato Investments                                                                                                                                                                                       
|        | 
|10.2    |  | Land Purchase and Sale Agreement, dated February 26, 2007, between the Registrant and Tishman Speyer Development Corporation                                                                                                                                                                                                    
|        | 
|10.3    |  | Waiver No. 3 to the Credit Agreement, dated March 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
|        | 
|10.4    |  | Description of bonus compensation paid for fiscal year 2007 under the Senior Executive Bonus Plan (incorporated herein by reference to Item 5.02 of the Registrants Current Report on
Form 8-K, filed on March 20, 2007, Commission File No. 000-22369)*                                                                       
|        | 
|10.5    |  | Description of base salaries, target bonuses and equity awards for fiscal year 2008 (incorporated herein by reference to Item 5.02 of the Registrants Current Report on Form 8-K, filed
on April 30, 2007, Commission File No. 000-22369)*                                                                                     
|        | 
|10.6    |  | Fiscal Year 2008 Executive Staff Bonus Plan under the Senior Executive Bonus Plan*                                                                                                                                                                                                                                              
|        | 
|10.7    |  | Compensation Letter dated April 25, 2007 between the Registrant and Mark P. Dentinger*                                                                                                                                                                                                                                          
|        | 
|10.8    |  | Compensation Letter dated April 25, 2007 between the Registrant and Wai M. Wong*                                                                                                                                                                                                                                                
|        | 
|10.9    |  | Compensation Letter dated April 25, 2007 between the Registrant and Mark T. Carges*                                                                                                                                                                                                                                             
|        | 
|10.10   |  | Compensation Letter dated April 25, 2007 between the Registrant and William M. Klein*                                                                                                                                                                                                                                           
|        | 
|10.11   |  | Compensation Letter dated April 25, 2007 between the Registrant and David L. Gai*                                                                                                                                                                                                                                               
|        | 
|10.12   |  | Form of Employment Agreement between the Registrant and Richard T. Geraffo, Jr., dated November 14, 2005*                                                                                                                                                                                                                       
|        | 
|10.13   |  | Compensation Letter dated April 25, 2007 between the Registrant and Richard T. Geraffo, Jr.*                                                                                                                                                                                                                                    
|        | 
|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                                                                                                                                                           

---

|* | Denotes a management contract or compensatory plan or arrangement.
|- | ------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirement 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. DENTINGERMark P. DentingerChief Financial Officer and Principal Accounting Officer


Dated: November 15, 2007



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